<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
REGISTRATION STATEMENT NOS. 333- , 333- -01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT
ON FORM S-3 UNDER
THE SECURITIES ACT OF 1933
---------------------
<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.
KATHRYN I. MURTAGH, ESQ.
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. / /
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO AGGREGATE PRICE AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share, of
Patriot American Hospitality, Inc. paired
with Common Stock, par value $.01 per
share, of Wyndham International, Inc. 4,592,307 $13.75 $63,144,221 $18,628
</TABLE>
(1) This estimate is based on the average of the high $14.4375 and low $13.0625
sales prices on the New York Stock Exchange on September 24, 1998 of the
Common Stock of Patriot American Hospitality, Inc., which is paired with and
trades as a unit with Common Stock of Wyndham International, Inc. This
estimate is made pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, and is made solely for purposes of determining the registration
fee.
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>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 25, 1998
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 STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
4,592,307 SHARES OF COMMON STOCK
PATRIOT AMERICAN HOSPITALITY, INC.
4,592,307 SHARES OF COMMON STOCK
WYNDHAM INTERNATIONAL, INC.
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., 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, (iv)
the term "Unit Pair" means a unit of limited partnership interest in the Realty
Partnership (a "Realty Partnership Unit") and a unit of limited partnership
interest in the Operating Partnership (an "Operating Partnership Unit") and (v)
the term "Unitholder" means either a holder of Realty Partnership Units (a
"Realty Partnership Unitholder") or a holder of Operating Partnership Units (an
"Operating Partnership Unitholder").
This Prospectus (the "Prospectus") relates to the possible issuance from
time to time by the Companies of up to 4,592,307 shares of common stock
("Corporation Common Stock"), $.01 par value, of the Corporation and 4,592,307
shares of common stock ("Operating Company Common Stock"), $.01 par value, of
the Operating Company, which 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" or the "Securities"), if and to the extent that
Realty Partnership Unitholders of up to 4,592,307 Realty Partnership Units
exercise their Redemption Right (as defined below) and such Realty Partnership
Units are exchanged for shares of Corporation Common Stock or Operating
Partnership Unitholders of up to 4,592,307 Operating Partnership Units exercise
their Redemption Right and such Operating Partnership Units are exchanged for
shares of Operating Company Common Stock.
Pursuant to each of the Second Amended and Restated Agreement of Limited
Partnership of the Realty Partnership, as amended to date (the "Realty
Partnership Agreement"), and the Agreement of Limited Partnership of the
Operating Partnership, as amended to date (the "Operating Partnership Agreement"
and, together with the Realty Partnership Agreement, the "Partnership
Agreements"), and subject to certain limitations, a Realty Partnership
Unitholder or an Operating Partnership Unitholder, as the case may be, may
tender all or a portion of its Realty Partnership Units to the Realty
Partnership or its Operating Partnership Units to the Operating Partnership,
respectively, for redemption for cash equal in value to one share of Corporation
Common Stock or Operating Company Common Stock, as the case may be (subject to
certain adjustments in the case of stock splits, stock dividends or similar
distributions) (the "Redemption Right"); provided, however, that each of the
Companies may, in its sole and absolute discretion, acquire any Realty
Partnership Units and Operating Partnership Units, respectively, so tendered for
one share of Corporation Common Stock or Operating Company Common Stock, as the
case may be (subject to certain adjustments in the case of stock splits, stock
dividends or similar distributions), or for cash in the amount described above.
Each of the Partnership Agreements provides, however, that a Realty
Partnership Unitholder may not exercise its Redemption Right unless it is
entitled to exercise and simultaneously exercises its Redemption Right with
respect to an equal number of Operating Partnership Units of the same class or
series, or that an Operating Partnership Unitholder may not exercise its
Redemption Right unless it is entitled to exercise
<PAGE>
and simultaneously exercises its Redemption Right with respect to an equal
number of Realty Partnership Units of the same class or series, as the case may
be, so that the Companies may elect, upon the exercise of a Redemption Right, to
deliver shares of Paired Common Stock in redemption of such Realty Partnership
Units and Operating Partnership Units in lieu of paying cash. Furthermore, each
of the Partnership Agreements provides that neither of the Companies may elect
to acquire a Unit Pair tendered for redemption for a share of Paired Common
Stock unless the other company also so elects. If the Companies do not agree to
acquire such Unit Pair for a share of Paired Common Stock, the Unit Pair shall
be redeemed by each of the Companies for cash.
Each of the Companies anticipates that it generally will elect to acquire
any Unit Pairs tendered for redemption by the issuance of shares of Paired
Common Stock pursuant to this Prospectus rather than paying cash. As a result,
the Companies may from time to time issue up to 4,592,307 shares of Paired
Common Stock upon the acquisition of Realty Partnership Units and Operating
Partnership Units tendered to the Realty Partnership and the Operating
Partnership, respectively, for redemption. Accordingly, the Companies are
registering the shares of Paired Common Stock to provide Realty Partnership
Unitholders and Operating Partnership Unitholders with freely tradeable
securities upon redemption. All shares of Paired Common Stock offered hereby are
being sold by the Companies.
The Unitholders and any agents, dealers or underwriters that participate
with the Unitholders in the distribution of the shares of Paired Common Stock
offered hereby may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in which case any
commissions received by such agents, dealers or underwriters and any profit on
the resale of shares of Paired Common Stock purchased by them may be deemed
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for indemnification arrangements between the Companies and the
Realty Partnership Unitholders and the Operating Partnership Unitholders.
The Companies will not receive any proceeds from the issuance of any shares
of Paired Common Stock, but will acquire Unit Pairs tendered to the Realty
Partnership or the Operating Partnership, respectively, for redemption for which
the Companies elect to issue shares of Paired Common Stock. With each such
acquisition, the Corporation's and Operating Company's interest in the Realty
Partnership and the Operating Partnership, respectively, will increase.
The Paired Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "PAH." On September 24, 1998, the reported closing sale
price of the Paired Common Stock on the NYSE was $13.125 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 PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
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
1
<PAGE>
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.
2
<PAGE>
RISK FACTORS
Unitholders should carefully consider the following information in
conjunction with the other information contained in or incorporated by reference
in this Prospectus in considering whether to exercise their Redemption Right.
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
share REITs such as the Corporation. Under this legislation, the anti-pairing
rules provided in the Code
3
<PAGE>
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 a 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 their
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 asset
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 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
4
<PAGE>
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 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 taking into account any shares of Paired
Common Stock or cash deposited as
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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 the
Corporation's then proposed merger with Interstate. The Settlement Agreement
provided for the dismissal of litigation brought by Marriott, and allowed the
Corporation'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 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.
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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"). 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 transactions (which
settlement would give one of the other two counterparties the right to demand
settlement of its transaction). If the reset price or unwind price (in the case
of two of the Price Adjustment Mechanisms) or the market price (in the case of
one of the Price Adjustment Mechanisms) 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.
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 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.
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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.
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
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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
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.
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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 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.
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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
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
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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, 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-proprietarially branded properties. No assurances can be made that
the Companies will divest any of these properties.
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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.
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 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.
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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. 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
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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 the Operating Company, the
holders of 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 Transfers 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" 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
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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.
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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 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
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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, 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
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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 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.
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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
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
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(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 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
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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's 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.
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.
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DESCRIPTION OF REALTY PARTNERSHIP UNITS AND OPERATING PARTNERSHIP UNITS
AND REDEMPTION OF UNIT PAIRS
GENERAL
This Prospectus, and this section in particular, provides a summary of the
material terms of the Partnership Agreements. The discussion and description of
the material terms of the Partnership Agreements are subject to and qualified in
their entirety by reference to the Partnership Agreements themselves, each of
which is on file with the Commission and is incorporated by reference herein.
Each Unitholder may, subject to certain limitations contained in the
Partnership Agreements, exercise its Redemption Right with respect to a Unit
Pair and require that the Partnerships redeem all or a portion of such
Unitholder's Unit Pairs. This Redemption Right shall be exercised pursuant to a
notice of redemption (the "Notice of Redemption") delivered to the Partnerships,
with a copy delivered to the general partner of each of the Partnerships
(collectively, the "General Partners") by the Unitholder exercising the
Redemption Right. Upon redemption, a Unitholder will receive for each Unit Pair
redeemed cash in an amount equal to the market value of one share of Paired
Common Stock (subject to certain adjustments in the case of stock splits, stock
dividends or similar distributions); provided, however, that the Companies may,
in their sole discretion, by notice to the redeeming Unitholder no less than
five business days prior to the first business day that is at least 60 business
days after the receipt by the Companies of the Notice of Redemption, elect to
acquire any Unit Pair presented to the Partnerships for redemption for one share
of Paired Common Stock (subject to certain adjustments in the case of stock
splits, stock dividends or similar distributions) or for cash in the amount
described above. Each of the Partnership Agreements provides that neither of the
Companies may elect to acquire a Unit Pair tendered for redemption for a share
of Paired Common Stock unless the other company also so elects. If the Companies
do not agree to acquire such Unit Pair for a share of Paired Common Stock, the
Unit Pair shall be redeemed by each of the Companies for cash.
Each of the Companies anticipates that it generally will elect to acquire
any Unit Pairs presented to the Partnerships for redemption by the issuance of
shares of Paired Common Stock pursuant to this Prospectus rather than by paying
cash. However, under the terms of the Partnership Agreements, no redemption can
occur if the delivery of shares of Paired Common Stock would be prohibited under
the provisions of the Corporation's Charter that protect the Corporation's
qualification as a REIT. See "Restrictions on Transfers of Capital Stock." In
this circumstance, the Companies may elect to acquire any Unit Pairs presented
for redemption for cash, in lieu of Paired Common Stock.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Unitholder who exercises its Redemption
Right.
SEPARATE TAXATION. Notwithstanding that Unit Pairs may be tendered for
redemption only in tandem--i.e., as a unit--holders of Unit Pairs will be
treated for U.S. federal income tax purposes as holding an equal number of units
of limited partnership interest of the Realty Partnership and units of limited
partnership interest of the Operating Partnership. The tax treatment of
distributions to holders of Unit Pairs and of any gain or loss recognized upon a
sale or other disposition of Unit Pairs must therefore be determined separately
with respect to each unit contained within a Unit Pair. The tax basis and
holding period for each unit contained within a Unit Pair also must be
determined separately.
TAX TREATMENT OF EXCHANGE OR REDEMPTION OF UNIT PAIRS. If the Companies
elect to purchase Unit Pairs tendered for redemption, the Corporation will
purchase the Realty Partnership Units that comprise the tendered Unit Pairs, and
the Operating Company will purchase the Operating Partnership Units that
comprise the tendered Unit Pairs. Each of the Partnership Agreements provides
that the redeeming Unitholder, the issuing partnership and the purchasing
company shall treat the transaction between the
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redeeming Unitholder and such company as a sale of the purchased units by the
Unitholder to such company at the time of such redemption. Each such sale will
be fully taxable to the redeeming Unitholder and such redeeming Unitholder will
be treated as realizing for tax purposes on each sale an amount equal to the sum
of (i) the cash value or the value of the shares of Corporation Common Stock
received (in the case of the purchase of the Realty Partnership Units that
comprise the tendered Unit Pairs) or the cash value or the value of the shares
of Operating Company Common Stock received (in the case of the purchase of the
Operating Partnership Units that comprise the tendered Unit Pairs) plus (ii) the
amount of any liabilities allocable to the redeemed units at the time of the
redemption (which in the case of Realty Partnership Units includes liabilities
of the Realty Partnership only and in the case of Operating Partnership Units
includes liabilities of the Operating Partnership only). The determination of
the amount of gain or loss is discussed more fully below. If the Companies do
not elect to purchase a Unitholder's Unit Pairs tendered for redemption, the
Realty Partnership will redeem the Realty Partnership Units that comprise the
tendered Unit Pairs, and the Operating Partnership will redeem the Operating
Partnership Units that comprise the tendered Unit Pairs. If a partnership
redeems its units for cash that the respective company contributes to the
partnership to effect such redemption, the redemption likely would be treated
for tax purposes as a sale of such units to such company in a fully taxable
transaction, although the matter is not free from doubt. In that event, the
redeeming Unitholder would be treated as realizing on such deemed sale an amount
equal to the sum of the cash received for such units in the exchange plus the
amount of any liabilities allocable to such units at the time of the redemption.
The determination of the amount and character of gain or loss in the event of
such a sale is discussed more fully below. See "--Tax Treatment of Disposition
of Units by a Unitholder Generally."
If the Companies do not elect to purchase Unit Pairs tendered for redemption
and a partnership redeems units for cash that is not contributed by the
respective company to effect the redemption, the tax consequences would be the
same as described in the previous paragraph, except that if the partnership
redeems less than all of a Unitholder's units in that partnership, the
Unitholder would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the cash,
plus the amount of any liabilities allocable to the redeemed Units, exceeded the
Unitholder's adjusted basis in all of such Unitholder's units in such
partnership immediately before the redemption. The same tax consequences would
result if a company contributed cash to the respective partnership to effect a
redemption, and the form of the transaction were respected for tax purposes (so
that the redemption transaction were treated as the redemption of units by the
partnership rather than a sale of units to such company).
As noted above, if the Companies do not elect to purchase Unit Pairs
tendered for redemption, the Realty Partnership will redeem the Realty
Partnership Units that comprise the tendered Unit Pairs, and the Operating
Partnership will redeem the Operating Partnership units that comprise the
tendered Unit Pairs. There can be no assurance that the Partnerships will fund
their respective redemptions in the same manner. For example, one of the
Partnerships could fund its redemption of its Units that comprise the tendered
Unit Pairs with cash contributed by the respective company, which as noted
likely would be taxed as if the company purchased such units directly from the
tendering Unitholder, while the other partnership might fund its redemption out
of its own funds (not contributed by the respective company), which could have
different tax consequences as described above.
TAX TREATMENT OF DISPOSITION OF UNITS BY A UNITHOLDER GENERALLY. If a unit
is disposed of in a manner that is treated as a sale of the unit, or a
Unitholder otherwise disposes of a unit, the determination of gain or loss from
the sale or other disposition will be based on the difference between the amount
considered realized for tax purposes and the tax basis in such unit. See
"--Basis of Units." Upon the sale of a unit, the "amount realized" will be
measured by the sum of the cash and fair market value of other property received
plus the amount of any liabilities allocable to the unit sold. To the extent
that the amount of cash or property received plus the allocable share of any
liabilities exceeds the Unitholder's basis for the units disposed of, such
Unitholder will recognize gain. It is possible that the amount of gain
recognized or even
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the tax liability resulting from such gain could exceed the amount of cash
and/or the value of any other property received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of a unit will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a unit attributable to a Unitholder's share of "unrealized
receivables" of the issuing partnership (as defined in Section 751 of the Code)
exceeds the basis attributed to those assets, such excess will be treated as
ordinary income. Unrealized receivables with respect to a particular unit
include, to the extent not previously included in the income of the issuing
partnership, any rights to payment for services rendered or to be rendered.
Unrealized receivables also include amounts that would be subject to recapture
as ordinary income if the issuing partnership had sold its assets at their fair
market value at the time of the transfer of the unit.
As noted below in "Certain Federal Income Tax Considerations--Federal Income
Taxation of Holders of Paired Shares--Taxation of Taxable U.S. Stockholders,"
the Taxpayer Relief Act of 1997 (the "Relief Act") alters the taxation of
capital gain income for individuals as well as estates and trusts. This Act
allows the IRS to prescribe regulations governing the application of the new
capital gains rates to sales of interests in partnerships. To date, regulations
have not yet been prescribed and it remains unclear how these new rates will
apply to sales or other dispositions of units.
BASIS OF UNITS. In general, a Unitholder who acquired units in one of the
Partnerships by contribution of property and/or money to that partnership had an
initial tax basis ("Initial Basis") in those units equal to the sum of (i) the
amount of money contributed (or deemed contributed as described below) and (ii)
the Unitholder's adjusted tax basis in any other property contributed in
exchange for such units, and less the amount of any money distributed (or deemed
distributed, as described below) in connection with the acquisition of such
units. The Initial Basis of units acquired by other means would have been
determined under the general rules of the Code, including the partnership
provisions, governing the determination of tax basis. Other rules, including the
"disguised sale" rules discussed below, also may affect Initial Basis.
Unitholders are urged to consult their own tax advisors regarding their Initial
Basis.
A Unitholder's Initial Basis in its units in one of the Partnerships
generally is increased by (i) such Unitholder's share of that partnership's
taxable and tax-exempt income and (ii) increases in such Unitholder's allocable
share of liabilities of that partnership (including any increase in its share of
liabilities occurring in connection with the acquisition of its units).
Generally, such Unitholder's basis in its units in one of the Partnerships is
decreased (but not below zero) by (i) such Unitholder's share of that
partnership's distributions (ii) decreases in such Unitholder's allocable share
of liabilities of that partnership (including any decrease in its share of
liabilities of such partnership occurring in connection with the acquisition of
its units), (iii) such Unitholder's share of losses of that partnership and (iv)
such Unitholder's share of nondeductible expenditures of that partnership that
are not chargeable to capital account.
POTENTIAL APPLICATION OF THE DISGUISED SALE REGULATIONS TO A REDEMPTION OF
UNIT PAIRS. There is a risk that a redemption by the issuing partnership of
units issued in exchange for a contribution of property to that partnership may
cause the original transfer of property to that partnership in exchange for
units to be treated as a "disguised sale" of property. Section 707 of the Code
and the Treasury Regulations thereunder (the "Disguised Sale Regulations")
generally provide that, unless one of the prescribed exceptions is applicable, a
partner's contribution of property to a partnership and a simultaneous or
subsequent transfer of money or other consideration (which may include the
assumption of or taking subject to a liability) from the partnership to the
partner will be presumed to be a sale, in whole or in part, of such property by
the partner to the partnership. Further, the Disguised Sale Regulations provide
generally that, in the absence of an applicable exception, if money or other
consideration is transferred by a partnership to a partner within two years of
the partner's contribution of property, the transactions are presumed to be a
sale of the contributed property unless the facts and circumstances clearly
establish that the transfers do not
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constitute a sale. In addition, the Disguised Sale Regulations require that any
such transfer of money or other consideration within the two year period must be
reported to the IRS. The Disguised Sale Regulations also provide that if two
years have passed between the transfer of money or other consideration and the
contribution of property, the transactions will be presumed not to be a sale
unless the facts and circumstances clearly establish that the transfers
constitute a sale.
Accordingly, if a unit is redeemed by the issuing partnership from a
Unitholder who holds units that were issued in exchange for a contribution of
property to that partnership, the IRS could contend that the Disguised Sale
Regulations apply because the Unitholder will thus receive cash subsequent to a
previous contribution of property to such partnership. In that event, the IRS
could contend that the contribution was taxable as a disguised sale under the
Disguised Sale Regulations. Any gain recognized thereby may be eligible for
installment reporting under Section 453 of the Code, subject to certain
limitations. In addition, in such event, the Disguised Sale Regulations might
apply to cause a portion of the proceeds received by a redeeming Unitholder to
be characterized as original issue discount on a deferred obligation which would
be taxable as interest income in accordance with the provisions of Section 1272
of the Code. Each Unitholder is advised to consult its own tax advisors to
determine whether redemption of its units could be subject to the Disguised Sale
Regulations.
RELATIVE VALUES OF CORPORATION COMMON STOCK AND OPERATING COMPANY COMMON
STOCK. As discussed above, if the Companies elect to purchase Unit Pairs
tendered for a redemption in exchange for shares of Corporation Common Stock and
shares of Operating Company Common Stock, the amount of gain or loss recognized
by the Unitholder with respect to the Realty Partnership Units that comprise the
tendered Unit Pairs will depend in part on the then value of the shares of
Corporation Common Stock received, and the amount of gain or loss recognized
with respect to the Operating Partnership Units that comprise the tendered Unit
Pairs will depend in part on the then value of the shares of Operating Company
Common Stock received. Under the terms of the Pairing Agreement, the Corporation
and the Operating Company are obligated to agree on the relative values of a
share of Corporation Common Stock and a share of Operating Company Common Stock
that comprise a Paired Share. As of the date of this Registration Statement, the
Companies previously had agreed that the value of a share of Operating Company
Common Stock represents 5% of the value of a Paired Share. There can be no
assurance, however, that these relative values will not have changed at the time
a Unitholder tenders Unit Pairs or that the IRS will not challenge this
valuation.
COMPARISON OF OWNERSHIP OF UNITS AND PAIRED COMMON STOCK
There are differences between ownership of Units and ownership of Paired
Common Stock, some of which may be material to investors. The information below
highlights a number of significant differences between the Partnerships and the
Companies relating to, among other things, form of organization, policies and
restrictions, management structure, compensation and fees, investor rights and
federal income taxation and compares certain legal rights associated with
ownership of Units and Paired Common Stock. These comparisons are intended to
assist Unitholders in understanding how their investment will be changed if they
exercise their Redemption Right and their Unit Pairs are acquired by the
Companies for shares of Paired Common Stock. This discussion is summary in
nature and does not constitute a complete discussion of these matters, and
holders of Unit Pairs should carefully review the balance of this Prospectus and
the registration statement of which this Prospectus is a part for additional
important information about the Companies.
FORM OF ORGANIZATION AND ASSETS OWNED. The Realty Partnership is organized
as a Virginia limited partnership. A substantial amount of the Corporation's
operations are conducted through the Realty Partnership. The Operating
Partnership is organized as a Delaware limited partnership. A substantial amount
of the Operating Company's operations are conducted through the Operating
Partnership.
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The Corporation is organized under the laws of the State of Delaware. The
Corporation, through PAH LP and PAH GP, maintains both a limited partner
interest and the sole general partner interest, respectively, in the Realty
Partnership, which gives the Corporation an indirect investment in the assets
owned by the Realty Partnership. As of September 22, 1998, the Corporation,
through PAH LP and PAH GP, held an approximate 90.3% economic interest in the
Realty Partnership, and such interest will increase as Realty Partnership Units
are redeemed for cash or acquired by the Corporation.
The Operating Company is organized under the laws of the State of Delaware.
The Operating Company maintains both a limited partner interest and a general
partner interest in the Operating Partnership, which gives the Operating Company
an indirect investment in the properties and other assets owned by the Operating
Partnership. As of September 22, 1998, the Operating Company held an approximate
89.1% economic interest in the Operating Partnership, and such interest will
increase as Operating Partnership Units are redeemed for cash or acquired by the
Operating Company.
LENGTH OF INVESTMENT. Each of the Partnerships has a stated termination
date of December 31, 2050, although each may be terminated earlier under certain
circumstances. Each of the Companies has a perpetual term and intends to
continue its operations for an indefinite time period.
NATURE OF INVESTMENT AND DISTRIBUTION RIGHTS. Realty Partnership Units and
Operating Partnership Units constitute equity interests entitling each
Unitholder to its pro rata share of cash distributions made to the Unitholders
of the Partnerships. Each of the Corporation and the Operating Company is
entitled to receive its pro rata share of distributions made by the Realty
Partnership and the Operating Partnership, respectively, with respect to its
interest therein.
Shares of Paired Common Stock constitute an equity interest in the
Companies. Each stockholder will be entitled to its pro rata share of any
dividends or distributions paid with respect to shares of Paired Common Stock.
The dividends payable to the stockholders are not fixed in amount and are only
paid if, when and as declared by the Board of Directors of each Company. To
qualify as a REIT, the Corporation must distribute at least 95% of its taxable
income (excluding capital gains), and any taxable income (including capital
gains) not distributed will be subject to corporate income tax.
As partnerships, the Realty Partnership and Operating Partnership are not
subject to federal income taxation. In determining their federal income tax,
partners of each of the Partnerships, including Unitholders, must take into
account their allocable share of partnership income, gain, deduction and loss
(regardless of whether distributed), and otherwise are subject to the rules
governing the taxation of partnerships and partners. By contrast, Unitholders
who receive shares of Paired Common Stock upon exercise of their Redemption
Right will be taxed on such investment in accordance with the rules governing
REITs. See "Certain Federal Income Tax Considerations."
ISSUANCE OF ADDITIONAL EQUITY. The Realty Partnership is authorized to
issue Realty Partnership Units and other partnership interests to its partners
or to other persons for such consideration and on such terms and conditions as
PAH GP, as general partner, in its sole discretion, may deem appropriate. The
Operating Partnership is authorized to issue Operating Partnership Units and
other partnership interests to its partners or to other persons for such
consideration and on such terms and conditions as the Operating Company, as
general partner, in its sole discretion, may deem appropriate.
Pursuant to the Operating Company Charter, the Corporation Board has the
sole authority to authorize, effect and control issues of paired equity
(including securities convertible into paired equity). In addition, the
Operating Company only has the right to engage in an issuance of unpaired equity
upon the affirmative vote of a majority of an unpaired equity committee (which
committee is determined in accordance with the provisions of the Cooperation
Agreement). The Corporation has the right to engage in an issuance of unpaired
equity upon the affirmative vote of a majority of the members of the Corporation
Board. As long as each of the Realty Partnership and the Operating Partnership
is in existence, the proceeds of all equity capital raised by the Corporation or
the Operating Company will be
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contributed to the Realty Partnership and the Operating Partnership,
respectively, in exchange for Realty Partnership Units or Operating Partnership
Units or other interests in the respective Partnerships.
LIQUIDITY. Subject to certain exceptions, pursuant to the Partnership
Agreements, a Unitholder may transfer all or any portion of its Realty
Partnership Units or Operating Partnership Units, as the case may be, with or
without the consent of the respective General Partners. However, each of the
General Partners, in its sole and absolute discretion, may or may not consent to
the admission as a Unitholder of any transferee of Realty Partnership Units or
Operating Partnership Units, as the case may be. If the general partner of the
Realty Partnership or the Operating Partnership, as the case may be, does not
consent to the admission of a permitted transferee, the transferee shall be
considered an assignee of an economic interest in the respective partnership but
will not be a Unitholder for any other purpose; as such, the assignee will not
be permitted to vote on any affairs or issues on which a Unitholder may vote.
The Paired Common Stock is listed on the NYSE. The breadth and strength of
this market will depend, among other things, upon the number of shares
outstanding, the Companies' financial results and prospects, the general
interest in the Companies and other real estate investments and the Companies'
dividend yield compared to that of other debt and equity securities.
PURPOSE AND PERMITTED INVESTMENTS. The purpose of the Realty Partnership
includes the conduct of any business that may be lawfully conducted by a limited
partnership organized under the laws of the Commonwealth of Virginia, except
that the Realty Partnership Agreement requires the business of the Realty
Partnership to be conducted in such a manner that will permit the Corporation to
qualify as a REIT for federal income tax purposes. The Realty Partnership may,
subject to the foregoing limitation, invest or enter into partnerships, joint
ventures or similar arrangements and may own interests in any other entity. The
purpose of the Operating Partnership includes the conduct of any business that
may be lawfully conducted by a limited partnership organized under the laws of
the State of Delaware. The Operating Partnership may invest or enter into
partnerships, joint ventures or similar arrangements and may own interests in
any other entity.
Under the Charters, each of the Corporation and the Operating Company may
engage in any lawful activity permitted under the DGCL.
BORROWING POLICIES. The Realty Partnership has no restrictions on
borrowings, and PAH GP, its general partner, which is controlled by the
Corporation, has full power and authority to borrow money on behalf of the
Realty Partnership. The Operating Partnership has no restrictions on borrowings
and the Operating Company, its general partner, has full power and authority to
borrow money on behalf of the Operating Partnership.
Neither of the Companies is restricted under its governing instruments from
incurring borrowings. The agreements evidencing the Revolving Credit Facility
and the Term Loan contain certain restrictive covenants including, without
limitation, covenants with respect to indebtedness, certain investments, merger
or other consolidation, liquidation or dissolution and the sale of assets.
OTHER INVESTMENT RESTRICTIONS. Other than restrictions precluding
investments by the Realty Partnership that would adversely affect the
qualification of the Corporation as a REIT, there are certain restrictions upon
the authority of the Partnerships to enter into certain transactions, including,
among others, making investments, lending funds of the Partnerships, or
reinvesting the Partnerships' cash flow and net sale or refinancing proceeds.
Other than restrictions precluding investments by the Corporation and the
Operating Company that would adversely affect the qualification of the
Corporation as a REIT, the Charters and the Bylaws do not impose any
restrictions upon the types of investments made by the Companies.
MANAGEMENT CONTROL. All management powers over the business and affairs of
the Realty Partnership and the Operating Partnership are vested in the
respective General Partners and no Unitholder has
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any right to participate in or exercise control or management power over the
business and affairs of the Partnerships. The Partnership Agreements provide
that the respective General Partners of each of the Partnerships shall be
reimbursed for all expenses incurred by it relating to the management and
business of the Partnerships.
The Board of Directors of each of the Companies has exclusive control over
such company's business and affairs subject only to the restrictions in such
company's certificate of incorporation and bylaws. The Board of Directors of
each of the Companies is classified into three classes. At each annual meeting
of the stockholders, the successors of the class of directors whose terms expire
at that meeting will be elected. The policies adopted by the Board of Directors
of each of the Companies may be altered or eliminated without advice of the
stockholders. Accordingly, except for their vote in the elections of directors,
stockholders have no control over the ordinary business policies of the
Companies.
MANAGEMENT LIABILITY AND INDEMNIFICATION. The Partnership Agreements
generally provide that the General Partners will incur no liability to their
respective Partnerships or any Unitholder for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if such
general partner acted in good faith. In addition, neither of the General
Partners is responsible for any misconduct or negligence on the part of its
agents provided such general partner appointed such agents in good faith. The
Partnership Agreements also provide for indemnification of each of the
respective General Partners, its affiliates, and such other persons as such
general partner may from time to time designate, against any and all losses,
claims, damages, liabilities, joint or several expenses (including reasonable
legal fees and expenses), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of such
partnership in which such person may be involved.
Each of the Companies' Charters, in conjunction with the DGCL, eliminates a
director's personal liability to the Corporation or the Operating Company, as
the case may be, or their respective stockholders for breach of fiduciary duty,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or the Operating Company, as the case may be, or their respective
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit.
The DGCL permits, but does not require, a company to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of any
indemnification right under any bylaw, vote of stockholders or disinterested
directors, or otherwise. The DGCL permits indemnification against expenses and
certain other liabilities arising out of legal actions brought or threatened
against such persons for their conduct on behalf of the company, provided that
each such person acted in good faith and in a manner that he reasonably believed
was in or not opposed to the company's best interests and in the case of a
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The DGCL does not allow indemnification of directors in the case of an
action by or in the right of the company (including stockholder derivative
suits) unless the directors successfully defend the action or indemnification is
ordered by the court. The Bylaws provide for indemnification to the fullest
extent authorized by the DGCL and, therefore, these statutory indemnification
rights are available to the directors, officers, employees and agents of the
Corporation and the Operating Company.
ANTI-TAKEOVER PROVISIONS. Except in limited circumstances, the General
Partners have exclusive management power over the business and affairs of their
respective Partnerships. The General Partners may not be removed by the
Unitholders of their respective Partnerships with or without cause.
The Charters and the Bylaws and the DGCL contain a number of provisions that
may have the effect of delaying or discouraging an unsolicited proposal for the
acquisition of each of the Companies or the removal of incumbent management of
each of the Companies.
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VOTING RIGHTS. Under each of the Partnership Agreements, the Unitholders do
not have voting rights relating to the operation and management of the
respective Partnerships, except in connection with matters, as described more
fully below, involving certain amendments to the respective Partnership
Agreements.
Holders of shares of Paired Common Stock have the right to vote on, among
other things, certain amendments to the Charters, a merger or sale of
substantially all of the assets of the Corporation or the Operating Company, as
the case may be, and the dissolution of the Corporation or the Operating
Company, as the case may be, and the holders of Corporation Series A Preferred
Stock have the right to vote together as a class with the holders of the
Corporation Common Stock on all such matters with respect to the Corporation.
Under the DGCL and the Charters, the sale of all or substantially all of the
assets of the Corporation or the Operating Company, as the case may be, or any
merger or consolidation of the Corporation or the Operating Company requires the
approval of the Board of Directors and holders of a majority of the outstanding
shares of common stock of the respective company. Similarly, under the DGCL, the
Board of Directors of each of the Companies must obtain approval of holders of a
majority of all outstanding shares entitled to vote of the company in question
in order to dissolve such company. Each of the Companies is managed and
controlled by a Board of Directors consisting of three classes having staggered
terms of office. Each class is to be elected by the stockholders at annual
meetings of the respective company. Each share of Paired Common Stock has one
vote relative to each of the Companies, and each share of Corporation Series A
Preferred Stock has one vote with respect to matters involving the Corporation.
The Charters permit the Board of Directors of each of the Companies to classify
and issue preferred stock in one or more series having voting power which may
differ from that of the Paired Common Stock.
AMENDMENT OF THE PARTNERSHIP AGREEMENTS OR THE COMPANIES'
CHARTERS. Generally, each of the Partnership Agreements may be amended by the
General Partners of the respective Partnerships without the consent of the
Unitholders, except that certain amendments which alter or change the
distribution rights or redemption rights of a Unitholder shall require the
consent of the Unitholders holding more than a majority in interest of Realty
Partnership Units or Operating Partnership Units, as the case may be.
The Charters provide that, with the exception of certain provisions
concerning business combinations, with interested stockholders which require the
approval of a greater proportion, each of the Charters may be amended in the
manner prescribed by the DGCL, which require the approval of the Board of
Directors and the approval of the stockholders by the affirmative vote of a
majority of the outstanding shares entitled to vote on such amendment.
COMPENSATION, FEES AND DISTRIBUTIONS. The General Partners are not entitled
to receive any compensation for their services as general partner of their
respective Partnerships. As a partner in their respective Partnerships, however,
the General Partners have the same right to allocations and distributions as
other partners of the Partnerships. In addition, each of the Partnerships will
reimburse its respective general partner for administrative expenses incurred
relating to the ongoing operation of such general partner and certain other
expenses arising in connection with its role as general partner.
The directors and officers of each of the Companies receive compensation for
their services.
LIABILITY OF INVESTORS. Under the Realty Partnership Agreement and
applicable Virginia law, the liability of the limited partners for the Realty
Partnership's debts and obligations is generally limited to the amount of their
investment in the Realty Partnership. Under the Operating Partnership Agreement
and applicable Delaware law, the liability of the limited partners for the
Operating Partnership's debts and obligations is generally limited to the amount
of their investment in the Operating Partnership.
Under the DGCL, stockholders generally are not personally liable for the
debts or obligations of the Companies.
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REGISTRATION RIGHTS
The registration of the shares of Paired Common Stock pursuant to the
Registration Statement, of which this Prospectus is a part, will discharge the
Companies' obligations under the terms of each of the Registration Rights
Agreements the Companies have entered into dated September 30, 1997 and October
1, 1997 with certain Realty Partnership and Operating Partnership Unitholders
(together, the "Registration Rights Agreements"). The following summary does not
purport to be complete and is qualified in its entirety by reference to each
individual Registration Rights Agreement.
Pursuant to the Registration Rights Agreements, the Companies have agreed to
pay all expenses of effecting the registration of the Paired Shares (other than
brokerage and underwriting commissions and taxes of any kind and other than for
any legal, accounting and other expenses incurred by a Unitholder thereunder).
The Companies also have agreed to indemnify each Unitholder under the
Registration Rights Agreements and its officers, directors and other affiliated
persons and any person who controls any holder against certain losses, claims,
damages and expenses arising under the securities laws in connection with the
registration statement or this Prospectus, subject to certain limitations. In
addition, certain of the Unitholders under the Registration Rights Agreements
have agreed to indemnify the Companies and its respective directors, officers
and any person who controls the Companies against all losses, claims, damages
and expenses arising under the securities laws insofar as such loss, claim,
damage or expense relates to written information furnished to the Companies by
such Unitholders for use in the registration statement or Prospectus or an
amendment or supplement thereto or the failure by such Unitholders to deliver or
cause to be delivered this Prospectus or any amendment or supplement thereto to
any purchaser of shares covered by the registration statement from such holder
through no fault of the Companies.
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.
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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 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
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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 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 affecting 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
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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 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
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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 generally would 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 also impose certain asset tests which 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-Pairing 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-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."
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
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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 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
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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.
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
37
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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, 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
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<PAGE>
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), respectively, of
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
The Companies will not receive any proceeds from the issuance of any shares
of Paired Common Stock, but will acquire Unit Pairs tendered to the Partnerships
for redemption for which they elect to issue shares of Paired Common Stock, the
Operating Company doing so directly and the Corporation doing so through PAH LP
and PAH GP.
The Companies will pay substantially all the expenses incurred by the
Unitholders and the Companies incident to the offering and sale of the shares of
Paired Common Stock registered hereby, but excluding any underwriting discounts,
commissions, and transfer taxes.
The Companies have agreed to indemnify the Unitholders against certain
liabilities, including liabilities under the Securities Act.
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
39
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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 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,
40
<PAGE>
included in the Current Report on Form 8-K dated January 5, 1998, and (a) the
Consolidated Financial Statements 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, 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 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.
41
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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>
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PAGE
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<S> <C>
Available Information..................................................... 1
Incorporation of Certain Documents by Reference........................... 1
Risk Factors.............................................................. 3
The Companies............................................................. 12
Description of Capital Stock.............................................. 13
Restrictions on Transfers of Capital Stock................................ 18
Description of Realty Partnership Units and Operating Partnership Units
and Redemption of Unit Pairs............................................ 23
Registration Rights....................................................... 31
Certain Federal Income Tax Considerations................................. 31
Plan of Distribution...................................................... 39
Legal Matters............................................................. 39
Experts................................................................... 39
</TABLE>
PATRIOT AMERICAN
HOSPITALITY, INC.
4,592,307 SHARES OF
COMMON STOCK
WYNDHAM
INTERNATIONAL, INC.
4,592,307 SHARES OF
COMMON STOCK
---------------
PROSPECTUS
---------------------
_____________, 1998
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- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
Registration fee.................................................. $ 18,628
Printing fees and expenses........................................ 25,000
Legal fees and expenses........................................... 25,000
Accounting fees and expenses...................................... 30,000
Miscellaneous..................................................... 15,000
---------
Total............................................................. $ 113,628
---------
---------
</TABLE>
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* 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.
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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 (formerly known as 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>
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<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(1) Second Amended and Restated Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. ("Realty Partnership Agreement")
(incorporated by reference to Exhibit 10.1(1) to Cal Jockey's and Bay
Meadows' Registration Statement on Form S-4 (Nos. 333-28085 and
333-28085-01)).
99.1(2) First Amendment to Realty Partnership Agreement (incorporated by reference
to Exhibit 10.1(2) to Cal Jockey's and Bay Meadows' Registration
Statement on Form S-4 (Nos. 333-28085 and 333-28085-01)).
99.1(3) Second Amendment to Realty Partnership Agreement (incorporated by
reference to Exhibit 10.1(3) to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-39875 and 333-39875-01)).
99.1(4) Third Amendment to Realty Partnership Agreement (incorporated by reference
to Exhibit 10.1(4) to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (Nos. 333-39875
and 333-39875-01)).
99.1(5) Fourth Amendment to Realty Partnership Agreement (incorporated by
reference to Exhibit 10.1(5) to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-39875 and 333-39875-01)).
99.1(6) Fifth Amendment to Realty Partnership Agreement (incorporated by reference
to Exhibit 10.11 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (Nos. 001-09319 and 001-09320)).
</TABLE>
II-2
<PAGE>
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99.2(1) Agreement of Limited Partnership of Patriot American Hospitality Operating
Partnership, L.P. ("Operating Partnership Agreement") (incorporated by
reference to Exhibit 10.2(1) to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-39875 and 333-39875-01)).
99.2(2) First Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.2(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)).
99.2(3) Second Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.2(3) to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-39875 and 333-39875-01)).
99.2(4) Third Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.14 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (Nos. 001-09319 and 001-09320)).
99.2(5) Fifth Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.15 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (Nos. 001-09319 and 001-09320)).
+99.3 Registration Rights Agreement dated September 30, 1997, by and among
Patriot American Hospitality, Inc. and Wyndham International, Inc.
(formerly known as Patriot American Hospitality Operating Company) and
the Holders of Partnership Units of Patriot American Hospitality
Partnership, L.P. and Wyndham International Partnership, L.P. (formerly
known as Patriot American Hospitality Operating Partnership, L.P.)
received in connection with the purchase of certain hotels from entities
affiliated with the Gencom American Hospitality group of companies.
*99.4 Registration Rights Agreement dated October 1, 1997, by and among Patriot
American Hospitality, Inc. and Wyndham International, Inc. (formerly
known as Patriot American Hospitality Operating Company) and the Holders
of Partnership Units of Patriot American Hospitality Partnership, L.P.
and Wyndham International Partnership, L.P. (formerly known as Patriot
American Hospitality Operating Partnership, L.P.) received in connection
with the purchase of certain hotels from entities affiliated with CHC
International, Inc.
</TABLE>
- ------------------------
* Filed herewith
+ To be filed by amendment
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 Registration Statement 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
- -------------------------------------------------------------------------------- ------------------
<S> <C> <C>
Chairman of the Board of Directors and
/s/ PAUL A. NUSSBAUM Chief Executive Officer, Patriot
-------------------------------------- American Hospitality, Inc. (Principal September 25, 1998
Paul A. Nussbaum Executive Officer)
/s/ WILLIAM W. EVANS III President, Chief Operating Officer and
-------------------------------------- Director, Patriot American September 25, 1998
William W. Evans III Hospitality, Inc.
/s/ LAWRENCE S. JONES Executive Vice President and Treasurer,
-------------------------------------- Patriot American Hospitality, Inc. September 25, 1998
Lawrence S. Jones (Principal Accounting Officer)
/s/ JOHN H. DANIELS
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
John H. Daniels Inc.
/s/ JOHN C. DETERDING
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
John C. Deterding Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- -------------------------------------------------------------------------------- ------------------
<S> <C> <C>
/s/ GREGORY R. DILLON
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
Gregory R. Dillon Inc.
/s/ ARCH K. JACOBSON
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
Arch K. Jacobson Inc.
/s/ JAMES D. CARREKER
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
James D. Carreker Inc.
/s/ PHILIP J. WARD
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
Philip J. Ward Inc.
/s/ HARLAN R. CROW
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
Harlan R. Crow Inc.
/s/ MILTON FINE
-------------------------------------- Director, Patriot American Hospitality, September 25, 1998
Milton Fine Inc.
</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 James D. Carreker and Carla S. Moreland 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/ JAMES D. CARREKER 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
/s/ KARIM ALIBHAI Officer and Director,
- ------------------------------ Wyndham International, September 25, 1998
Karim Alibhai Inc.
Executive Vice President
and Treasurer, Wyndham
/s/ LAWRENCE S. JONES International, Inc.
- ------------------------------ (Principal Financial September 25, 1998
Lawrence S. Jones Officer and Principal
Accounting Officer)
/s/ ARCH K. JACOBSON
- ------------------------------ Director, Wyndham September 25, 1998
Arch K. Jacobson International, Inc.
/s/ LEONARD BOXER
- ------------------------------ Director, Wyndham September 25, 1998
Leonard Boxer International, Inc.
/s/ BURTON C. EINSPRUCH,
M.D. Director, Wyndham
- ------------------------------ International, Inc. September 25, 1998
Burton C. Einspruch, M.D.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ SHERWOOD WEISER
- ------------------------------ Director, Wyndham September 25, 1998
Sherwood Weiser International, Inc.
/s/ JAMES C. LESLIE
- ------------------------------ Director, Wyndham September 25, 1998
James C. Leslie International, Inc.
/s/ SUSAN T. GROENTEMAN
- ------------------------------ Director, Wyndham September 25, 1998
Susan T. Groenteman International, Inc.
/s/ ROLF E. RUHFUS
- ------------------------------ Director, Wyndham September 25, 1998
Rolf E. Ruhfus International, Inc.
</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 (formerly known as 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(1) Second Amended and Restated Agreement of Limited Partnership of Patriot
American Hospitality Partnership, L.P. ("Realty Partnership Agreement")
(incorporated by reference to Exhibit 10.1(1) to Cal Jockey's and Bay
Meadows' Registration Statement on Form S-4 (Nos. 333-28085 and
333-28085-01)).
99.1(2) First Amendment to Realty Partnership Agreement (incorporated by reference
to Exhibit 10.1(2) to Cal Jockey's and Bay Meadows' Registration
Statement on Form S-4 (Nos. 333-28085 and 333-28085-01)).
99.1(3) Second Amendment to Realty Partnership Agreement (incorporated by
reference to Exhibit 10.1(3) 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>
<PAGE>
<TABLE>
<C> <S>
99.1(4) Third Amendment to Realty Partnership Agreement (incorporated by reference
to Exhibit 10.1(4) to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (Nos. 333-39875
and 333-39875-01)).
99.1(5) Fourth Amendment to Realty Partnership Agreement (incorporated by
reference to Exhibit 10.1(5) to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-39875 and 333-39875-01)).
99.1(6) Fifth Amendment to Realty Partnership Agreement (incorporated by reference
to Exhibit 10.11 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (Nos. 001-09319 and 000-09320)).
99.2(1) Agreement of Limited Partnership of Patriot American Hospitality Operating
Partnership, L.P. ("Operating Partnership Agreement") (incorporated by
reference to Exhibit 10.2(1) to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-39875 and 333-39875-01)).
99.2(2) First Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.2(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)).
99.2(3) Second Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.2(3) to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (Nos.
333-39875 and 333-39875-01)).
99.2(4) Third Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.14 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (Nos. 001-09319 and 001-09320)).
99.2(5) Fifth Amendment to Operating Partnership Agreement (incorporated by
reference to Exhibit 10.15 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (Nos. 001-09319 and 001-09320)).
+99.3 Registration Rights Agreement dated September 30, 1997, by and among
Patriot American Hospitality, Inc. and Wyndham International, Inc.
(formerly known as Patriot American Hospitality Operating Company) and
the Holders of Partnership Units of Patriot American Hospitality
Partnership, L.P. and Wyndham International Partnership, L.P. (formerly
known as Patriot American Hospitality Operating Partnership, L.P.)
received in connection with the purchase of certain hotels from entities
affiliated with the Gencom American Hospitality group of companies.
*99.4 Registration Rights Agreement dated October 1, 1997, by and among Patriot
American Hospitality, Inc. and Wyndham International, Inc. (formerly
known as Patriot American Hospitality Operating Company) and the Holders
of Partnership Units of Patriot American Hospitality Partnership, L.P.
and Wyndham International Partnership, L.P. (formerly known as Patriot
American Hospitality Operating Partnership, L.P.) received in connection
with the purchase of certain hotels from entities affiliated with CHC
International, Inc.
</TABLE>
- ------------------------
* Filed herewith
+ To be filed by amendment
<PAGE>
Exhibit 5.1
[LETTERHEAD OF GOODWIN, PROCTER]
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 4,592,307 shares of common stock, par
value $.01 per share, of Patriot American Hospitality, Inc., a Delaware
corporation (the "Corporation"), and 4,592,307 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
"Registration Shares"). These shares are being registered pursuant to certain
registration rights the Companies granted in connection with transactions in
which they acquired ten hotels from CHC International, Inc. and from entities
affiliated with the Gencom American Hospitality group of companies.
In connection with rendering this opinion, we have examined the Amended
and Restated 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 Amended and Restated 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 telephone confirmations of public officials and others. As to
facts material to our opinion, we have relied upon
<PAGE>
September 25, 1998
Page 2
certificates or telephonic confirmations of public officials and
certificates, documents, statements and other information of the Companies or
representatives or officers thereof.
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 Registration Shares being registered have been validly issued and are
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,
/s/ Goodwin, Procter & Hoar LLP
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
the Joint Registration Statement on Form S-3 and the related Prospectus of
Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly
Patriot American Hospitality Operating Company) for the registration of
4,592,307 shares of paired common stock of the Companies 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
the Joint Registration Statement on Form S-3 and the related Prospectus of
Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly
Patriot American Hospitality Operating Company) for the registration of
4,592,307 shares of paired common stock of the Companies 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
the Joint Registration Statement on Form S-3 and the related Prospectus of
Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly
Patriot American Hospitality Operating Company) for the registration of
4,592,307 shares of paired common stock of the Companies 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
the Joint Registration Statement on Form S-3 and the related Prospectus of
Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly
Patriot American Hospitality Operating Company) for the registration of
4,592,307 shares of paired common stock of the Companies 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
the Joint Registration Statement on Form S-3 and the related Prospectus of
Patriot American Hospitality, Inc. and Wyndham International, Inc. for the
registration of 4,592,307 shares of paired common stock of the Companies
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 the
Joint Registration Statement on Form S-3 and the related Prospectus of
Patriot American Hospitality, Inc. and Wyndham International, Inc. for the
registration of 4,592,307 shares of paired common stock of the Companies
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 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 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 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 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 Registration Statement 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 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 Registration
Statement on Form S-3 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 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 the Joint Registration Statement on Form S-3 of
Patriot American Hospitality, Inc. and Wyndham International, Inc.
/s/ Arthur Andersen LLP
Dallas, Texas
September 25, 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 the Joint Registration Statement on Form S-3
and the related Prospectus of Patriot American Hospitality, Inc. and Wyndham
International, Inc. for the registration of 4,592,307 shares of paired common
stock of the Companies and to the incorporation by reference therein 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
25 September 1998
<PAGE>
Exhibit 99.4
REGISTRATION RIGHTS AGREEMENT
[CHCI Interests]
This Registration Rights Agreement (this "Agreement") is entered into
as of October 1, 1997 by and among Patriot American Hospitality, Inc., a
Delaware corporation (the "REIT"), Patriot American Hospitality Operating
Company, a Delaware corporation (the "Operating Company," together with the
REIT, the "Companies") and each of the parties executing a signature page hereto
(each a "Holder" and collectively the "Holders").
WHEREAS, the Holders are to receive units of limited partnership
interests ("Units") in Patriot American Hospitality Partnership, L.P., a
Virginia limited partnership ("REIT OP"), and Patriot American Hospitality
Operating Partnership, L.P., a Delaware limited partnership ("OpCo OP"),
("Redeemable Securities") issued without registration under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to certain Ancillary
Contribution Agreements dated as of October 1, 1997 by and among the Holders,
the Companies, REIT OP and OpCo OP, (the "Contribution Agreements"), which
Redeemable Securities may be redeemed, in certain circumstances, in exchange for
paired shares of the Operating Company's common stock, $.01 par value per share,
and the REIT's common stock, $.01 par value per share, (collectively, the
"Paired Shares").
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Registration.
(a) Issuance Registration. Not later than October 1, 1998, the
Companies shall cause to be filed a registration statement (the "Issuance
Registration Statement") under Rule 415 under the Securities Act relating to the
issuance of Registrable Shares (as defined in Section 1(b) hereof) to the
Holders, at such time, of Redeemable Securities held by other than Affiliates
(as defined below). The Companies shall use reasonable efforts to cause such
registration statement to be declared effective by the Securities and Exchange
Commission (the "SEC") for all Registrable Shares covered thereby as soon as
practicable thereafter. The Companies agree to use reasonable efforts to keep
the Issuance Registration Statement continuously effective until the date on
which such Holders have redeemed or exchanged all of their Redeemable Securities
for Registrable Shares. In the event that the Companies are unable to cause such
Registration Statement to be declared effective by the SEC or are unable to keep
such Registration Statement effective until the date on which such Holders have
redeemed or exchanged all of their Redeemable Securities for Registrable Shares,
then the rights of the Holders set forth in Sections 1(b) and 1(c) below shall
apply to Registrable Shares received upon the redemption of Redeemable
Securities. "Affiliate" shall mean any entity controlling, controlled by or
under common control with the Companies, and for the purposes of this
definition, "control" shall have the meaning presently specified for that word
in Rule 405 promulgated by the SEC under the Securities Act.
(b) Resale Shelf Registration. After September 30, 1998, upon
the earlier of (i) the written request of Holders holding 20% or more of the
Redeemable Securities and
<PAGE>
(ii) the first redemption of any of the Redeemable Securities, the Companies
shall use reasonable efforts to cause to be filed, as soon thereafter as
practicable, a registration statement (a "Resale Shelf Registration Statement")
under Rule 415 under the Securities Act relating to the sale by each of the
Holders of their Registrable Shares in accordance with the terms hereof. As used
in this Agreement the term "Registrable Shares" means the Paired Shares (and any
other securities issued or issuable with respect to any such Paired Shares by
way of stock dividends or stock splits or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise) issued or issuable in redemption of Redeemable Securities issued
pursuant to the Contribution Agreements, excluding (A) Paired Shares for which a
registration statement relating to the issuance or sale thereof shall have
become effective under the Securities Act and which have been issued or disposed
of under such registration statement, (B) Paired Shares sold pursuant to Rule
144 under the Securities Act ("Rule 144") or (C) Paired Shares eligible for
immediate sale pursuant to Rule 144 (k) under the Securities Act. The Companies
shall use reasonable efforts to cause such Resale Shelf Registration Statement
to be declared effective by the SEC for all Registrable Shares as soon as
practicable thereafter. The Companies agree to use reasonable efforts to keep
the Resale Shelf Registration Statement continuously effective until the earlier
of (a) the fourth anniversary of the date the Resale Shelf Registration date
becomes effective and (b) the date on which all such Registrable Shares may be
sold by the Holders pursuant to Rule 144 promulgated under the Securities Act;
provided, however, that, without limiting the effect of Sections 7, 8 or 8A
hereof, after such Registration Statement has become effective, if the offering
of Registrable Shares pursuant to such Registration Statement is or becomes
subject to any stop order, injunction or other order or requirement of the
Commission or other governmental or administrative agency or court that
prevents, restrains or otherwise limits the sale of Registrable Shares under
such Registration Statement, other than by reason of some act or omission by any
Holder participating in such registration, and such Registration Statement does
not become effective within a reasonable period of time thereafter, such period
not to exceed 60 days from the date of such stop order, injunction or other
governmental order or requirement, then the applicable time period for which the
Companies are required to keep such Registration Statement effective shall be
increased by the amount of time by which such stop order, injunction or other
governmental order or requirement has prevented, restrained or otherwise limited
the sales of Registrable Shares. Notwithstanding anything to the contrary
herein, the Companies shall cause the Resale Shelf Registration Statement to be
amended to remove a Holder's Registrable Shares by the date which is no later
than ten business days after a Holder so notifies the Companies. The Companies
shall not be required to file and effect more than one Resale Shelf Registration
Statement pursuant to this Section 1(b).
(c) Demand Registration. On four occasions after the date the
Companies' obligation to keep the Resale Shelf Registration Statement effective
pursuant to paragraph 1(b) hereof terminates until the earlier of (i) the fourth
anniversary of such date and (ii) the date on which all of the Registrable
Shares are eligible for resale without restriction or limitation under Rule 144,
and subject to the conditions set forth in this Agreement, including, without
limitation, the conditions set forth in this paragraph 1(c), one or more Holders
will have the right, by written notice delivered to the Companies (a "Demand
Notice"), to require the Companies to register Registrable Shares under and in
accordance with the provisions of the Securities Act (a "Demand Registration");
provided, however, that: (i) no such Demand
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<PAGE>
Registration may be required unless the Holder or Holders requesting such Demand
Registration provide to the Companies a certificate (the "Authorizing
Certificate") that is signed by Holders seeking to include in such Demand
Registration Registrable Shares constituting at least 25% of the then
outstanding Registrable Shares as of the date the Demand Notice is given and
(ii) no Demand Notice may be given prior to nine months after the effective date
of any immediately preceding Demand Registration. The Authorizing Certificate
shall set forth (A) the name of each Holder signing such Authorizing
Certificate, (B) the number of Registrable Shares held by each such Holder, and,
if different, the number of Registrable Shares such Holder has elected to have
registered, (C) a certification from each such Holder that it is requesting the
registration of only those Paired Shares received by such Holder pursuant to
redemption of Redeemable Securities received pursuant to the Contribution
Agreements and (D) the intended methods of disposition of the Registrable
Shares. Notwithstanding the foregoing, a good faith decision by a Holder to
withdraw Registrable Shares from registration will not affect the Companies'
obligations hereunder even if the amount remaining to be registered constitutes
less than 25% of the then outstanding Registrable Shares, provided that such a
registration nevertheless will constitute a Demand Registration under this
Section 1. The Companies shall use reasonable efforts to cause to be filed a
registration statement ("Demand Registration Statement") relating to any Demand
Registration as soon as practicable after the Demand Notice is received and will
use reasonable efforts to cause the same to be declared effective by the SEC as
soon as practicable thereafter. The Companies agree to use reasonable efforts to
keep the registration statement in respect of any Demand Registration
continuously effective for a period of at least 90 days; provided, however,
that, without limiting the effect of Sections 7, 8 or 8A hereof, after such
Registration Statement has become effective, if the offering of Registrable
Shares pursuant to such Registration Statement is or becomes subject to any stop
order, injunction or other order or requirement of the Commission or other
governmental or administrative agency or court that prevents, restrains or
otherwise limits the sale of Registrable Shares under such Registration
Statement, other than by reason of some act or omission by any Holder
participating in such registration, and such Registration Statement does not
become effective within a reasonable period of time thereafter, such period not
to exceed 60 days from the date of such stop order, injunction or other
governmental order or requirement, then the applicable time period for which the
Companies are required to keep such Registration Statement effective shall be
increased by the amount of time by which such stop order, injunction or other
governmental order or requirement has prevented, restrained or otherwise limited
the sales of Registrable Shares. Within ten business days after receipt of such
Demand Notice, the Companies will serve written notice thereof (the "Notice") to
all other Holders and will, subject to the provisions hereinbelow, include in
such registration all Registrable Shares with respect to which the Companies
receive written requests for inclusion therein within ten business days after
the receipt of the Notice by the applicable Holder.
(d) Piggyback Registration. If at any time while any
Registrable Shares are outstanding the Companies propose to file a registration
statement under the Securities Act with respect to an offering of Paired Shares
(or any securities issued in exchange for Paired Shares) solely for cash (other
than a registration statement (i) on Form S-8 or any successor form or in
connection with any employee or director welfare, benefit or compensation plan,
(ii) on Form S-4 or any successor form or in connection with an exchange offer,
(iii) in connection
3
<PAGE>
with a rights offering or a dividend reinvestment and share purchase plan
offered exclusively to existing holders of Paired Shares, (iv) in connection
with an offering solely to employees of the REIT, the Operating Company or their
affiliates or (v) relating to a transaction pursuant to Rule 145 of the
Securities Act, whether or not for its own account) (a "Piggyback Registration
Statement"), the Companies shall give to the Holders of Registrable Shares
written notice of such proposed filing at least 15 business days before filing.
The notice referred to in the preceding sentence shall offer Holders the
opportunity to register such amount of Registrable Shares as each Holder may
request (a "Piggyback Registration") pursuant to such Piggyback Registration
Statement. Subject to the provisions hereinbelow, the Companies shall include in
such Piggyback Registration all Registrable Shares requested to be included in
the registration for which the Companies have received written requests for
inclusion therein within five business days after the notice referred to above
has been given by the Companies to the Holders. Holders of Registrable Shares
shall be permitted to withdraw all or part of the Registrable Shares from a
Piggyback Registration at any time prior to the effective date of such Piggyback
Registration Statement. If a Piggyback Registration is an underwritten
registration on behalf of the Companies and the managing underwriter advises the
Companies that the total number of Registrable Shares requested to be included
in such registration is such as to be reasonably likely to materially and
adversely affect the success of such offering, the Companies will include Paired
Shares in such registration in the following priority: (i) first, all Paired
Shares the Companies propose to sell and (ii) second, up to the full number of
applicable Registrable Shares requested to be included in such registration
which, in the opinion of such managing underwriter, can be sold without
adversely affecting the price range or probability of success of such offering,
which shall be allocated among the Holders requesting registration and all other
stockholders requesting registration on a pro rata basis; provided, however,
that no Registrable Shares or other Paired Shares requested to be included in a
registration pursuant to demand registration rights shall be excluded from the
underwriting unless all securities requested to be included in a registration
pursuant to piggyback registration rights are first excluded. Any Issuance
Registration Statement, Resale Shelf Registration Statement, Demand Registration
Statement or Piggyback Registration Statement may sometimes be referred to
herein as a "Registration Statement."
2. Registration Procedures.
(a) The Companies shall notify each Holder for whom
Registrable Shares are being registered thereunder of the effectiveness of the
Registration Statement filed pursuant hereto and shall furnish to each such
Holder such number of copies of the Registration Statement (including any
amendments, supplements and exhibits), the prospectus contained therein
(including each preliminary prospectus), any documents incorporated by reference
in the Registration Statement and such other documents as such Holder may
reasonably request in order to facilitate its sale of the Registrable Shares in
the manner described in the Registration Statement.
(b) The Companies shall prepare and file with the SEC from
time to time such amendments and supplements to the Registration Statement and
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all the
4
<PAGE>
Registrable Shares thereunder registered until the earlier of (i) such time as
all of the Registrable Shares have been issued or disposed of in accordance with
the intended methods of disposition by the Holders as set forth in the
Registration Statement or (ii) the date on which the Registration Statement
ceases to be effective in accordance with the terms of Section 1. Upon
reasonable notice, the Companies shall promptly file any supplement or
post-effective amendment to the Registration Statement with respect to such
Holder's interests in or plan of distribution of Registrable Shares that is
reasonably necessary to permit the sale of the Holder's Registrable Shares
pursuant to the Registration Statement and the Companies shall promptly file any
necessary listing applications or amendments to the existing applications to
cause the shares to be then listed or quoted on the primary exchange or
quotation system on which the Paired Shares are then listed or quoted.
(c) The Companies shall promptly notify each Holder requesting
registration of, and confirm in writing, any request by the SEC for amendments
or supplements to the Registration Statement or the prospectus related thereto
or for additional information. In addition, the Companies shall promptly notify
each such Holder of, and confirm in writing, the filing of the Registration
Statement, any prospectus supplement related thereto or any post-effective
amendment to the Registration Statement and the effectiveness of any
post-effective amendment.
(d) The Companies shall promptly notify each Holder requesting
registration, at any time when a prospectus relating to the Registration
Statement is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In such event and subject to paragraph 7 of this
Agreement, the Companies shall prepare and furnish to each such Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of Registrable Shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3. State Securities Laws. Subject to the conditions set forth in this
Agreement, the Companies shall, promptly upon the filing of a Registration
Statement including Registrable Shares, file such documents as may be necessary
to register or qualify the Registrable Shares or the Companies, as the case may
be, under the securities or "Blue Sky" laws of such states as any Holder
requesting registration may reasonably request, and the Companies shall use best
efforts to cause such filings to become qualified; provided, however, that the
Companies shall not be obligated to qualify as a foreign corporation to do
business under the laws of any such state in which it is not then qualified or
to file any general consent to service of process in any such state. Once
qualified, the Companies shall use best efforts to remain so qualified until the
earlier of (a) such time as all of the Registrable Shares have been disposed of
in accordance with the intended methods of disposition by the Holder as set
forth in the Registration Statement, (b) in the case of a particular state, a
Holder has notified the
5
<PAGE>
Companies that it no longer requires qualified filing in such state in
accordance with its original request for filing or (c) the date on which the
Registration Statement ceases to be effective with the SEC. The Companies shall
promptly notify each Holder requesting registration thereunder of, and confirm
in writing, the receipt by the Companies of any notification with respect to the
suspension of the qualification of the Registrable Shares for sale under the
securities or "Blue Sky" laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose.
4. Expenses. The Companies shall bear all expenses incurred in
connection with the registration or attempted registration of the Registrable
Shares pursuant to Section 1 of this Agreement as provided herein. Such expenses
shall include, without limitation, all printing, legal and accounting expenses
incurred by the Companies and all registration and filing fees imposed by the
SEC, any state securities commission or the New York Stock Exchange or, if the
Paired Shares are not then listed on the New York Stock Exchange, the principal
national securities exchange or national market system on which the Paired
Shares are then traded or quoted. Holders shall be responsible for any pro rata
share of brokerage or underwriting commissions and taxes of any kind (including,
without limitation, transfer taxes) with respect to any disposition, sale or
transfer of Registrable Shares and for any legal, accounting and other expenses
incurred by them in connection with any Registration Statement.
5. Indemnification by the Companies. The Companies agree to indemnify
each of the Holders and their respective officers, directors, employees, agents,
representatives and affiliates, and each person or entity, if any, that controls
a Holder within the meaning of the Securities Act, and each other person or
entity, if any, subject to liability because of his, her or its connection with
a Holder, and any underwriter and any person who controls the underwriter within
the meaning of the Securities Act (an "Indemnitee") against any and all losses,
claims, damages, actions, liabilities, costs and expenses (including without
limitation reasonable attorneys' fees, expenses and disbursements documented in
writing), joint or several, arising out of or based upon (i) any untrue or
alleged untrue statement of material fact contained in the Registration
Statement or any prospectus contained therein or any amendments or supplements
thereto, or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or
(iii) any violation or alleged violation by the REIT or the Operating Company of
the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any state securities law, or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; except
insofar as and to the extent that such statement or omission or violation arose
out of or was based upon information regarding the Indemnitee or its plan of
distribution which was furnished in writing to the Companies by the Indemnitee
for use therein; provided, further that the Companies shall not be liable to any
person who participates as an underwriter in the offering or sale of Registrable
Shares or any other person, if any, who controls such underwriter within the
meaning of the Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with information
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<PAGE>
furnished in writing by such underwriter or any other person, if any, who
controls such underwriter within the meaning of the Securities Act to the
Companies for use in connection with the Registration Statement or the
prospectus contained therein by such Indemnitee or (ii) such Indemnitee's
failure to send or give a copy of the final prospectus, or amendment or
supplement thereto, furnished to it by the Companies at or prior to the time
such action is required by the Securities Act to the person claiming an untrue
statement or alleged untrue statement or omission or alleged omission if such
statement or omission was corrected in such final prospectus, as amended or
supplemented. The obligations of the Companies under this Section 5 shall
survive the completion of any offering of Registrable Shares pursuant to a
Registration Statement under this Agreement or otherwise and shall survive the
termination of this Agreement.
6. Covenants of Holders. Each of the Holders hereby agrees (a) to
cooperate with the Companies and to furnish to the Companies all such
information in connection with the preparation of the Registration Statement and
any filings with any state securities commissions as the Companies may
reasonably request, (b) to the extent required by the Securities Act, to deliver
or cause delivery of the prospectus contained in the Registration Statement, any
amendment or supplement thereto, to any purchaser of the Registrable Shares
covered by the Registration Statement from the Holder, (c) to notify the
Companies of any sale of Registrable Shares by such Holder and (d) to indemnify
the Companies, their officers, directors, employees, agents, representatives and
affiliates, and each person, if any, who controls the Companies within the
meaning of the Securities Act, and each other person, if any, subject to
liability because of his connection with the Companies, against any and all
losses, claims, damages, actions, liabilities, costs and expenses arising out of
or based upon (i) any untrue statement or alleged untrue statement of material
fact contained in either the Registration Statement or the prospectus contained
therein, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, if and to
the extent that such statement or omission arose out of or was based upon
information regarding the Holder or its plan of distribution which was furnished
in writing to the REIT or the Operating Company by the Holder in writing for use
therein, or (ii) the failure by the Holder to deliver or cause to be delivered
the prospectus contained in the Registration Statement (as amended or
supplemented, if applicable) furnished by the REIT and the Operating Company to
the Holder to any purchaser of the Paired Shares covered by the Registration
Statement from the Holder. Notwithstanding the foregoing, (i) in no event will a
Holder have any obligation under this Section 6 for amounts the REIT or the
Operating Company pay in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld) and (ii) the total amount for
which a Holder shall be liable under this Section 6 shall not in any event
exceed the aggregate proceeds received by him or it from the sale of the
Holder's Registrable Shares in such registration. The obligations of the Holders
under this Section 6 shall survive the completion of any offering of Registrable
Shares pursuant to a Registration Statement under this Agreement or otherwise
and shall survive the termination of this Agreement.
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7. Suspension of Registration Requirement.
(a) The Companies shall promptly notify each Holder for whom
Registrable Shares have been registered thereunder and confirm in writing, the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose.
The Companies shall use best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement as soon as
practicable.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Companies' obligation under this Agreement to cause the
Registration Statement and any filings with any state securities commission to
be made or to become effective or to amend or supplement the Registration
Statement shall be suspended in the event and during such period pending
negotiations relating to, or consummation of, a transaction or the occurrence of
an event that would require additional disclosure of material information by the
REIT or the Operating Company in the Registration Statement or such filing that
would make it impractical or inadvisable to cause the Registration Statement or
such filings to be made or to become effective or to amend or supplement the
Registration Statement, but such suspension shall continue only for so long as
such event or its effect is continuing and in no event will such suspension
exceed 60 days (such circumstances being hereinafter referred to as a
"Suspension Event").
(c) Each holder of Registrable Shares whose Registrable Shares
are covered by a Resale Shelf Registration Statement, Demand Registration
Statement or Piggyback Registration Statement filed pursuant to Section 1 hereof
agrees, if requested by the REIT or the Operating Company in the case of a
nonunderwritten offering of Paired Shares (a "Nonunderwritten Offering") or if
requested by the managing underwriter or underwriters in an underwritten
offering of Paired Shares (an "Underwritten Offering," collectively with
Nonunderwritten Offering, the "Offering"), not to effect any public sale or
distribution of any Registrable Shares, including a sale pursuant to Rule 144 or
Rule 144A under the Securities Act and excluding a sale which is part of such
Offering, during the 15-day period prior to, and during the 90-day period
beginning on, the date of pricing of each Offering (the "Offering Period"), to
the extent timely notified in writing by the REIT or the Operating Company or
the managing underwriters.
8. Black-Out Period. Following the effectiveness of the Registration
Statement and the filings with any state securities commissions, the Holders
agree that they will not effect any sales of the Registrable Shares pursuant to
the Registration Statement or any such filings at any time after they have
received notice from the REIT or the Operating Company to suspend sales as a
result of the occurrence or existence of any Suspension Event or Offering;
provided, that in no event will the number of days that the Holders are so
prevented from making such sales as a result of any or all Suspension Events
exceed 120 days during any consecutive 12-month period. The Holder may
recommence effecting sales of the Registrable Shares pursuant to the
Registration Statement or such filings following further notice to such effect
from the REIT or the Operating Company, which notice shall be given by the REIT
or the Operating Company not later than five days after the conclusion of any
such Suspension Event or Offering Period. In the event that the REIT or the
Operating Company shall give notice as a result of the
8
<PAGE>
occurrence or existence of any Suspension Event pursuant to this Section 8, the
Companies shall use their reasonable efforts and take such actions as are
reasonably necessary to terminate the Suspension Event as promptly as
practicable.
8A. Extensions of Time for Suspensions and Black-Outs (i) The period of
time that the Companies are obligated hereunder to keep effective a Registration
Statement shall be effectively increased by the amount of time that Holders are
prevented from effecting sales pursuant to such Registration Statement as a
consequence of the operation of Section 8, and (ii) the periods of time that
Holders have rights to request that Registrable Shares be registered hereunder
shall be effectively increased by the amounts of time that the obligations of
the Companies to effect a Registration Statement are delayed pursuant to Section
7 and the amounts of time referenced in the foregoing clause (i).
9. Additional Shares. The Companies, at their option, may register,
under any registration statement and any filings with any state securities
commissions filed pursuant to this Agreement, any number of unissued Paired
Shares or any Paired Shares owned by any other stockholder or stockholders of
the Companies.
10. Contribution. If the indemnification provided for in Sections 5 and
6 is unavailable to an indemnified party with respect to any losses, claims,
damages, actions, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or expenses
in such proportion as is appropriate to reflect the relative fault of the
Companies, on the one hand, and the Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
actions, liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Companies, on the one hand, and of the
Holder, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the
Companies or by the Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission;
provided, however, that in no event shall the obligation of any indemnifying
party to contribute under this Section 10 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Sections 5 or 6 hereof had been available
under the circumstances.
The Companies and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
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<PAGE>
11. No Other Obligation to Register. Except as otherwise expressly
provided in this Agreement, the Companies shall have no obligation to the
Holders to register the Registrable Shares under the Securities Act.
12. Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented without the prior written consent of the
Companies and Holders holding in excess of 50% of the then outstanding
Registrable Shares or, if no Redeemable Securities have been exchanged for
Registrable Shares, 50% of the then outstanding Redeemable Securities.
13. Notices. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the Companies at the
following address and to the Holder at the address set forth on his or her
signature page to this Agreement (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof), and further provided that in case
of directions to amend the Registration Statement pursuant to Section 2(b) or
Section 6, a Holder must confirm such notice in writing by overnight express
delivery with confirmation of receipt:
If to the REIT or the Patriot American Hospitality, Inc.
Operating Company: Patriot American Hospitality Operating Company
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
Attn: Paul A. Nussbaum
Chief Executive Officer
Telephone: (214) 863-1000
Telecopy: (214) 863-1527
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
Kathryn I. Murtagh, Esq.
Telephone: (617) 570-1000
Telecopy: (617) 523-1231
In addition to the manner of notice permitted above, notices given pursuant to
Sections 1, 7 and 8 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
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<PAGE>
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Companies. This
Agreement may not be assigned by any Holder except to a family member or
affiliate of such Holder which is an accredited investor, a lender pledgee or as
otherwise consented to by the Companies (such consent not to be unreasonably
withheld) and any other attempted assignment hereof by any Holder will be void
and of no effect and shall terminate all obligations of the Companies hereunder
with respect to such Holder.
15. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed wholly within said State.
17. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
18. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PATRIOT AMERICAN HOSPITALITY, INC.
/s/ William W. Evans III
------------------------------------
Name: William W. Evans III
Title: Office of the Chairman
PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
/s/ Leslie Ng
------------------------------------
Name: Leslie Ng
Title: Senior Vice President-Acquisitions
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ James Nickles
------------------------------------
Name: James Nickles
Address for Notice:
1710 Red Wing Drive
------------------------------------
South Lake, TX 76092
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ Amir Alibhai
------------------------------------
Name: Amir Alibhai
Address for Notice:
10777 Westheimer #1000
------------------------------------
Houston, TX 77042
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ Behadur Alibhai
------------------------------------
Name: Behadur Alibhai
Address for Notice:
10777 Westheimer #1000
------------------------------------
Houston, TX 77042
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ Haider Alibhai
------------------------------------
Name: Haider Alibhai
Address for Notice:
10777 Westheimer #1000
------------------------------------
Houston, TX 77042
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ W. Peter Temling
------------------------------------
Name: W. Peter Temling
Address for Notice:
3250 Mary Street #500
------------------------------------
Miami, FL 33133
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ Peter L. Sibley
------------------------------------
Name: Peter L. Sibley
Address for Notice:
3250 Mary Street #500
------------------------------------
Miami, FL 33133
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ Thomas F. Hewitt
------------------------------------
Name: Thomas F. Hewitt
Address for Notice:
3250 Mary Street #500
------------------------------------
Miami, FL 33133
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ Donald E. Lefton
------------------------------------
Name: Donald E. Lefton
Address for Notice:
3250 Mary Street
------------------------------------
Miami, FL 33133
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/ Sherwood M. Weiser
------------------------------------
Name: Sherwood M. Weiser
Address for Notice:
3250 Mary Street #500
------------------------------------
Miami, FL 33133
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
GB (MIAMI) OPERATING CORPORATION
By: /s/ Karim Alibhai
------------------------------------
Karim Alibhai
President
Address for Notice:
1950 Stemmons Freeway, Suite 6001
------------------------------------
Dallas, TX 75207
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
W-L TAMPA, LTD.
By: Weiser and Lefton Properties, Inc.
Its: General Partner
By: /s/ Donald E. Lefton
------------------------------------
Donald E. Lefton
President
Address for Notice:
3250 Mary Street #500
------------------------------------
Miami, FL 33133
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
RIVER HOUSE ASSOCIATES
By: Miami Airport Hotel Associates, Ltd.
Its: General Partner
By: /s/ Sherwood M. Weiser
------------------------------------
Sherwood M. Weiser
General Partner
By: /s/ Donald E. Lefton
------------------------------------
Donald E. Lefton
General Partner
By: River Orchids Associates, Ltd.
Its: General Partner
By: /s/ Donald E. Lefton
------------------------------------
Donald E. Lefton
President
Address for Notice:
3250 Mary Street #500
------------------------------------
Miami, FL 33133
------------------------------------
------------------------------------
------------------------------------
