<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________________
Commission File Number 1-9319 Commission File Number 1-9320
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
- -------------------------------------- ---------------------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware 94-0358820 Delaware 94-2878485
- -------------------------------------- ---------------------------------------
(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction of Identification jurisdiction of Identification
incorporation or No.) incorporation or No.)
organization) organization)
1950 Stemmons Freeway, Suite 6001 1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
- -------------------------------------- ---------------------------------------
(Address of principal (Zip Code) (Address of principal (Zip Code)
executive offices) executive offices)
(214) 863-1000 (214) 863-1000
- -------------------------------------- ---------------------------------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
N/A N/A
- -------------------------------------- ---------------------------------------
(Former name, former address and (Former name, former address and
former fiscal year, if changed since former fiscal year, if changed since
last report) last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
The number of shares outstanding of each registrant's classes of common stock,
par value $.01 per share, as of the close of business on May 11, 1998, was as
follows:
Registrant Number of Shares
Patriot American Hospitality, Inc. 114,116,946
Wyndham International, Inc. 114,116,946
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMBINED PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC.:
Condensed Combined Balance Sheets as of March 31, 1998 (unaudited) and
December 31, 1997................ 3
Condensed Combined Statements of Operations for the three months ended
March 31, 1998 and 1997 (unaudited)..................................... 4
Condensed Combined Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (unaudited)..................................... 5
PATRIOT AMERICAN HOSPITALITY, INC. :
Condensed Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997................................................... 6
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 (unaudited)............................... 7
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited)............................... 8
WYNDHAM INTERNATIONAL, INC.:
Condensed Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997................................................... 9
Condensed Consolidated Statement of Operations for the three months
ended March 31, 1998 (unaudited)........................................ 10
Condensed Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 (unaudited)....................................... 11
NOTES TO CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 1998 (UNAUDITED).... 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................... 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 34
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Exhibits ................................................................ 35
Reports on Form 8-K...................................................... 35
SIGNATURES.................................................................. 36
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, 1998 DECEMBER 31,1997
-------------- ----------------
ASSETS (UNAUDITED)
Investment in real estate and related
improvements and land held for
development, net of accumulated
depreciation of $101,921 in 1998 and
$68,805 in 1997........................... $3,150,712 $2,044,649
Cash and cash equivalents.................. 85,268 42,431
Restricted cash............................ 3,384 5,005
Accounts and lease revenue receivable...... 134,504 57,046
Investment in unconsolidated subsidiaries.. 15,465 11,802
Mortgage notes and other receivables from
unconsolidated subsidiaries............... 73,465 76,419
Other mortgage notes and other receivables. 32,682 12,983
Management contracts, net of accumulated
amortization of $3,622 in 1998 and
$1,574 in 1997............................ 90,879 20,879
Trade names and franchise costs, net of
accumulated amortization of $1,510
in 1998 and $122 in 1997.................. 95,540 11,166
Goodwill, net of accumulated amortization
of $5,516 in 1998 and $1,851 in 1997...... 471,096 126,007
Deferred expenses, net of accumulated
amortization of $6,367 in 1998 and
$2,097 in 1997............................ 22,529 21,417
Deferred acquisition costs................. 42,013 52,500
Inventories................................ 16,059 10,450
Other assets............................... 62,629 15,099
---------- ----------
Total assets........................ $4,296,225 $2,507,853
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility,
term loans, mortgage notes and
capital leases............................ $1,842,992 $1,112,709
Accounts payable and accrued expenses...... 160,609 78,468
Dividends and distributions payable........ 72 27,636
Deposits................................... 22,656 12,423
Due to unconsolidated subsidiaries......... 7,456 7,304
Deferred income tax liability.............. 75,684 9,550
Minority interest in the Operating
Partnerships.............................. 203,959 220,177
Minority interest in other consolidated
subsidiaries.............................. 71,462 49,694
Commitment and contingencies
Shareholders' Equity:
Preferred stock, $0.01 par value,
authorized: 100,000,000 shares each;
shares issued and outstanding:
4,860,876 shares in 1998............... 49 --
Excess stock (paired shares), $0.01 par
value, authorized: 750,000,000 shares
each; no shares issued and outstanding. -- --
Common stock (paired shares), $0.01 par
value, authorized: 650,000,000 shares
each; issued and outstanding:
107,648,946 shares in 1998 and
73,276,716 shares in 1997.............. 2,154 1,466
Additional paid in capital.............. 1,991,803 1,070,973
Receivable from shareholders and
affiliates............................. (15,734) --
Unearned stock compensation, net of
accumulated amortization of $7,161
in 1998 and $5,825 in 1997............. (16,227) (13,116)
Unrealized gain on securities available
for sale............................... 106 --
Distributions in excess of retained
earnings............................... (50,816) (69,431)
---------- ----------
Total shareholders' equity.......... 1,911,335 989,892
---------- ----------
Total liabilities and shareholders'
equity............................. $4,296,225 $2,507,853
========== ==========
See notes to condensed financial statements.
3
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
-------- --------
Revenue:
Hotel revenue................................. $290,644 $ --
Lease revenue ................................ 20,565 35,013
Racecourse facility revenue................... 23,048 --
Management fee and service fee income......... 13,839 --
Interest and other income..................... 1,711 375
-------- --------
Total revenue.............................. 349,807 35,388
-------- --------
Expenses:
Hotel expenses................................ 200,852 3,546
Racecourse facility operations................ 18,184 --
General and administrative.................... 17,306 2,782
Interest expense.............................. 35,959 7,805
Depreciation and amortization................. 35,603 8,496
-------- --------
Total expenses.......................... 307,904 22,629
-------- --------
Operating income................................. 41,903 12,759
Equity in earnings of unconsolidated
subsidiaries................................. 3,194 1,021
-------- --------
Income before income tax provision, minority
interests and extraordinary item................ 45,097 13,780
Income tax provision.......................... (3,558) --
-------- --------
Income before minority interests and
extraordinary item.............................. 41,539 13,780
Minority interest in Operating Partnerships... (3,055) (2,232)
Minority interest in other consolidated
subsidiaries................................. (1,356) (200)
-------- --------
Income before extraordinary item................. 37,128 11,348
Extraordinary loss from early extinguishment
of debt, net of minority interest............ (18,716) --
-------- --------
Net income....................................... $ 18,412 $ 11,348
======== ========
Basic earnings per common Paired Share:
Income before extraordinary item.............. $ 0.37 $ 0.26
Extraordinary loss............................ (0.19) --
-------- --------
Net income per common Paired Share.......... $ 0.18 $ 0.26
======== ========
Diluted earnings per common Paired Share:
Income before extraordinary item.............. $ 0.35 $ 0.25
Extraordinary loss............................ (0.18) $ --
-------- --------
Net income per common Paired Share.......... $ 0.17 $ 0.25
======== ========
See notes to condensed financial statements.
4
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 18,412 $ 11,348
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.......................................... 28,481 8,467
Amortization of unearned stock compensation........... 1,527 621
Amortization of deferred loan costs................... 3,503 330
Amortization of management contracts and trade
names................................................ 3,245 --
Amortization of goodwill and other assets............. 3,877 65
Net payments collected from unconsolidated
subsidiaries......................................... 4,708 413
Issuance of stock for directors' fee and bonus........ 880 --
Equity in earnings of unconsolidated subsidiaries..... (3,194) (1,021)
Minority interest in income of Operating
Partnerships......................................... 3,055 2,232
Minority interest in income of other consolidated
subsidiaries......................................... 1,356 200
Deferred income taxes................................ (1,068) --
Extraordinary item.................................... 18,716 --
Changes in assets and liabilities:
Accounts and lease revenue receivable............... (27,674) (11,732)
Inventories......................................... 424 --
Deposits............................................ (2,285) --
Accounts payable and other accrued expenses......... 10,000 566
-------- --------
Net cash provided by operating activities......... 63,963 11,489
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related
working capital assets................................ (281,753) (191,452)
Improvements and additions to hotel properties.......... (41,205) (17,634)
Cash received in acquisition of hotel leases............ 28,976 --
Collections on other notes receivable................... 4,000 --
Decrease in restricted cash accounts.................... 4,588 64
Deferred acquisition costs.............................. (27,104) (2,369)
Investment in unconsolidated subsidiaries............... -- (1,574)
Investment in mortgage and other notes receivable....... (939) (9,500)
-------- --------
Net cash used in investing activities............. (313,437) (222,465)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facility, term loans,
mortgage notes and capital lease obligations.......... 504,762 237,272
Repay borrowings under line of credit facility and
other debt............................................. (311,862) (13,388)
Proceeds from issuance of common stock.................. 123,782 --
Collections on notes receivable from shareholders
and affiliates......................................... 2,999 --
Dividends and distributions paid........................ (27,564) (13,128)
Other................................................... 194 (49)
-------- --------
Net cash provided by financing activities......... 292,311 210,707
-------- --------
Net increase (decrease) in cash and cash equivalents....... 42,837 (269)
Cash and cash equivalents at beginning of period........... 42,431 4,146
-------- --------
Cash and cash equivalents at end of period................. $ 85,268 $ 3,877
======== ========
See notes to condensed financial statements.
5
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(UNAUDITED)
ASSETS
Investment in real estate and related
improvements and land held for
development, net of accumulated
depreciation of $67,027 in 1998
and $67,501 in 1997......................... $2,595,039 $ 2,016,267
Cash and cash equivalents.................... 4,161 15,355
Restricted cash.............................. 3,226 5,005
Accounts and lease revenue receivable........ 44,976 14,458
Investment in unconsolidated subsidiaries.... 321,685 11,802
Mortgage notes and other receivables from
unconsolidated subsidiaries................. 73,465 76,419
Subscription notes receivable from
Wyndham International....................... 133,669 --
Notes and other receivables from
Wyndham International....................... 391,142 42,946
Other notes receivable....................... 15,650 --
Goodwill, net of accumulated amortization
of $1,815 in 1998 and $1,257 in 1997........ 86,819 87,999
Deferred expenses, net of accumulated
amortization of $5,682 in 1998
and $2,097 in 1997......................... 19,970 21,417
Deferred acquisition costs................... 6,226 21,374
Inventories.................................. 1,306 1,306
Other assets................................. 31,182 6,757
---------- ----------
Total assets............................. $3,728,516 $2,321,105
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility,
term loans, mortgage notes and capital
leases...................................... $1,630,252 $1,112,709
Subscription notes payable to Wyndham
International............................... 33,001 12,875
Other notes payable to Wyndham
International............................... 23,750 --
Accounts payable and accrued expenses........ 24,076 28,151
Dividends and distributions payable.......... 72 27,185
Due to unconsolidated subsidiaries........... 7,456 7,304
Minority interest in Patriot Partnership..... 159,502 174,640
Minority interest in other consolidated
subsidiaries................................ 58,024 49,214
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value;
authorized: 100,000,000 shares;
shares issued and outstanding:
4,860,876 in 1998........................... 49 --
Excess stock, $0.01 par value;
authorized: 750,000,000 shares;
no shares issued and outstanding............ -- --
Common stock, $0.01 par value;
authorized: 650,000,000 shares;
shares issued and outstanding:
107,648,946 shares in 1998
and 73,276,716 shares in 1997............... 1,077 733
Additional paid-in capital................... 1,871,343 990,821
Receivable from shareholders................. (14,595) --
Unearned stock compensation,
net of accumulated amortization
of $7,161 in 1998 and $5,825
in 1997..................................... (11,781) (13,116)
Distributions in excess of
retained earnings........................... (53,710) (69,411)
---------- ----------
Total shareholders' equity............... 1,792,383 909,027
---------- ----------
Total liabilities and
shareholders' equity.................... $3,728,516 $2,321,105
========== ==========
See notes to condensed financial statements.
6
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
-------- --------
Revenue:
Lease revenue........................... $109,649 $ 35,013
Interest and other income............... 3,516 375
-------- --------
Total revenue..................... 113,165 35,388
-------- --------
Expenses:
Real estate and personal property
taxes and casualty insurance........... 11,923 3,201
Ground lease expense.................... 6,558 345
General and administrative.............. 5,282 2,782
Interest expense........................ 34,251 7,805
Depreciation and amortization........... 20,497 8,496
-------- --------
Total expenses.................... 78,511 22,629
-------- --------
Operating income........................... 34,654 12,759
Equity in earnings of unconsolidated
subsidiaries........................... 3,591 1,021
-------- --------
Income before income tax provision,
minority interests and extraordinary item. 38,245 13,780
Income tax provision.................... (371) --
-------- --------
Income before minority interests and
extraordinary item........................ 37,874 13,780
Minority interest in the Patriot
Partnership............................ (3,128) (2,232)
Minority interest in consolidated
subsidiaries........................... (533) (200)
-------- --------
Income before extraordinary item........... 34,213 11,348
Extraordinary loss from early
extinguishment of debt, net of
minority interest...................... (18,716) --
-------- --------
Net income................................. $ 15,497 $ 11,348
======== ========
Basic earnings per common share:
Income before extraordinary item........ $ 0.35 $ 0.26
Extraordinary loss...................... (0.19) --
-------- --------
Net income per common share........... $ 0.16 $ 0.26
======== ========
Diluted earnings per common share:
Income before extraordinary item........ $ 0.32 $ 0.25
Extraordinary loss...................... (0.18) --
-------- --------
Net income per common share........... $ 0.14 $ 0.25
======== ========
See notes to condensed financial statements.
7
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 15,497 $ 11,348
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 19,856 8,467
Amortization of unearned stock compensation......... 1,336 621
Amortization of deferred loan costs................. 3,503 330
Amortization of goodwill and other assets........... 641 65
Net payments collected from unconsolidated
subsidiaries....................................... 4,699 413
Issuance of stock for directors' fee and bonus...... 675 --
Equity in earnings of unconsolidated subsidiaries... (3,591) (1,021)
Minority interest in income of Patriot Partnership.. 3,128 2,232
Minority interest in income of other consolidated
subsidiaries....................................... 533 200
Extraordinary item.................................. 18,716 --
Changes in assets and liabilities:
Accounts and lease revenue receivable............. (25,894) (9,418)
Other assets...................................... 157 (2,314)
Accounts payable and other accrued expenses....... (2,811) 566
--------- ---------
Net cash provided by operating activities....... 36,445 11,489
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related
working capital assets.............................. (281,753) (191,452)
Improvements and additions to hotel properties........ (38,333) (17,634)
Changes in due from Wyndham International............. (11,892) --
Collections on other notes receivable................. 4,000 --
Decrease in restricted cash accounts.................. 4,746 64
Deferred acquisition costs............................ (2,669) (2,369)
Investment in unconsolidated subsidiaries............. -- (1,574)
Investment in mortgage and other notes receivable..... -- (9,500)
--------- ---------
Net cash used in investing activities........... (325,901) (222,465)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facilities,
term loans, mortgage notes and
capital lease obligations............................ 504,762 237,272
Repay borrowings under line of credit facility........ (307,277) (13,388)
Principal payments on subscription notes payable
to Wyndham International............................. (12,875) --
Proceeds from issuance of common stock................ 117,572 --
Collections on notes receivable from shareholders..... 2,999 --
Dividends and distributions paid...................... (27,113) (13,128)
Other................................................. 194 (49)
--------- ---------
Net cash provided by financing activities....... 278,262 210,707
--------- ---------
Net decrease in cash and cash equivalents................ (11,194) (269)
Cash and cash equivalents at beginning of period......... 15,355 4,146
--------- ---------
Cash and cash equivalents at end of period............... $ 4,161 $ 3,877
========= =========
</TABLE>
See notes to condensed financial statements.
8
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents.................................................. $ 81,107 $ 27,076
Restricted cash............................................................ 158 --
Accounts receivable........................................................ 122,801 46,340
Subscription notes receivable from Patriot................................. 30,535 12,875
Inventories................................................................ 14,753 9,144
Prepaid expenses and other current assets.................................. 22,848 5,227
--------------- --------------
Total current assets................................................. 272,202 100,662
Investment in real estate and related improvements, net of accumulated
depreciation of $34,894 in 1998 and $1,304 in 1997......................... 555,939 28,382
Investments in unconsolidated subsidiaries.................................... 4,005 --
Notes and other receivables from Patriot...................................... 26,216 --
Mortgage notes and other receivables.......................................... 15,714 12,983
Management contracts costs, net of accumulated amortization of $3,622 in 1998
and $1,574 in 1997........................................................ 90,879 20,879
Trade names and franchise costs, net of accumulated amortization of $1,510 in
1998 and $122 in 1997..................................................... 95,540 11,166
Deferred acquisition costs.................................................... 35,787 31,126
Goodwill, net of accumulated amortization of $3,701 in 1998 and $594 in 1997.. 384,277 38,008
Deferred expenses, net of accumulated amortization of $129 in 1998............ 2,559 --
Other assets.................................................................. 9,920 8,882
--------------- --------------
Total assets......................................................... $ 1,493,038 $ 252,088
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................................... $ 138,992 $ 50,317
Dividends and distributions payable........................................ -- 451
Participating lease payments payable to Patriot............................ 30,817 9,519
Deposits................................................................... 22,656 12,423
Notes and other amounts payable to Patriot................................. 391,142 42,946
Current portion of mortgage notes and capital lease obligations............ 10,977 --
--------------- --------------
Total current liabilities............................................ 594,584 115,656
Subscription Notes payable to Patriot......................................... 133,669 --
Mortgage notes payable and capital lease obligations.......................... 201,763 --
Deferred income tax liability................................................. 75,684 9,550
Minority interest in OpCo Partnership......................................... 44,458 45,537
Minority interest in other consolidated subsidiaries.......................... 323,662 480
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized: 100,000,000 shares; no shares
issued and outstanding................................................... -- --
Excess stock, $0.01 par value; authorized: 750,000,000 shares; no shares
issued and outstanding................................................... -- --
Common stock, $0.01 par value; authorized: 650,000,000 shares; issued and
outstanding: 107,648,946 shares in 1998 and 73,276,716 shares in 1997.... 1,077 733
Additional paid-in capital................................................. 120,460 80,152
Receivable from shareholders and affiliates................................ (1,139) --
Unearned executive compensation, net of accumulated amortization of $191 .. (4,446) --
Unrealized gain on securities available for sale........................... 106 --
Retained earnings/(deficit)................................................ 3,160 (20)
--------------- --------------
Total shareholders' equity........................................... 119,218 80,865
--------------- --------------
Total liabilities and shareholders' equity........................... $ 1,493,038 $ 252,088
=============== ==============
</TABLE>
See notes to condensed financial statements.
9
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1998
--------------
<S> <C>
Revenue:
Hotel revenue................................................ $ 290,644
Racecourse facility revenue.................................. 23,048
Management fee and service fee income........................ 14,104
Interest and other income.................................... 2,186
--------------
Total revenue............................................ 329,982
--------------
Expenses:
Hotel expenses............................................... 182,371
Racecourse facility operations............................... 18,184
General and administrative................................... 12,023
Depreciation and amortization................................ 15,106
Lease payments............................................... 89,084
Interest expense............................................. 5,699
-------------
Total expenses .......................................... 322,467
--------------
Operating income................................................ 7,515
Equity in earnings of unconsolidated subsidiaries............ 1,720
--------------
Income before income tax provision and minority interests....... 9,235
Income tax provision......................................... (3,187)
--------------
Income before minority interests................................ 6,048
Minority interest in OpCo Partnership........................ 73
Minority interest in other consolidated subsidiaries......... (2,941)
--------------
Net income...................................................... $ 3,180
==============
Basic earnings per common share................................. $ 0.03
==============
Diluted earnings per common share............................... $ 0.03
==============
</TABLE>
See notes to condensed financial statements.
10
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1998
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 3,180
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................................................... 8,625
Amortization of unearned stock compensation............................................ 191
Amortization of deferred loan costs.................................................... 129
Amortization of management contracts and trade names................................... 3,245
Amortization of goodwill............................................................... 3,107
Net payments collected from unconsolidated subsidiaries................................ 9
Issuance of stock for directors' fees and bonus........................................
205
Deferred income taxes.................................................................. (1,068)
Equity in earnings of unconsolidated subsidiaries...................................... (1,720)
Minority interest in income of OpCo Partnership........................................ (73)
Minority interest in income of other consolidated subsidiaries......................... 2,941
Changes in assets and liabilities:
Accounts receivable, prepaid expenses and other assets................................. (4,223)
Inventories............................................................................ 424
Accounts payable and other accrued expenses............................................ 12,811
--------
Net cash provided by operating activities..................................... 27,783
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to furniture and fixtures....................................... (3,137)
Deferred acquisition costs................................................................. (24,435)
Cash received upon acquisition of hotel leases............................................. 28,976
Change in due to Patriot................................................................... 11,892
Increase in restricted cash accounts....................................................... (158)
Investment in mortgage notes and other receivables......................................... (939)
--------
Net cash provided by investing activities..................................... 12,199
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments received on subscription notes receivable......................................... 12,875
Borrowings under mortgage notes............................................................ (3,780)
Capital leases............................................................................. (805)
Net proceeds from issuance of common stock................................................. 6,210
Distributions paid......................................................................... (451)
--------
Net cash provided by financing activities..................................... 14,049
--------
Net increase in cash and cash equivalents....................................................... 54,031
Cash and cash equivalents at beginning of period................................................ 27,076
--------
Cash and cash equivalents at end of period...................................................... $ 81,107
========
</TABLE>
See notes to condensed financial statements.
11
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was
formed April 17, 1995 as a self-administered real estate investment trust
("REIT") for the purpose of acquiring equity interests in hotel properties. On
October 2, 1995, Old Patriot completed an initial public offering of shares of
its common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey
Club ("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal
Jockey Merger"). Cal Jockey's shares of common stock were paired and traded
together with the shares of common stock of Bay Meadows Operating Company ("Bay
Meadows") as a single unit pursuant to a stock pairing arrangement. In
connection with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot
American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to
"Patriot American Hospitality Operating Company." In January 1998, as a result
of the merger of Wyndham Hotel Corporation with and into Patriot as discussed
below, Patriot American Hospitality Operating Company changed its name to
"Wyndham International, Inc." and is referred to herein, collectively with its
subsidiaries, as "Wyndham International." The term "Companies" as used herein
includes Patriot, Wyndham International and their respective subsidiaries.
Patriot and Wyndham International are both Delaware corporations.
The Cal Jockey Merger was accounted for as a reverse acquisition
whereby Cal Jockey was considered to be the acquired company for accounting
purposes. Consequently, the historical financial information of Old Patriot
became the historical financial information for Patriot. For accounting
purposes, Wyndham International commenced its operations concurrent with the
closing of the Cal Jockey Merger on July 1, 1997.
In connection with the Cal Jockey Merger, Bay Meadows formed an
operating partnership, Patriot American Hospitality Operating Partnership, L.P.
(the "OpCo Partnership") into which Bay Meadows contributed its assets in
exchange for units of limited partnership interest ("OP Units") of the OpCo
Partnership, and Cal Jockey contributed certain of its assets to Patriot
American Hospitality Partnership, L.P. (the "Patriot Partnership") in exchange
for OP Units of the Patriot Partnership (collectively, the OpCo Partnership and
the Patriot Partnership are referred to herein as the "Operating Partnerships").
Subsequent to completion of the Cal Jockey Merger and the transactions
contemplated by the Cal Jockey Merger Agreement, substantially all of the
operations of Patriot and Wyndham International have been conducted through the
Operating Partnerships and their subsidiaries.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in the
Patriot Partnership. In addition, Patriot, through its wholly owned subsidiary,
PAH LP, Inc., owns an approximate 90.3% limited partnership interest in the
Patriot Partnership as of March 31, 1998.
Wyndham International owns a 1.0% general partnership interest and an
approximate 88.9% limited partnership interest in the OpCo Partnership as of
March 31, 1998.
At March 31, 1998, Patriot, through the Patriot Partnership and other
subsidiaries, owned interests in 120 hotels with an aggregate of over 30,000
guest rooms and leased 14 hotels from third parties with over 2,700 rooms.
Patriot leases each of its hotels, except the six hotels that are separately
owned through special purpose entities and other unconsolidated subsidiaries, to
Wyndham International or to other third party lessees (the "Lessees") who are
responsible for operating the hotels. At March 31, 1998, Patriot leased 17 of
its hotel investments to CHC Lease Partners for staggered terms of ten to twelve
years pursuant to separate participating leases providing for the payment of the
greater of base or participating rent, plus certain additional charges, as
applicable (the "Participating Leases"). Twelve of the hotels were leased to
NorthCoast Hotels, L.L.C. ("NorthCoast Lessee") under similar Participating
Lease agreements. DTR North Canton, Inc. (the "Doubletree Lessee") leased four
hotels; and Metro Hotels Leasing Corporation ("Metro Lease Partners") leased one
hotel under similar Participating Lease agreements. The Lessees, in turn, have
entered into separate agreements with hotel management entities (the
"Operators") to
12
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
manage the hotels. At March 31, 1998, Wyndham International leased 94 hotels
from Patriot pursuant to Participating Lease agreements which are substantially
similar to the Participating Lease agreements of the Lessees. Wyndham
International manages 81 of these hotels through certain of its hotel management
subsidiaries and has entered into separate management agreements with hotel
Operators to manage 13 of the hotels.
Principles of Consolidation
The unaudited separate consolidated financial statements include the
accounts of Patriot and Wyndham International, their respective wholly-owned
subsidiaries, and the partnerships, corporations and limited liability companies
in which Patriot or Wyndham International own a controlling interest. The
unaudited separate consolidated financial statements of Patriot and Wyndham
International have also been combined for purposes of financial statement
presentation. All significant intercompany accounts and transactions have been
eliminated.
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. These financial statements have been prepared in accordance
with the accounting policies described in Patriot's and Wyndham International's
Joint Annual Report on Form 10-K for the year ended December 31, 1997. Certain
prior year amounts have been reclassified to conform to current period
presentation.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("Statement 130"),
"Reporting Comprehensive Income" which establishes standards for reporting and
display of comprehensive income and its components. The Companies have adopted
Statement 130 beginning with their interim financial statements for the first
quarter of 1998. Management believes that they do not have material items that
would require presentation in a separate statement of comprehensive income.
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 131 ("Statement 131"), "Disclosures About Segments of an Enterprise and
Related Information" which specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information to
be disclosed. Statement 131 is effective for fiscal years beginning after
December 15, 1997, but need not be applied to interim financial statements in
the initial year of its application. Management believes this statement will
result in expanded disclosure for the financial statements.
2. HOTELS AND OTHER BUSINESSES ACQUIRED:
Hotel Investments Purchased
During the first quarter of 1998, Patriot, through the Patriot
Partnership and its subsidiaries, invested approximately $163,000 in the
acquisition of two hotels with a total of approximately 1,187 guest rooms. These
acquisitions were financed primarily with funds drawn on Patriot's revolving
credit facility, the issuance of 51,290 OP Units valued at approximately $1,421
and the assumption of mortgage debt in the amount of approximately $50,324. In
addition, Patriot acquired an office building that will be converted into a
hotel for approximately $33,900.
Business Combinations
Wyndham Hotel Corporation - On January 5, 1998, Wyndham Hotel
Corporation ("Old Wyndham") merged with and into Patriot, with Patriot being the
surviving corporation (the "Wyndham Merger").
13
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Patriot, as a result of the Wyndham Merger, acquired ownership of ten
Wyndham hotels and 14 ClubHouse hotels and leased such hotels to Wyndham
International. Thirteen of the 14 hotel leases assumed by Patriot were
sub-leased to Wyndham International. Old Wyndham's remaining 52 management and
franchise contracts (excluding 16 hotels that Old Wyndham managed that are owned
by Patriot), the Wyndham and ClubHouse proprietary brand names, and the Wyndham
hotel management company were transferred to corporate subsidiaries of Patriot
(collectively, the "New Non-Controlled Subsidiaries"). Patriot owns a 99%
non-voting interest and Wyndham International owns the 1% controlling voting
interest in each of the New Non-Controlled Subsidiaries. Therefore, the
operating results of the New Non-Controlled Subsidiaries will be combined with
those of Wyndham International for financial reporting purposes. Patriot
accounts for its investment in the New Non-Controlled Subsidiaries using the
equity method of accounting. The total purchase consideration for the Wyndham
Merger of approximately $982,000 consisted of 21,594,137 Paired Shares and
4,860,876 shares of Series A Convertible Preferred Stock of Patriot (which are
convertible on a one-for-one basis into Paired Shares), cash of approximately
$339,000 to repay debt and pay Old Wyndham shareholders who elected to receive
cash (which was financed with funds drawn on the Companies' revolving credit
facility (the "Revolving Credit Facility"), and the assumption of approximately
$59,063 in debt.
WHG Casinos & Resorts, Inc. and related transactions - On January 16,
1998, a subsidiary of Wyndham International merged with and into WHG Casinos &
Resorts Inc. ("WHG"), with WHG being the surviving corporation (the "WHG
Merger"). As a result of the WHG Merger, Wyndham International acquired the
570-room Condado Plaza Hotel & Casino, a 50% interest in the partnership that
owns the 389-room El San Juan Hotel & Casino and a 23.3% interest in the
partnership that owns the 751-room El Conquistador Resort & Country Club (the
"El Conquistador"), all of which are located in Puerto Rico. In addition,
Wyndham International acquired a 62% interest in Williams Hospitality Group,
Inc., the management company for the three hotels and the Las Casitas Village at
the El Conquistador. A total of 5,004,690 Paired Shares were issued in
connection with the WHG Merger and approximately $21,300 of debt was assumed,
resulting in total purchase consideration of approximately $159,400.
Effective March 1, 1998, Patriot acquired from unaffiliated third
parties a 40% interest in the El San Juan Hotel & Casino, an aggregate 68.62%
equity interest in the El Conquistador and a 38% interest in Williams
Hospitality Group, Inc. for approximately $31,000 in cash and issuance of
1,818,182 Paired Shares valued at approximately $49,227 (collectively, these
transactions and the WHG Merger are referred to herein as the "WHG
Transactions"). Wyndham International owns the controlling general partner
interest in the partnerships that own the El San Juan Hotel & Casino and the El
Conquistador. Wyndham International also holds voting control of Williams
Hospitality Group, Inc. Therefore, the operating results of these entities have
been consolidated with those of Wyndham International for financial reporting
purposes. As a result, approximately $188,922 of debt related to the
partnerships that own the El San Juan Hotel & Casino and the El Conquistador has
also been reflected in Wyndham International's consolidated balance sheet.
Patriot accounts for its investment in these entities using the equity method of
accounting.
3. SUBSCRIPTION NOTES:
In order to effect the issuance of the paired shares of common stock
and OP Units which were issued in the Cal Jockey Merger, the Patriot Partnership
subscribed for shares of Bay Meadows common stock (which became shares of
Wyndham International common stock) in an amount equal to the number of shares
of Patriot common stock that were issued to Old Patriot stockholders in the Cal
Jockey Merger. In addition, the Patriot Partnership similarly subscribed for OP
Units in the OpCo Partnership in an amount equal to the number of OP Units of
the Patriot Partnership that were outstanding subsequent to the Cal Jockey
Merger. These subscriptions were funded through the issuance of promissory notes
(the "Subscription Notes") in the aggregate amount of $58,901 payable to Wyndham
International. The Subscription Notes, as amended, accrued interest at a rate of
8% per annum and were paid in full in the first quarter of 1998.
14
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
In connection with the issuance of Paired Shares in the Wyndham Merger,
Patriot issued Subscription Notes payable to Wyndham International in the
aggregate amount of $30,535. These Subscription Notes bear interest at a rate of
LIBOR plus 1% per annum and mature January 31, 2001.
In connection with the issuance of Paired Shares in the WHG Merger,
Wyndham International issued Subscription Notes payable to Patriot in the
aggregate amount of $133,669. These Subscription Notes bear interest at a rate
of 8.7% per annum and mature in January 2001.
4. INTEREST RATE SWAP:
The Companies entered into a fourth interest rate swap arrangement
during the first quarter of 1998 to swap floating rate LIBOR-based interest
rates for a fixed rate interest amount as a hedge against $125,000 of the
outstanding balance on the Companies' revolving credit facility. The interest
rate swap fixes the LIBOR portion of the revolving credit facility interest rate
at 5.5575% per annum through November 2002. If the actual LIBOR rate is less
than the specified fixed interest rate, Patriot is obligated to pay the
differential interest amount, such amount being recorded as incremental interest
expense. If the LIBOR is greater than the specified fixed interest rate, the
differential interest amount is refunded to Patriot.
5. COMPUTATION OF EARNINGS PER SHARE:
Basic and diluted earnings per share have been computed as follows:
Combined
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
------------------------------ ------------------------------
BASIC DILUTED BASIC DILUTED
-------------- --------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income before extraordinary item.................. $ 37,128 $ 37,128 $ 11,348 $ 11,348
Extraordinary loss................................ (18,716) (18,716) -- --
----------- ----------- ----------- -----------
Net income........................................ $ 18,412 $ 18,412 $ 11,348 $ 11,348
=========== =========== =========== ===========
Weighted average number of Paired Shares
outstanding.................................... 99,490 99,490 43,189 43,189
=========== ===========
Dilutive securities:
Effect of unvested stock grants................ 872 555
Dilutive options to purchase Paired Shares..... 2,024 810
Dilutive convertible preferred shares.......... 4,645 --
----------- -----------
107,031 44,554
=========== ===========
Earnings per Paired Share:
Income before extraordinary item............... $ 0.37 $ 0.35 $ 0.26 $ 0.25
Extraordinary loss............................. (0.19) (0.18) -- --
----------- ----------- ----------- -----------
Net income..................................... $ 0.18 $ 0.17 $ 0.26 $ 0.25
=========== =========== =========== ===========
</TABLE>
15
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Patriot
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
------------------------------ ------------------------------
BASIC DILUTED BASIC DILUTED
-------------- --------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income before extraordinary item.................. $ 34,213 $ 34,213 $ 11,348 $ 11,348
Extraordinary loss................................ (18,716) (18,716) -- --
----------- ----------- ----------- -----------
Net income........................................ $ 15,497 $ 15,497 $ 11,348 $ 11,348
=========== =========== =========== ===========
Weighted average number of common shares
outstanding.................................... 99,490 99,490 43,189 43,189
=========== ===========
Dilutive securities:
Effect of unvested stock grants................ 872 555
Dilutive options to purchase common shares..... 2,024 810
Dilutive convertible preferred shares.......... 4,645 --
----------- -----------
107,031 44,554
=========== ===========
Earnings per share:
Income before extraordinary item............... $ 0.35 $ 0.32 $ 0.26 $ 0.25
Extraordinary loss............................. (0.19) (0.18) -- --
----------- ----------- ----------- -----------
Net income..................................... $ 0.16 $ 0.14 $ 0.26 $ 0.25
=========== =========== =========== ===========
</TABLE>
Wyndham International
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
---------------------------
BASIC DILUTED
----------- -------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net income............................................................. $ 3,180 $ 3,180
======= ========
Weighted average number of common shares outstanding................... 99,490 99,490
=======
Dilutive securities:
Effect of unvested stock grants..................................... 872
Dilutive options to purchase common shares.......................... 2,024
Dilutive convertible preferred shares............................... 4,645
--------
107,031
========
Earnings per common share.............................................. $ 0.03 $ 0.03
======= ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
CHC International, Inc.
The Companies and CHC International, Inc. ("CHCI") have entered into an
Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger
Agreement"), providing, subject to regulatory approvals, for the merger of the
hospitality-related businesses of CHCI with and into Wyndham International with
Wyndham International being the surviving company (the "CHCI Merger"). Subject
to regulatory approvals, CHCI's gaming
16
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
operations will be transferred to a new legal entity prior to the CHCI Merger
and such operations will not be a part of the transaction. It is anticipated
that the CHCI Merger will be consummated in the second quarter of 1998. As a
result of the CHCI Merger, Wyndham International, through its subsidiaries, will
acquire the remaining 50% investment interest in GAH-II, L.P., the remaining 17
leases and 16 of the associated management contracts related to the Patriot
hotels leased by CHC Lease Partners, 12 third-party management contracts, two
third-party lease contracts, the Grand Bay and Registry Hotels & Resorts
proprietary brand names and certain other hospitality management assets. Wyndham
International has also agreed to provide CHCI with a $7,000 line of credit until
such time as the CHCI Merger is completed. By operation of the CHCI Merger, all
issued and outstanding common stock of CHCI will be exchanged for approximately
4,396,000 shares of Wyndham International preferred stock, subject to certain
adjustments.
Interstate Merger
On December 2, 1997, Patriot and Wyndham International entered into an
Agreement and Plan of Merger (the "Interstate Merger Agreement") pursuant to
which Interstate Hotels Company ("Interstate") would merge with and into Patriot
with Patriot being the surviving corporation (the "Interstate Merger"). Pursuant
to the Interstate Merger Agreement, stockholders of Interstate could elect to
convert each of their shares of Interstate common stock into the right to
receive either (i) $37.50 in cash, subject to proration in certain circumstances
(the "Interstate Cash Consideration"), or (ii) a number of Paired Shares based
on an exchange ratio of Paired Shares for each share of Interstate common stock
not exchanged for cash (the "Interstate Exchange Ratio"). Such elections by
stockholders of Interstate were to be prorated to ensure that 40% of the
outstanding shares of Interstate common stock was converted into the right to
receive Interstate Cash Consideration and that the remaining 60% of the
outstanding shares of Interstate common stock was converted into the right to
receive Paired Shares at the Interstate Exchange Ratio, subject to adjustment in
certain circumstances for the exercise of dissenters' rights. The special
meetings of the stockholders of Patriot, Wyndham International and Interstate at
which approval of the Interstate Merger was to be sought were originally
scheduled for March 30, 1998. On March 23, 1998, Patriot and Interstate jointly
announced that the Interstate Exchange Ratio had been set at 1.341 Paired Shares
for each Interstate share.
On March 26, 1998, Marriott International, Inc. ("Marriott") sued
Interstate in the United States District Court for the District of Maryland (the
"Marriott Litigation") seeking an injunction against the Interstate Merger. By
agreement of the parties the complaint was dismissed without prejudice during
settlement discussions until March 30, 1998. On March 30, 1998, Marriott
re-filed its complaint and sought a temporary restraining order and preliminary
injunction. In its complaint Marriott asserted certain rights with respect to 29
hotels owned and/or operated by certain affiliates and subsidiaries of
Interstate under direct franchise agreements with Marriott, as well as certain
rights concerning any transfer of control of those Interstate-related
franchisees. The alleged rights asserted by Marriott included, among others, a
right of first refusal over 19 of the hotels, rights of consent allegedly
prohibiting Interstate from engaging in any transaction that constitutes a
transfer of the franchise agreement or a change in control of the franchisees
without Marriott's prior written consent, rights of non-competition allegedly
prohibiting Interstate from owning, operating, or being connected or associated
with a company that owns the trade name of a chain of hotels which competes with
Marriott without Marriott's consent, as well as a right of first refusal to
acquire all of the equity interests in Interstate. In December 1997, Patriot and
Marriott had entered into a non-binding letter agreement regarding these
matters.
On March 30, 1998, Patriot, Wyndham International and Interstate each
elected to convene and then adjourn their respective stockholders meetings to
April 2, 1998 at 1:00 p.m. (CST) so as to permit additional time to negotiate
with Marriott.
Also on March 30, 1998, Patriot and Wyndham International filed a
complaint in the District Court of Dallas County, Texas against Marriott
alleging that Marriott had tortiously interfered with the Interstate Merger and
was tortiously interfering with potential new business relationships and
contractual opportunities.
17
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
On March 31, 1998, Marriott filed an Amended Verified Complaint which,
among other things, added allegations and sought injunctive relief for alleged
violations of the Lanham Act allegedly to be caused by the transfer by
Interstate, without the consent of Marriott, of the right to use certain marks
registered by Marriott.
For recent developments regarding the Marriott Litigation, see Note 10.
Financing Transactions
Patriot has received a commitment from its lenders to increase
Patriot's existing credit facilities by $1,450,000 from the current $1,250,000.
The new credit facility will be comprised of the $900,000 revolving credit
facility and the $350,000 term loan currently in place as well as a series of
term loans totaling $1,450,000 with varying maturities up to five years.
Interest will be based on Patriot's leverage ratio and may vary from 1.50% to
2.50% over LIBOR. The credit facilities will be secured by stock and partnership
interests in the assets of Patriot. The additional financing will be primarily
utilized to fund the Interstate Merger.
7. PRIVATE PLACEMENT OF PAIRED SHARES:
In February 1998, the Companies completed a private placement of Paired
Shares coupled with a one-year price adjustment agreement with an affiliate of
NationsBanc Montgomery Securities LLC. Under the terms of the agreement, Patriot
and Wyndham International privately issued 4,900,000 Paired Shares at a price of
$25.50 per Paired Share, resulting in net proceeds of approximately $121,800.
During the term of the price adjustment agreement, Patriot will deliver or
receive Paired Shares or cash, based on the market price of the Paired Shares at
the time of the adjustment. Proceeds from the private placement were used to
reduce outstanding indebtedness under the Companies' revolving credit facility.
8. INCOME TAXES:
As a result of the Wyndham Merger and the WHG Merger, Wyndham
International recorded a deferred tax liability totaling $88,047. The deferred
tax liability represents the tax effects of differences between the fair values
and the tax bases of identifiable assets acquired and liabilities assumed in
connection with the transactions.
18
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
9. PRO FORMA RESULTS OF OPERATIONS:
The following unaudited separate and combined pro forma results of
operations of Patriot and Wyndham International are presented as if (i) the
acquisition of the 120 hotels owned by Patriot as of March 31, 1998; (ii) the
Cal Jockey Merger and the Wyndham Merger and the related transactions; (iii) the
replacement of Patriot's old line of credit facility with its current revolving
credit facility, the funding of the $350,000 term loan and other mortgage debt;
(iv) the acquisition of Grand Heritage Hotels, Inc. and other Grand Heritage
subsidiaries; (v) the acquisition of eight leasehold interests and the
approximate 50% investment interest in GAH; (vi) the WHG Transactions; and (vii)
the private placements of equity securities and public offering of the
Companies' common stock which occurred during the first quarter of 1998 and
during 1997 had occurred on January 1, 1997, and the hotels (except the six
hotels owns by special purpose entities) had been leased to Wyndham
International or the Lessees pursuant to the Participating Leases. The following
unaudited pro forma financial information is not necessarily indicative of what
actual results of operations of Patriot and Wyndham International would have
been assuming such transactions had been completed as of January 1, 1997, nor do
they purport to represent the results of operations for future periods.
PATRIOT AND WYNDHAM INTERNATIONAL
COMBINED PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1998 1997
----------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue............................................................... $ 395,555 $ 361,747
Net income.................................................................. 43,202 31,680
Basic earnings per Paired Share............................................. $ 0.40 $ 0.30
================= =================
Diluted earnings per Paired Share........................................... $ 0.38 $ 0.28
================= =================
Weighted average number of Paired Shares and Paired Share equivalents
outstanding:
Basic..................................................................... 106,993 106,993
================= =================
Diluted................................................................... 114,538 114,538
================= =================
</TABLE>
19
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
PATRIOT
CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1998 1997
----------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue............................................................... $ 114,566 $ 102,174
Net income.................................................................. 39,924 32,894
Basic earnings per share.................................................... $ 0.37 $ 0.31
================= =================
Diluted earnings per share.................................................. $ 0.35 $ 0.29
================= =================
Weighted average number of common shares and common share equivalents
outstanding:
Basic..................................................................... 106,993 106,993
================= =================
Diluted................................................................... 114,538 114,538
================= =================
</TABLE>
WYNDHAM INTERNATIONAL
CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1998 1997
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue............................................................... $ 375,537 $ 344,365
Net income (loss)........................................................... 3,544 (1,214)
Basic income (loss) per share............................................... $ 0.03 $ (0.01)
================= =================
Diluted income (loss) per share............................................. $ 0.03 $ (0.01)
================= =================
Weighted average number of common shares and common share equivalents
outstanding:
Basic..................................................................... 106,993 106,993
================= =================
Diluted................................................................... 114,538 106,993
================= =================
</TABLE>
10. SUBSEQUENT EVENTS:
Marriott Litigation and the Interstate Merger
On April 2, 1998, the United States District Court for the District of
Maryland denied Marriott's motion for a temporary restraining order to block the
Interstate Merger and for preliminary injunctive relief. Marriott appealed the
denial and the emergency judge sitting for the United States Court of Appeals
for the Fourth Circuit instructed the parties not to close the Interstate Merger
before noon on Friday, April 3, 1998, to permit the appeals court to consider a
request by Marriott for a temporary injunction pending expedited appeal of the
district court decision denying injunctive relief. Also on April 2, 1998, the
stockholders of both Patriot and Interstate voted to approve the proposed
Interstate Merger.
On April 8, 1998, the United States Court of Appeals for the Fourth
Circuit issued a preliminary injunction enjoining Interstate from transferring
control, directly or indirectly, in the 29 Marriott-franchised hotels which were
20
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
the subject of the Marriott Litigation and remanded the case to the District
Court for reconsideration and expedited resolution. On April 8, 1998, Interstate
also announced that it would permit its stockholders who had previously made
cash elections to request the return of that portion of their shares which would
not be exchanged for cash upon completion of the Interstate Merger.
The April 2, 1998 order of the District Court had included an order
that Marriott join Patriot to the Marriott Litigation as a necessary party. On
April 14, 1998, Marriott moved for leave to file a second amended complaint
which, among other things, added Patriot and Wyndham International as additional
defendants in the Marriott Litigation. On April 15, 1998, the District Court
entered an order granting Marriott leave to file the Amended Complaint, thereby
joining Patriot and Wyndham International as defendants in the litigation.
Patriot and Wyndham International filed their answer to the Amended Complaint on
April 24, 1998.
On April 15, 1998, Patriot and Interstate agreed that, upon written
request to the exchange agent, Interstate stockholders will also have the option
to revoke their cash elections and request the return of all of their Interstate
stock. However, to the extent that the Interstate stockholders request the
return of shares that would have been entitled to be exchanged for cash upon
consummation of the Interstate Merger, such shares may not subsequently be
resubmitted for cash and will instead be exchanged for 1.341 Paired Shares upon
consummation of the Interstate Merger. Further, the revocation of the cash
elections will not alter the number of shares to be exchanged for cash by those
shareholders who choose not to revoke their cash elections. By virtue of such
revocations, the total cash consideration in the Interstate Merger will be
reduced pro rata such that stockholders who retain their cash elections will not
have a greater number of shares exchanged for cash.
On May 4, 1998, Patriot, Wyndham International and Interstate announced
that they have reached an agreement in principle with Marriott to settle the
Marriott Litigation. On May 12, 1998, Patriot and Wyndham International
announced that the United States District Court for the District of Maryland had
agreed to delay the start of trial pending further notice from the parties to
allow the parties to complete and sign a definitive settlement agreement and
related documentation. In the interim, the parties agreed to keep confidential
the terms of the proposed settlement, except that the settlement, if completed,
would allow the Interstate Merger to be consummated.
The agreement in principle is not a definitive settlement agreement and
is not binding on any party. There can be no assurance that a definitive
settlement agreement will be reached. Neither can any assurances be made
regarding whether, or upon what terms, the Interstate Merger will be
consummated. Additionally, no assurances can be made regarding the timing of any
potential consummation of the Interstate Merger. No assurances can be made
regarding the probable outcome of the Marriott Litigation, or the impact of any
potential definitive settlement agreement or other resolution of the Marriott
Litigation upon the Interstate Merger or the financial condition or results of
operations of Patriot or Wyndham International.
Arcadian Acquisition
On January 20, 1998, Patriot announced in the United Kingdom its
intention to proceed with a takeover of Arcadian International PLC ("Arcadian"),
a company listed on the London Stock Exchange. Arcadian is an owner, developer
and operator of hotels in the United Kingdom and continental Europe. On April 6,
1998, Patriot announced the completion of its acquisition of all of the issued
and to-be-issued shares of Arcadian for 60 pence per share (the "Arcadian
Acquisition"). Including the exercise of all outstanding options to purchase
shares, the assumption of debt and the acquisition of the remaining shares in
the Malmaison Group, the total transaction cost is approximately (pound)179,000
($296,000 U.S. based on exchange rates in effect at closing). As a result of the
transaction, Patriot acquired ten owned hotels located throughout England; one
owned hotel in Jersey; five owned and managed Malmaison Hotels; two resorts
under development in Tuscany, Italy and Paris, France; and the proprietary
Malmaison brand name. Patriot also acquired Arcadian's 50% partnership interest
in the redevelopment of the luxury Great Eastern Hotel in London, to be branded
as a flagship Wyndham Hotel and operated by Wyndham International once the
development has been completed.
21
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
In connection with the Arcadian Acquisition, Patriot entered into a
short-term financing agreement in April 1998 with Paine Webber Real Estate
Securities, Inc. ("Paine Webber Real Estate") whereby Paine Webber Real Estate
loaned Patriot $160,000 through April 15, 1999, at a rate equal to the borrowing
rate on Patriot's revolving credit facility. In addition, Patriot assumed
approximately $112,600 of debt in connection with the transaction.
Private Placement of Paired Shares
On April 6, 1998, the Companies completed a private placement of Paired
Shares coupled with a one-year price adjustment agreement. Under the terms of
the agreement, Patriot and Wyndham International privately issued 5,150,000
Paired Shares at a price of $27.5625 per Paired Share, resulting in gross
proceeds of approximately $141,900. During the term of the price adjustment
agreement, Patriot will deliver or receive Paired Shares, based on the market
price of the Paired Shares at the time of the adjustment. Proceeds from the
private placement were used to reduce outstanding indebtedness under the
Companies' revolving credit facility.
Extension of Loan Agreement
In April 1998, the maturity date of Patriot's $103,000 mortgage loan
with Paine Webber Real Estate was extended to December 1998. In connection with
the loan extension, Patriot paid a fee of approximately $515.
Cash Dividends Declared
On May 4, 1998, Patriot declared a dividend of $0.32 per share for the
first quarter of 1998. The dividend is payable on May 29, 1998 to shareholders
of record on May 20, 1998.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the Companies' Joint Annual Report on Form 10-K for
the year ended December 31, 1997.
Certain statements in this Form 10-Q constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act"). The words "believe", "expect", "anticipate",
"intend", "estimate" and other expressions which are predictions of or indicate
future events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements and to note that they speak only as of the date
hereof. Although forward-looking statements reflect management's good faith
beliefs, reliance should not be placed on forward-looking statements because
they involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievement of the Companies to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. The Companies undertake
no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise. Certain
factors that might cause a difference include, but are not limited to, risks
associated with the Companies' rapid growth and its ability to integrate its
existing operations, departments and systems with those acquired in the Wyndham
Merger and the WHG Merger and those being acquired in the Interstate Merger and
other transactions; risks associated with the adoption of legislation,
regulations or administrative interpretations which could adversely affect the
Companies' paired share structure; Patriot's dependence upon rental payments
from Wyndham International and the Lessees for substantially all of Patriot's
income and the dependence upon the abilities of Wyndham International, the
Lessees and the Operators (as such terms are defined herein) to manage the
hotels; risks associated with the hotel industry and real estate markets in
general; and risks associated with debt financing.
THE COMPANIES
As of March 31, 1998, Patriot, directly or through certain of its
subsidiaries, owned interests in 120 hotels with an aggregate of over 30,000
guest rooms and leased 14 hotels with over 2,700 rooms. The hotels are
diversified by franchise or brand affiliation and serve primarily major U.S.
business centers. In addition to hotels catering primarily to business
travelers, Patriot's portfolio includes world-class resort hotels, including The
Boulders, near Scottsdale, Arizona; The Lodge at Ventana Canyon in Tucson,
Arizona; The Peaks Resort & Spa in Telluride, Colorado; and Carmel Valley Ranch
Resort in Carmel, California and prominent hotels in major tourist destinations.
The owned hotels include 106 full service hotels, nine resort hotels, four
limited service hotels and an executive conference center. All but seven of the
hotels are operated under franchise or brand affiliations with nationally
recognized hotel companies.
Patriot leases each of its hotels, except six hotels that are
separately owned through special purpose entities or other unconsolidated
subsidiaries, to Wyndham International or to third party lessees (the "Lessees")
who are responsible for operating the hotels. As of March 31, 1998, 94 hotels
were leased to Wyndham International and its affiliates and 34 hotels were
leased to the Lessees. Patriot leased 17 of its hotel investments to CHC Lease
Partners for staggered terms of ten to twelve years pursuant to separate
participating leases providing for the payment of the greater of base or
participating rent, plus certain additional charges, as applicable (the
"Participating Leases"). Twelve of the hotels were leased to NorthCoast Hotels,
L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. In
addition, DTR North Canton, Inc. (the "Doubletree Lessee") leased four hotels;
and Metro Hotels Leasing Corporation ("Metro Lease Partners") leased one hotel
under similar Participating Lease agreements. The Lessees, in turn, have entered
into separate agreements with hotel management entities (the "Operators") to
manage the hotels. Wyndham International manages 81 of its hotels through
certain of its hotel management subsidiaries and has entered into separate
management agreements with hotel Operators to manage 13 of its hotels.
In addition to leasing and managing hotels, Wyndham International is
also engaged in the business of conducting and offering pari-mutuel wagering on
thoroughbred horse racing at the Bay Meadows Racecourse (the "Racecourse").
23
<PAGE>
HOTELS AND OTHER BUSINESSES ACQUIRED DURING THE QUARTER
During the quarter ended March 31, 1998, Patriot acquired investments
in two hotels for approximately $163 million. These acquisitions were financed
primarily with funds drawn on the Companies' revolving credit facility, the
issuance of 51,290 OP Units valued at approximately $1.4 million, and the
assumption of other mortgage debt in the amount of approximately $50.3 million.
In addition, Patriot acquired an office building that will be converted into a
hotel for approximately $33.9 million.
Wyndham Hotel Corporation
On January 5, 1998, pursuant to the Agreement and Plan of Merger dated
as of April 14, 1997, as thereafter amended, (the "Wyndham Merger Agreement")
between Patriot, Wyndham International and Wyndham Hotel Corporation ("Old
Wyndham"), Old Wyndham merged with and into Patriot, with Patriot being the
surviving corporation (the "Wyndham Merger").
Patriot, as a result of the Wyndham Merger, acquired ownership of ten
Wyndham hotels and 14 Clubhouse hotels and leased such hotels to Wyndham
International. Thirteen of the 14 hotel leases assumed by Patriot were
sub-leased to Wyndham International. Old Wyndham's remaining 52 management and
franchise contracts (excluding 16 hotels that Old Wyndham managed that are owned
by Patriot), the Wyndham and ClubHouse proprietary brand names, and the Wyndham
hotel management company were transferred to corporate subsidiaries of Patriot
(collectively, the "New Non-Controlled Subsidiaries"). Patriot owns a 99%
non-voting interest and Wyndham International owns the 1% controlling voting
interest in each of the New Non-Controlled Subsidiaries. Therefore, the
operating results of the New Non-Controlled Subsidiaries have been combined with
those of Wyndham International for financial reporting purposes. Patriot
accounts for its investment in the New Non-Controlled Subsidiaries using the
equity method of accounting. The total purchase consideration for the Wyndham
Merger of approximately $982 million consisted of 21,594,137 Paired Shares and
4,860,876 shares of Series A Convertible Preferred Stock of Patriot (which are
convertible on a one-for-one basis into Paired Shares), cash of approximately
$339 million to repay debt and pay Old Wyndham shareholders who elected to
receive cash (which was financed with funds drawn on the Companies' revolving
credit facility (the "Revolving Credit Facility"), and the assumption of
approximately $59 million in debt.
WHG Casinos & Resorts, Inc. and Related Transactions
On January 16, 1998, pursuant to the Agreement and Plan of Merger dated
as of September 30, 1997 (the "WHG Merger Agreement) between Patriot, Wyndham
International and WHG Casinos & Resorts Inc. ("WHG"), a subsidiary of Wyndham
International merged with and into WHG, with WHG being the surviving corporation
(the "WHG Merger"). As a result of the WHG Merger, Wyndham International
acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest in the
partnership that owns the 389-room El San Juan Hotel & Casino and a 23.3%
interest in the partnership that owns the 751-room El Conquistador Resort &
Country Club (the "El Conquistador"), all of which are located in Puerto Rico.
In addition, Wyndham International acquired a 62% interest in Williams
Hospitality Group, Inc., the management company for the three hotels and the Las
Casitas Village at the El Conquistador. A total of 5,004,690 Paired Shares were
issued in connection with the WHG Merger and approximately $21.3 million of debt
was assumed, resulting in total purchase consideration of approximately $159.4
million.
Effective March 1, 1998, Patriot acquired from unaffiliated third
parties a 40% interest in the El San Juan Hotel & Casino, an aggregate 68.62%
equity interest in the El Conquistador and a 38% interest in Williams
Hospitality Group, Inc. for approximately $31 million in cash and issuance of
1,818,182 Paired Shares valued at approximately $49.2 million (collectively,
these transactions and the WHG Merger are referred to herein as the "WHG
Transactions"). Wyndham International owns the controlling general partner
interest in the partnerships that own the El San Juan Hotel & Casino and the El
Conquistador. Wyndham International also holds voting control of Williams
Hospitality Group, Inc. Therefore, the operating results of these entities have
been combined with those of Wyndham International for financial reporting
purposes. As a result, approximately $188.9 million of debt related to the
partnerships that own the El San Juan Hotel & Casino and the El Conquistador has
also been reflected in Wyndham International's consolidated balance sheet.
Patriot accounts for its investment in these entities using the equity method of
accounting.
24
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
Results of Operations: Quarter Ended March 31, 1998
Compared with Quarter Ended March 31, 1997
Patriot's lease revenue from the Lessees (including Wyndham
International) for the three months ended March 31, 1998, increased 213% from
$35,013,000 in 1997 to $109,649,000 in 1998. This increase is primarily due to
the acquisition of 66 hotel properties during the past twelve months. Patriot
owns 120 hotel properties as of March 31, 1998 including the hotels that are
separately owned through special purpose entities. Additionally, for the three
months ended March 31, 1998, Patriot reported $1,410,000 of lease revenue
related to the lease of the Racecourse facility and land to Wyndham
International. Interest and other income increased from $375,000 in 1997 to
$3,516,000 in 1998 which is primarily attributable to additional investments in
notes receivable and interest and dividend income earned on cash investments.
Interest and other income for the three months ended March 31, 1998 includes
$2,750,000 of interest income related to notes receivable from Wyndham
International.
For the three months ended March 31, 1998 as compared to the same
period for 1997, Patriot experienced similar increases in expenses as a result
of the acquisition of hotels discussed above.
Real estate and personal property taxes and casualty insurance were
$11,923,000 for the three months ended March 31, 1998, compared to $3,201,000
for the three months ended March 31, 1997.
Ground lease expense increased from $345,000 to $6,558,000 for the
three months ended March 31, 1997 compared to the same period in 1998 as a
result of acquisition of properties subject to existing ground leases, including
$1,170,000 related to the Racecourse land lease with an affiliate of
PaineWebber, Inc.
General and administrative expenses were $5,282,000 for the three
months ended March 31, 1998, compared to $2,782,000 for 1997. General and
administrative expenses include the amortization of unearned stock compensation
of $1,336,000 for 1998 and $621,000 for 1997. Additionally, Patriot incurred
expenses of $313,000 in 1998 associated with evaluating properties and companies
to be acquired which were ultimately not purchased, compared to $568,000 for
1997.
Interest expense for the three months ended March 31, 1998 was
$34,251,000 compared to $7,805,000 in 1997. Patriot's outstanding debt
obligations as of March 31, 1998 and 1997 were approximately $1.6 billion and
$466.7 million, respectively. The primary components of interest expense for the
three months ended March 31, 1998 are $22,558,000 of interest related to the
revolving credit facility and term loan, $7,943,000 of interest on mortgage
notes, $3,503,000 of amortization of deferred financing costs and $2,442,000 of
other interest related to other miscellaneous notes, capital lease obligations
and commitments payable. Interest expense for the three months ended March 31,
1997 consists primarily of $7,277,000 of interest on Patriot's old line of
credit facility and mortgage note balances outstanding and $328,000 of
amortization of deferred financing costs. Additionally, Patriot capitalized
interest totaling $2,195,000 and $82,000 for the three months ended March 31,
1998 and 1997, respectively, associated with major renovations of certain hotel
properties.
Depreciation and amortization expense was $20,497,000 for the three
months ended March 31, 1998 compared to $8,496,000 for the same period in 1997.
Patriot's share of income from unconsolidated subsidiaries was
$3,591,000 for the first quarter of 1998 compared to $1,021,000 for the first
quarter of 1997.
Minority interest share of income in the Patriot Partnership was
$3,128,000 and $2,232,000 for the three months ended March 31, 1998 and 1997,
respectively. Minority interest share of income in Patriot's other consolidated
subsidiaries was $533,000 for the first quarter of 1998 and $200,000 for the
first quarter of 1997.
Patriot repaid certain debt obligations of Old Wyndham in connection
with the Wyndham Merger. As a result, Patriot incurred certain prepayment
penalties and wrote off the remaining balance of unamortized deferred financing
costs associated with such debt in the aggregate amount of $20,892,000. This
amount, net of $2,176,000 of the minority interest share of the loss, has been
reported an extraordinary loss for the first quarter of 1998.
25
<PAGE>
As a result, net income was $15,497,000 for the three months ended
March 31, 1998 and $11,348,000 for the three months ended March 31, 1997.
WYNDHAM INTERNATIONAL, INC.
As of March 31, 1998, Wyndham International leases 94 hotels from
Patriot, managing 81 of those hotels, and manages 55 hotels for third parties.
In addition, Wyndham International operates the Bay Meadows Racecourse.
Subsequent to the Cal Jockey Merger in July 1997, the major portion of the
revenues of Wyndham International and Patriot have been derived from the leasing
and operation of hotels.
Results of Operations: Three Months Ended March 31, 1998
For the three months ended March 31, 1998, Wyndham International had
room revenues of $178,030,000 from the 94 hotels it leased during the period.
Food and beverage and telephone and other revenues were $112,614,000 for the
period. In addition, Wyndham International reported management fee and service
fee income of $14,104,000 for the three months ended March 31, 1998. Interest
and other income for the period includes $1,241,000 of interest income related
to the Subscription Notes.
Lease payments paid to Patriot pursuant to the Participating Leases,
other hotel sub-leases and the Racecourse facility lease were $89,084,000 for
the first quarter of 1998. Hotel operating expenses were $182,371,000 for the
period.
General and administrative expenses were $12,023,000 for the period and
consist primarily of salaries and wages of personnel brought onto Wyndham
International's payroll in connection with the Wyndham Merger.
Interest expense of $5,699,000 for the first quarter of 1998 is
primarily attributable to debt obligations related to the three hotels acquired
in the WHG Merger. The amount also includes $2,750,000 of interest expense
related to the Subscription Notes and other notes payable to Patriot.
Total revenues from the Racecourse facility operations were $23,048,000
for the three months ended March 31, 1998. Expenses associated with the
Racecourse operations were $18,184,000 for the three months ended March 31,
1998.
Minority interest's share of losses associated with the OpCo
Partnership was $73,000 for the three months ended March 31, 1998. Minority
interest's share of income in Wyndham International's other consolidated
subsidiaries was $2,941,000 in 1998.
As a result, the net income was $3,180,000 for the three months ended
March 31, 1998.
Statistical Information
Operating performance across the Companies' owned and leased portfolio
of hotels improved for the first quarter of 1998 over last year, as reflected in
an 8.9% increase in revenue per available room ("RevPAR"), a 6.3% increase in
average daily rate ("ADR"), and an improvement of 1.6 percentage points in
occupancy.
Similarly, first-quarter operating performance across Old Wyndham's
comparable portfolio of owned and managed hotels (hotels that were in Old
Wyndham's portfolio for one full common fiscal quarter in both periods
presented) improved over the 1997 first quarter, as reflected in an 11.8%
increase in RevPAR, an 8.4% increase in ADR, and improvements of 2.2 percentage
points in occupancy.
Management attributes this growth to continued marketing efforts
throughout the portfolio on hotels that have been newly renovated, and
repositioned in certain cases, as well as to the current strength of market
conditions in the U.S. lodging industry. The following table sets forth certain
statistical information for the Companies' portfolio of owned and leased hotels
and for Old Wyndham's portfolio of owned, leased and managed hotels that were in
its portfolio for one full common fiscal quarter in both periods presented.
26
<PAGE>
<TABLE>
<CAPTION>
Occupancy ADR REVPAR
-------------------- ------------------------ -----------------------
1998 1997 1998 1997 1998 1997
--------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
The Companies' owned and leased hotels...... 70.8% 69.2% $ 115.86 $ 108.99 $82.06 $75.37
Old Wyndham's comparable portfolio.......... 70.9% 68.7% $ 112.53 $ 103.81 $79.81 $71.36
</TABLE>
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided by Operating Activities
The Companies' principal source of cash to fund operating expenses and
distributions to its shareholders is cash flow provided by operating activities.
Patriot's principal source of revenue is rent payments from the Lessees and
Wyndham International under the Participating Leases. Wyndham International's
principal source of cash flow is from the operation of the hotels it leases. The
Lessees' and Wyndham International's ability to make the rent payments to
Patriot is dependent upon their ability to efficiently manage the hotels and
generate sufficient cash flow from operation of the hotels.
Combined cash and cash equivalents as of March 31, 1998 were $88.7
million, including capital improvement reserves of $3.4 million. Combined cash
flows from operating activities of the Companies were $64 million for the first
quarter of 1998, which represent a combination of the collection of rents under
Participating Leases with third party Lessees and cash flows generated by the
hotels operated by Wyndham International.
Cash and cash equivalents for Patriot as of March 31, 1997 was $6.3
million, including capital improvement reserves of $2.4 million. Cash flows from
operating activities of Patriot were $11.5 million for the first quarter of
1997, which primarily represent the collection of rents under Participating
Leases.
Cash Flows from Investing and Financing Activities
During the first quarter of 1998, the Companies continued to experience
rapid growth through the merger and acquisition of hotel properties and
management companies. These transactions were funded with a combination of
issuance and or assumption of debt as well as sale of registered and
unregistered securities.
Combined cash flows used in investing activities of the Companies were
$313.4 million for the three months ended March 31, 1998, resulting primarily
from the merger and acquisition of hotel properties and management companies and
the renovation expenditures at certain hotels. Combined cash flows from
financing activities of $292.3 million for the three months ended March 31, 1998
were primarily related to borrowings on the revolving credit facility and
mortgage notes and net proceeds from private placement of equity securities, net
of payments of dividends and distributions.
Patriot's cash flows used in investing activities were $222.5 million
for the three months ended March 31, 1997, resulting primarily from the
acquisition of hotel properties. Cash flows from Patriot's financing activities
of $210.7 million for the three ended March 31, 1997 were primarily related to
borrowings on Patriot's old line of credit facility, net of payments of
dividends and distributions.
As of March 31, 1998, Patriot had approximately $884 million
outstanding under its unsecured revolving credit facility and $350 million
outstanding on a term loan. As of such date, the Companies also had over $579.9
million of mortgage and other debt outstanding that encumbered 24 hotels,
resulting in total indebtedness of approximately $1.8 billion. As of March 31,
1998, the availability of funds under the revolving credit facility is
approximately $6 million.
Patriot has received a commitment from The Chase Manhattan Bank and
Chase Securities, Inc. and PaineWebber Real Estate Securities, Inc. to increase
Patriot's existing credit facilities by $1.45 billion from the current $1.25
billion. Patriot's existing credit facilities will be amended and restated to
reflect a total credit facility of $2.7 billion. The new credit facility will be
comprised of the $900,000 revolving credit facility and the $350,000 term loan
currently in place as well as a series of term loans totaling $1.45 billion with
varying maturities up to five
27
<PAGE>
years. Interest will be based on Patriot's leverage ratio and may vary from
1.50% to 2.50% over LIBOR. The credit facilities will be secured by stock and
partnership interests in the assets of Patriot. The additional financing will be
primarily utilized to fund the Interstate Merger and is contingent upon the
closing of the Interstate Merger.
In addition, the Companies are evaluating other permanent sources of
capital, including the issuance of equity and long-term debt. It is expected
that additional common or preferred equity offerings will be used both to
acquire hotel properties and to limit the Companies' overall debt to market
capitalization ratio.
Investing and Financing Activities Subsequent to March 31, 1998
Arcadian International PLC - On April 6, 1998, Patriot announced the
completion of its acquisition of all of the issued and to-be-issued shares of
Arcadian for 60 pence per share. Including the exercise of all outstanding
options to purchase shares, the assumption of debt and the acquisition of the
remaining shares in the Malmaison Group, the total transaction cost is
approximately (pound)179 million ($296 million U.S. based on current exchange
rates). As a result of the transaction, Patriot will acquire ten owned hotels
located throughout England; one owned hotel in Jersey; five owned and managed
Malmaison Hotels; two resorts under development in Tuscany, Italy and Paris,
France; and the proprietary Malmaison brand name. Patriot also acquired
Arcadian's 50% partnership interest in the redevelopment of the luxury Great
Eastern Hotel in London, to be branded as a flagship Wyndham Hotel and operated
by Wyndham International once the development has been completed.
In connection with the Arcadian Acquisition, Patriot entered into a
short-term financing agreement on April 15, 1998 with Paine Webber Real Estate
Securities, Inc. ("Paine Webber Real Estate") whereby Paine Webber Real Estate
loaned Patriot $160 million through April 15, 1999, at a rate equal to the
borrowing rate on Patriot's revolving credit facility. In addition, Patriot
assumed approximately $112.6 million of debt in connection with the transaction.
Private Placement of Equity - On April 6, 1998, the Companies completed
a private placement of Paired Shares coupled with a one-year price adjustment
agreement with PaineWebber Incorporated and a PaineWebber affiliate. Under the
terms of the agreement, Patriot and Wyndham International privately issued
5,150,000 Paired Shares at a price of $27.5625 per Paired Share, resulting in
gross proceeds of approximately $141.9 million. During the term of the price
adjustment agreement, Patriot will deliver or receive Paired Shares, based on
the market price of the Paired Shares at the time of the adjustment. Proceeds
from the private placement were used to reduce outstanding indebtedness under
the Companies' revolving credit facility.
Potential Acquisitions
CHC International, Inc. - The Companies and CHC International, Inc.
("CHCI") have entered into an Agreement and Plan of Merger dated as of September
30, 1997 (the "CHCI Merger Agreement"), providing, subject to regulatory
approvals, for the merger of the hospitality-related businesses of CHCI with and
into Wyndham International with Wyndham International being the surviving
company (the "CHCI Merger"). Subject to regulatory approvals, CHCI's gaming
operations will be transferred to a new legal entity prior to the CHCI Merger
and such operations will not be a part of the transaction. It is anticipated
that the CHCI Merger will be consummated in the second quarter of 1998. As a
result of the CHCI Merger, Wyndham International, through its subsidiaries, will
acquire the remaining 50% investment interest in GAH-II, L.P., the remaining 17
leases and 16 of the associated management contracts related to the Patriot
hotels leased by CHC Lease Partners, 12 third-party management contracts, two
third-party lease contracts, the Grand Bay and Registry Hotels & Resorts
proprietary brand names and certain other hospitality management assets. Wyndham
has also agreed to provide CHCI with a $7 million line of credit until such time
as the CHCI Merger is completed. By operation of the CHCI Merger, all issued and
outstanding common stock of CHCI will be exchanged for approximately 4,396,000
shares of Wyndham International preferred stock, subject to certain adjustments.
Interstate Hotels Company - On December 2, 1997, Patriot, Wyndham
International and Interstate Hotels Company ("Interstate") entered into an
Agreement and Plan of Merger (the "Interstate Merger Agreement") providing for
the merger of Interstate with and into Patriot (the "Interstate Merger") with
Patriot being the surviving company. Pursuant to the Interstate Merger
Agreement, stockholders of Interstate will have the right to elect to convert
each of their shares of Interstate common stock into the right to receive either
(i) $37.50 in cash, subject to proration in certain circumstances (the
"Interstate Cash Consideration"), or (ii) a number of Paired Shares of Patriot
and Wyndham common stock not exchanged for cash (the "Interstate Exchange
Ratio"). Such elections by
28
<PAGE>
stockholders of Interstate were to be prorated to ensure that 40% of the
outstanding shares of Interstate common stock will be converted into the right
to receive Interstate Cash Consideration and that the remaining 60% of the
outstanding shares of Interstate common stock will be converted into the right
to receive Paired Shares at the Interstate Exchange Ratio, subject to adjustment
in certain circumstances for the exercise of dissenters' rights. Patriot will
also assume or refinance all of Interstate's existing indebtedness, which
totaled approximately $796 million as of March 31, 1998. In addition, Patriot
will buy out or assume certain options to purchase Interstate common stock held
by certain Interstate employees and directors, and will assume certain severance
obligations in connection with the Interstate Merger. The special meetings of
the stockholders of Patriot, Wyndham International and Interstate at which
approval of the Interstate Merger will be sought were originally scheduled for
March 30, 1998.
On March 23, 1998, Patriot and Interstate jointly announced that the
Interstate Exchange Ratio had been set at 1.341 Paired Shares for each
Interstate share.
On March 26, 1998, Marriott International, Inc. ("Marriott") sued
Interstate in the United States District Court for the District of Maryland (the
"Marriott Litigation") seeking an injunction against the Interstate Merger. By
agreement of the parties the complaint was dismissed without prejudice during
settlement discussions until March 30, 1998. On March 30, 1998, Marriott
re-filed its complaint and sought a temporary restraining order and preliminary
injunction. In its complaint Marriott asserted certain rights with respect to 29
hotels owned and/or operated by certain affiliates and subsidiaries of
Interstate under direct franchise agreements with Marriott, as well as certain
rights concerning any transfer of control of those Interstate-related
franchisees. The alleged rights asserted by Marriott included, among others, a
right of first refusal over 19 of the hotels, rights of consent allegedly
prohibiting Interstate from engaging in any transaction that constitutes a
transfer of the franchise agreement or a change in control of the franchisees
without Marriott's prior written consent, rights of non-competition allegedly
prohibiting Interstate from owning, operating, or being connected or associated
with a company that owns the trade name of a chain of hotels which competes with
Marriott without Marriott's consent, as well as a right of first refusal to
acquire all of the equity interests in Interstate. In December 1997, Patriot and
Marriott had entered into a non-binding letter agreement regarding these
matters.
On March 30, 1998, Patriot, Wyndham International and Interstate each
elected to convene and then adjourn their respective stockholders meetings to
April 2, 1998 at 1:00 p.m. (CST) so as to permit additional time to negotiate
with Marriott.
Also on March 30, 1998, Patriot and Wyndham International filed a
complaint in the District Court of Dallas County, Texas against Marriott
alleging that Marriott had tortiously interfered with the Interstate Merger and
was tortiously interfering with potential new business relationships and
contractual opportunities.
On March 31, 1998, Marriott filed an Amended Verified Complaint which,
among other things, added allegations and sought injunctive relief for alleged
violations of the Lanham Act allegedly to be caused by the transfer by
Interstate, without the consent of Marriott, of the right to use certain marks
registered by Marriott.
On April 2, 1998, the United States District Court for the District of
Maryland denied Marriott's motion for a temporary restraining order to block the
Interstate Merger and for preliminary injunctive relief. Marriott appealed the
denial and the emergency judge sitting for the United States Court of Appeals
for the Fourth Circuit instructed the parties not to close the Interstate Merger
before noon on Friday, April 3, 1998, to permit the appeals court to consider a
request by Marriott for a temporary injunction pending expedited appeal of the
district court decision denying injunctive relief. Also on April 2, 1998, the
stockholders of both Patriot and Interstate voted to approve the proposed
Interstate Merger.
On April 8, 1998, the United States Court of Appeals for the Fourth
Circuit issued a preliminary injunction enjoining Interstate from transferring
control, directly or indirectly, in the 29 Marriott-franchised hotels which were
the subject of the Marriott Litigation and remanded the case to the District
Court for reconsideration and expedited resolution. On April 8, 1998, Interstate
also announced that it would permit its stockholders who had previously made
cash elections to request the return of that portion of their shares which would
not be exchanged for cash upon completion of the Interstate Merger.
The April 2, 1998 order of the District Court had included an order
that Marriott join Patriot to the Marriott Litigation as a necessary party. On
April 14, 1998, Marriott moved for leave to file a second amended complaint
29
<PAGE>
which, among other things, added Patriot and Wyndham International as additional
defendants in the Marriott Litigation. On April 15, 1998, the District Court
entered an order granting Marriott leave to file the Amended Complaint, thereby
joining Patriot and Wyndham International as defendants in the litigation.
Patriot and Wyndham International filed their answer to the Amended Complaint on
April 24, 1998.
On April 15, 1998, Patriot and Interstate agreed that, upon written
request to the exchange agent, Interstate stockholders will also have the option
to revoke their cash elections and request the return of all of their Interstate
stock. However, to the extent that the Interstate stockholders request the
return of shares that would have been entitled to be exchanged for cash upon
consummation of the Interstate Merger, such shares may not subsequently be
resubmitted for cash and will instead be exchanged for 1.341 Paired Shares upon
consummation of the Interstate Merger. Further, the revocation of the cash
elections will not alter the number of shares to be exchanged for cash by those
shareholders who choose not to revoke their cash elections. By virtue of such
revocations, the total cash consideration in the Interstate Merger will be
reduced pro rata such that stockholders who retain their cash elections will not
have a greater number of shares exchanged for cash.
On May 4, 1998, Patriot, Wyndham International and Interstate announced
that they have reached an agreement in principle with Marriott to settle the
Marriott Litigation. On May 12, 1998, Patriot and Wyndham International
announced that the United States District Court for the District of Maryland had
agreed to delay the start of trial pending further notice from the parties to
allow the parties to complete and sign a definitive settlement agreement and
related documentation. In the interim, the parties agreed to keep confidential
the terms of the proposed settlement, except that the settlement, if completed,
would allow the Interstate Merger to be consummated.
The agreement in principle is not a definitive settlement agreement and
is not binding on any party. There can be no assurance that a definitive
settlement agreement will be reached. Neither can any assurances be made
regarding whether, or upon what terms, the Interstate Merger will be
consummated. Additionally, no assurances can be made regarding the timing of any
potential consummation of the Interstate Merger. No assurances can be made
regarding the probable outcome of the Marriott Litigation, or the impact of any
potential definitive settlement agreement or other resolution of the Marriott
Litigation upon the Interstate Merger or the financial condition or results of
operations of Patriot or Wyndham International.
Golden Door Spa - In February 1998, the Companies signed a purchase
contract to acquire the Golden Door Spa in Escondido, California for a purchase
price of approximately $28 million. The purchase price is to be paid with a
combination of cash, OP Units of the Operating Partnerships and a short-term
note. The acquisition is expected to be completed in the second quarter of 1998.
SF Hotel Company, L.P. - In March 1998, the Companies entered into an
agreement to acquire all of the partnership interests in SF Hotel Company, L.P.
("Summerfield") for approximately $170 million. The purchase price is to be paid
with a combination of cash and issuance of a total of approximately 4,590,000 OP
Units of the Operating Partnerships and/or Paired Shares (the "Summerfield
Acquisition"). The final transaction price is subject to adjustment based on (i)
the market price of the Paired Shares through the end of 1998 and (ii)
achievement of certain performance criteria for the Summerfield portfolio
through 2001. As a result of the Summerfield Acquisition, the Companies will
acquire four Summerfield Suites(R) hotels and lease or manage 33 Summerfield
Suites(R) and Sierra Suites hotels(R). The Summerfield Acquisition is expected
to be completed in the second quarter of 1998.
As part of its ongoing business, the Companies continually engage in
discussions with public and private real estate entities, including, without
limitation, current lessees of Patriot's hotels, regarding possible portfolio or
single asset acquisitions, as well as the acquisition of hotel leasing and
management operations. No assurances can be made that the Companies will acquire
any such acquisition opportunities.
Renovations and Capital Improvements
During the first quarter of 1998, the Companies invested approximately
$25 million to renovate or re-brand a total of 21 properties. Pursuant to the
Participating Leases, Patriot is obligated to establish a reserve for each hotel
for capital improvements, including the periodic replacement or refurbishment of
furniture, fixtures and equipment ("FF&E"). The aggregate amount of such
reserves average 4.0% of total revenue, with the amount of such reserve with
respect to each hotel based upon projected capital requirements of such hotel.
Management believes such
30
<PAGE>
amounts are sufficient to fund recurring capital expenditures for the hotels.
Capital expenditures, exclusive of renovations, may exceed 4.0% of total
revenues in a single year.
The Companies attempt to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruption to the
hotel's operations. Therefore, management does not believe such renovations and
capital improvements will have a material effect on the results of operations of
the hotels. Capital expenditures will be financed through the capital
expenditure reserves, the revolving credit facility or other financing sources
or with working capital.
Proposed Legislation Affecting the Paired Share Structure
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"). Section 269B(a)(3) would
ordinarily prevent a corporation from qualifying as a REIT if its stock is
paired with the stock of a corporation whose activities are inconsistent with
REIT status, such as Wyndham International. The "grandfathering" rules governing
section 296B generally provide, however, that Section 296B(a)(3) does not apply
to a paired REIT if the REIT and the paired operating company were paired on
June 30, 1983. Patriot's and Wyndham International's respective predecessors,
Cal Jockey and Bay Meadows, were paired on June 30, 1983. There are, however, no
judicial or administrative authorities interpreting this "grandfathering" rule
in the context of a merger or otherwise.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a result
of future legislation. In this regard, on February 2, 1998, the Department of
Treasury released an explanation of the revenue proposals included in the
Clinton Administration's fiscal 1999 budget (the "Clinton Tax Proposals"). The
Clinton Tax Proposals, among other things, include a freeze on the grandfathered
status of paired share REITs such as Patriot. Under the Clinton Tax Proposals,
Patriot and Wyndham International would be treated as one entity with respect to
properties acquired on or after the date of the first Congressional committee
action with respect to such proposal and with respect to activities or services
relating to such properties that are undertaken or performed by one of the
paired entities on or after such date. The Clinton Tax Proposals would also
prohibit REITs from holding stock of a corporation possessing more than 10% of
the vote or value of all classes of stock of the corporation. This proposal
would be effective with respect to the stock acquired on or after the date of
first Congressional committee action with respect to the proposal; provided that
the proposal would not apply to stock acquired before such effective date if, on
or after such date, the subsidiary corporation engaged in a new trade or
business or acquired substantial new assets.
On March 26, 1998, William Archer, Chairman of the Ways and Means
Committee of the United States House of Representatives and William V. Roth,
Jr., Chairman of the Finance Committee of the United States Senate, introduced
identical legislation (the "Proposed Legislation") in both the House of
Representatives and the Senate to limit this "grandfathering rule." Under the
Proposed Legislation, the anti-pairing rules provided in the Code generally
would apply for certain of the REIT qualification requirements to real property
interests acquired directly or indirectly after March 26, 1998 by Patriot or
Wyndham International, or a subsidiary or partnership in which a 10% or greater
interest is owned by Patriot or Wyndham International (collectively, the "REIT
Group"), unless (i) the real property interests are acquired pursuant to a
written agreement which is binding on March 26, 1998 and all times thereafter or
(ii) the acquisition of such real property interests were described in a public
announcement or in a filing with the Securities and Exchange Commission on or
before March 26, 1998. In addition, the Proposed Legislation also provides that
a property held by Patriot or Wyndham International that is not subject to the
anti-pairing rules would become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (x) the
undepreciated cost of the property (prior to the improvement) or (y) in the case
of property acquired where there is a substituted basis, the fair market value
of the property on the day it was acquired by Patriot and Wyndham International.
There is an exception for improvements placed in service before January 1, 2004
pursuant to a binding contract in effect as of December 31, 1999 and at all
times thereafter. On April 23, 1998, the Senate Finance Committee reported
favorably on the Internal Revenue Service Restructuring and Reform Act of 1998,
incorporating language substantially identical to the Proposed Legislation. In
addition, immediately prior to the introduction of the Proposed Legislation,
Representative Mae Collins introduced legislation that would simply terminate
the existing grandfathering rule.
The above discussion is based solely on the Clinton Tax Proposals and
the Proposed Legislation. However, Patriot believes that its ability to close
pending acquisitions pursuant to binding agreements entered into prior to
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<PAGE>
March 26, 1998 will be unaffected by the Proposed Legislation. Patriot is
evaluating the impact of the Proposed Legislation (if enacted in its current
form) on Patriot's proposed method of operations and future acquisitions, as
well as Patriot's response to such legislation if enacted, and investors should
be aware that the Proposed Legislation could have an adverse impact on Patriot.
If the Proposed Legislation were modified prior to enactment, it is possible
that action taken by Patriot since March 26, 1998 in reliance on the Proposed
Legislation as currently drafted, could adversely affect Patriot's ability to
qualify as a REIT.
Inflation
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit Wyndham International's and
the Lessees' ability to raise room rates in the face of inflation.
Seasonality
The hotel industry is seasonal in nature. Revenues for certain of
Patriot's hotels are greater in the first and second quarters of a calendar year
and at other hotels in the second and third quarters of a calendar year.
Seasonal variations in revenue at the hotels may cause quarterly fluctuations in
the Companies' revenues.
FUNDS FROM OPERATIONS
Combined Funds from Operations of the Companies (as defined and
computed below) was $75.5 million for the three months ended March 31, 1998 and
$22.9 million for the three months ended March 31, 1997.
Management considers Funds from Operations to be a key measure of REIT
performance. Funds from Operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation of real
property, amortization of goodwill and amortization of management contracts and
trade names, and after adjustments for unconsolidated partnerships, joint
ventures and corporations. Adjustments for Patriot's unconsolidated subsidiaries
are calculated to reflect Funds from Operations on the same basis. The Companies
have also made certain adjustments to Funds from Operations for real estate
related amortization. Funds from Operations should not be considered as an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or to cash flows
from operating, investing or financing activities as a measure of liquidity.
Funds from Operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on indebtedness.
The following reconciliation of net income to Funds from Operations
illustrates the difference between the two measures of operating performance for
the three months ended March 31, 1998 and 1997:
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1998 1997
--------------- ----------------
(in thousands)
<S> <C> <C>
Net income.................................................... $ 18,412 $ 11,348
Add:
Extraordinary loss from extinguishment of debt........... 18,716 --
Minority interest in the Operating Partnerships.......... 3,055 2,232
Depreciation of buildings and improvements and
furniture, fixtures and equipment.................... 27,188 8,467
Amortization of goodwill................................. 3,665 --
Amortization of management contracts and trade names..... 3,245 --
Amortization of franchise fees and other assets.......... 204 22
Amortization of capitalized lease costs.................. -- 36
Adjustment for Funds from Operations of
unconsolidated subsidiaries:
Equity in earnings of unconsolidated subsidiaries........ (3,194) (1,021)
Funds from Operations of unconsolidated subsidiaries..... 4,225 1,839
------------- -------------
Funds from Operations......................................... $ 75,516 $ 22,923
============= =============
Weighted average shares and OP Units outstanding:
Basic.................................................... 112,293 51,680
============= =============
Diluted.................................................. 119,834 53,043
============= =============
</TABLE>
33
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Joint Current Report on Form 8-K of Patriot American Hospitality,
Inc. and Wyndham International, Inc. dated April 2, 1998 (Nos. 001-09319 and
001-09320 filed April 8, 1998) reports under Item 5 information regarding the
Marriott Litigation. On May 4, 1998, Patriot, Wyndham International and
Interstate announced that they have reached an agreement in principle with
Marriott to settle the Marriott Litigation. On May 12, 1998, Patriot and Wyndham
International announced that the United States District Court for the District
of Maryland had agreed to delay the start of trial pending further notice from
the parties to allow the parties to complete and sign a definitive settlement
agreement and related documentation. In the interim, the parties agreed to keep
confidential the terms of the proposed settlement, except that the settlement,
if completed, would allow the Interstate Merger to be consummated.
ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
Since December 31, 1997, the Companies have issued equity securities in
private placements in reliance on an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended, in the amounts and for the
consideration set forth below.
In January 1998, in connection with the acquisition of an aggregate 95%
investment interest in the Buena Vista Palace Hotel in Orlando, Florida, Patriot
American Hospitality Partnership, L.P., a subsidiary of Patriot, and Patriot
American Operating Company Partnership, L.P., a subsidiary of Wyndham
International, each issued 51,290 units of limited partnership interest valued
at approximately $1.4 million to one of the sellers of such investment interest.
In February 1998, the Companies issued 4,900,000 Paired Shares to a
financial institution for net purchase consideration of approximately $121.8
million in cash. The sale of the Paired Shares is subject to a price adjustment
agreement which matures in February 1999.
In March 1998, in connection with Patriot's acquisition of a 40%
interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity interest
in the El Conquistador Resort & Country Club and a 38% interest in Williams
Hospitality Group, Inc., the Companies issued 1,818,182 Paired Shares valued at
approximately $49.2 million.
In April 1998, the Companies issued 5,150,000 Paired Shares to a
financial institution for aggregate consideration of approximately $141.9
million in cash. The sale of the Paired Shares is subject to a price adjustment
agreement which matures in April 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Patriot and Wyndham International each convened special meetings of
their stockholders on March 30, 1998, which meetings were subsequently adjourned
to April 2, 1998 (the "Special Stockholders Meetings"), to consider and vote
upon a proposal to approve the Agreement and Plan of Merger, dated December 2,
1997, by and among Interstate Hotels Company, Patriot and Wyndham International
(the "Interstate Merger Agreement"). On April 2, 1998, the votes of stockholders
were submitted at the Patriot and Wyndham International Special Stockholders
Meetings. For each of Patriot and Wyndham International, 63,483,644 shares were
voted in favor of the Interstate Merger Agreement; 112,606 shares were voted
against the Interstate Merger Agreement; and abstentions were recorded with
respect to 269,293 shares.
34
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Item No. Description
-------- -----------
10.1 Executive Employment Agreement, dated as of
March 9, 1998, between Patriot, Wyndham
International and Lawrence S. Jones (filed
herewith).
10.2 Indemnification Agreement, dated as of March
9, 1998, between Patriot and Lawrence S.
Jones (filed herewith).
10.3 Indemnification Agreement, dated as of March
9, 1998, between Wyndham International and
Lawrence S. Jones (filed herewith).
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
(i) Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Wyndham International, Inc. dated
January 5, 1998 (Nos. 001-09319 and 001-09320 filed
January 13, 1998) reporting under Item 2 the
consummation of the Wyndham Merger and other
acquisitions under Item 5.
(ii) Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Wyndham International, Inc. dated
February 9, 1998 (Nos. 001-09319 and 001-09320 filed
February 12, 1998) reporting under Item 5 the
Companies' fourth quarter and year end operating
results and including financial information for CHC
International, Inc. Hospitality Division.
(iii) Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Wyndham International, Inc. dated
March 23, 1998 (Nos. 001-09319 and 001-09320 filed
March 30, 1998) reporting under Item 5 the
determination of the exchange ratio for the merger of
Interstate Hotels Company with and into Patriot.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized.
DATED: May 14, 1998
PATRIOT AMERICAN HOSPITALITY, INC.
/s/ Anne L. Raymond
--------------------
Anne L. Raymond
Executive Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
/s/ Lawrence S. Jones
----------------------
Lawrence S. Jones
Executive Vice President and Treasurer
(Authorized Officer and Principal Accounting Officer)
WYNDHAM INTERNATIONAL, INC.
/s/ Lawrence S. Jones
---------------------
Lawrence S. Jones
Executive Vice President and Treasurer
(Authorized Officer and Principal Accounting and
Financial Officer)
36
<PAGE>
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the 9th day
of March, 1998, by and among Patriot American Hospitality, Inc., a Delaware
corporation (the "Company"), Wyndham International, Inc., a Delaware corporation
(the "Affiliated Company") and Lawrence S. Jones ("Executive"). The Company and
the Affiliated Company may hereinafter be referred to jointly as the
"Companies."
WHEREAS, as an additional inducement to Executive to enter into this
Agreement, the Companies shall, on the Commencement Date (as hereinafter
defined), enter into a separate Indemnification Agreement with Executive of even
date in the form attached hereto as Exhibit A (the "Indemnification Agreement");
and
WHEREAS, Executive is desirous of committing to serve the Companies on the
terms herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The term of this Agreement shall extend from the date hereof
(the "Commencement Date") until the third anniversary of the Commencement Date.
On the third anniversary of the Commencement Date (and each subsequent
anniversary thereof), the term of this Agreement shall be automatically extended
for an additional year unless either the Company or Executive provides written
notice of its or his intent not to extend the Agreement at least forty-five (45)
days prior to such anniversary date, in which event the Agreement shall expire
in accordance with its terms. The term of this Agreement shall be subject to
termination as provided in Paragraph 6 and may be referred to herein as the
"Period of Employment."
2. POSITION AND DUTIES. During the Period of Employment, Executive shall
serve as the Executive Vice President and Treasurer of the Company and the
Executive Vice President and Treasurer of the Affiliated Company, shall report
to the President and Chief Operating Officer of the Company and the President
and Chief Operating Officer of the Affiliated Company, shall be the senior most
financial executive at the Affiliated Company other than the President, shall
have primary supervision and control over and responsibility for the day-to-day
business and affairs of those functions and operations of the Companies
described on Schedule I attached hereto and made a part hereof by this reference
and shall have such other powers and duties as may from time to time be
prescribed by either President, provided that such duties are consistent with
Executive's position or other positions that he may hold from time to time,
subject to outside investments customary for executives of Executive's seniority
that are not prohibited by Paragraph 5. Executive shall devote his full
working time and efforts to the business and affairs of the Companies.
Notwithstanding the foregoing, Executive may serve on other boards of directors
or engage in religious, charitable or other community activities as
<PAGE>
long as such services and activities are disclosed to the Presidents and do not
materially interfere with Executive's performance of his duties to the Companies
as provided in this Agreement.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. Initially, Executive shall receive an annual base salary
("Base Salary") equal to $300,000. Executive's Base Salary shall be
redetermined at least thirty (30) days before each annual compensation
determination date established by the Companies during the Period of Employment
in an amount to be fixed by the Boards of Directors of the Companies (the
"Boards"), but may never be decreased except in connection with across-the-board
salary reductions similarly affecting all executives of the Companies; provided,
however, in such event, Executive's reduction shall in no event be greater than
any other executive measured against any criteria. The Base Salary, as
redetermined, may be referred to herein as "Adjusted Base Salary." The Base
Salary or Adjusted Base Salary shall be payable in substantially equal bi-weekly
installments and shall in no way limit or reduce the obligations of the
Companies hereunder.
(b) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base
Salary, Executive shall be eligible to receive, on or about the annual
compensation determination date established by the Companies of each year,
during the Period of Employment, cash incentive compensation in an amount
determined by the Compensation Committees of the Boards based on individual
performance, performance by the Companies and total return to shareholders. The
incentive compensation potential shall be up to eighty percent (80%) of Base
Salary or Adjusted Base Salary, as applicable, with a minimum incentive
compensation of fifty percent (50%) of Base Salary or Adjusted Base Salary, as
applicable, which shall be payable at not less than that level in all events.
Executive will also participate in such incentive compensation plans as the
Boards or the Compensation Committees thereof shall determine from time to time
for employees of the same status within the hierarchy of the Companies.
(c) EXPENSES. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures then in effect and established by the Companies for their senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with the Companies' policy.
(d) RESTRICTED PAIRED UNIT AWARD. On the Commencement Date, the Companies
shall issue to Executive a Restricted Paired Unit Award covering the right to
receive 30,000 shares of common stock of the Company and common stock of the
Affiliated Company which trade as a pair ("Paired Shares"). Such Award shall
vest and become nonforfeitable on a ratable basis over four (4) years, on each
anniversary of the date of grant.
(e) OPTION GRANT. On the Commencement Date, the Companies shall issue to
Executive a non-qualified stock option (the "Option") to acquire 80,000 Paired
Shares. The
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Option shall vest and become exercisable with respect to 6.25% of the number of
Paired Shares underlying the Option quarterly on the first day of each calendar
quarter thereafter, such that all the Paired Shares underlying the Option have
vested and are exercisable on or before the fourth anniversary of the
Commencement Date. Unless otherwise provided in Paragraph 7, the Option shall
expire on the earlier of the tenth anniversary of the date of grant or the 91st
day following Executive's termination of employment. The exercise price per
share for the Option shall be $26.00. The Companies further agree to issue to
Executive in 1999 an option to acquire 10,000 Paired Shares. The exercise price
per share for such option shall be the quoted closing price of the Paired Shares
on the New York Stock Exchange on the date of grant. If the date of grant is not
a business day, the price shall be determined as of the immediately preceding
business day.
(f) RELOCATION EXPENSES. Executive shall relocate to the Dallas area as
soon as reasonably practicable. The Companies shall reimburse Executive for
relocation expenses in accordance with the Companies' standard relocation policy
for executive vice presidents.
(g) LOAN. The Companies will loan Executive $750,000 on a non-recourse
basis, due on the third anniversary of the Commencement Date, except as
otherwise provided in this Agreement. The loan will be made within five (5)
days after the Commencement Date. The unpaid principal amount will bear
interest at 7 percent compounded annually, payable annually. If Executive
remains employed until the third anniversary of the Commencement Date and the
sum of the value of the compensation earned by Executive during the Period of
Employment, including the value of Paired Shares granted (whether vested or
not), dividends on Paired Shares received and earned, stock option exercise
value (whether vested or not), incentive compensation paid or earned, Base
Salary and Adjusted Base Salary paid or earned ("Total Compensation"), is less
than $3,000,000, a portion of the loan amount will be forgiven such that when
such forgiven amount (which shall in no event exceed $750,000) is added to the
Total Compensation, the total amount shall equal $3,000,000. In the event
Executive's employment is terminated without Cause under Subparagraph 6(e), or
for Good Reason under Subparagraph 6(f), or pursuant to Subparagraph 8(b) in
connection with a Change in Control prior to the third anniversary of the
Commencement Date, if the sum of Total Compensation and Severance Payments is
less than $3,000,000, a portion of the loan amount will be forgiven such that
when such forgiven amount (which shall in no event exceed $750,000) is added to
the sum of Total Compensation and Severance Payments, the total amount shall
equal $3,000,000. For purposes of this Subparagraph 3(g), the value of the
Paired Shares and stock option exercise value shall be determined using the
average quoted closing price per Paired Share on the New York Stock Exchange for
the twenty (20) business days ending on the third anniversary of the
Commencement Date, or the Date of Termination, as the case may be; provided,
however, should Executive sell his Paired Shares or exercise his options during
the Period of Employment, the quoted closing price per Paired Share on the New
York Stock Exchange for the date of sale or option exercise shall be used.
(h) OTHER BENEFITS. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of the
Companies' Employee Benefit
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Plans in effect on the Commencement Date, or under plans or arrangements that
provide Executive with at least substantially equivalent benefits to those
provided under such Employee Benefit Plans. As used herein, "Employee Benefit
Plans" include, without limitation, each pension and retirement plan;
supplemental pension, retirement and deferred compensation plan; savings and
profit-sharing plan; stock ownership plan; stock purchase plan; stock option
plan; life insurance plan; medical insurance plan; disability plan; and health
and accident plan or arrangement established and maintained by the Companies on
the date hereof for employees of the same status within the hierarchy of the
Companies. During the Period of Employment, Executive shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement which may, in the future, be made available by the Companies to
their executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plan or
arrangement. Any payments or benefits payable to Executive under a plan or
arrangement referred to in this Subparagraph 3(h) in respect of any calendar
year during which Executive is employed by the Companies for less than the whole
of such year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which he is so employed. Should any such payments or benefits accrue
on a fiscal (rather than calendar) year, then the proration in the preceding
sentence shall be on the basis of a fiscal year rather than calendar year.
(i) LIFE INSURANCE. The Companies shall pay the premiums on, and maintain
in effect throughout the Period of Employment, a life insurance policy on the
life of Executive in an amount not less than the sum of the amount of
Executive's then current Base Salary or Adjusted Base Salary plus the mid-point
of the bonus range. Executive shall have the right to designate the beneficiary
under such policy.
(j) VACATIONS. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Companies from time to time for
executives at the same level as Executive, which number for calendar year 1998
is currently set at twenty (20) days. Executive shall also be entitled to all
paid holidays given by the Companies to their executives.
(k) DISABILITY INSURANCE. The Companies shall pay the premiums on, and
maintain in effect through the Period of Employment, long-term disability
insurance providing for payment of benefits at rates not less than sixty percent
(60%) of Executive's current Base Salary or Adjusted Base Salary.
4. UNAUTHORIZED DISCLOSURE.
(a) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course
of his employment with the Companies, he will be allowed to become acquainted
with the Companies' business affairs, information, trade secrets, and other
matters which are of a proprietary or confidential nature, including, but not
limited to, the Companies' and their respective predecessors' operations,
business opportunities, price and cost information, finance, customer
information, business plans, various sales techniques, manuals, letters,
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notebooks, procedures, reports, products, processes, services, and other
confidential information and knowledge (collectively the "Confidential
Information") concerning the Companies. The Companies agree to provide on an
ongoing basis such Confidential Information as the Companies deem necessary or
desirable to aid Executive in the performance of his duties. Executive
understands and acknowledges that such Confidential Information is confidential,
and he agrees not to disclose such Confidential Information to anyone outside
the Companies except to the extent that (i) Executive deems such disclosure or
use reasonably necessary or appropriate in connection with performing his duties
on behalf of the Companies, (ii) Executive is required by order of a court of
competent jurisdiction (by subpoena or similar process) to disclose or discuss
any Confidential Information, provided that in such case, Executive shall
promptly inform the Companies of such event, shall cooperate with the Companies
in attempting to obtain a protective order or to otherwise restrict such
disclosure, and shall only disclose Confidential Information to the minimum
extent necessary to comply with any such court order; (iii) such Confidential
Information becomes generally known to and available for use by the hotel and
hospitality industry (the "Hotel Industry"), other than as a result of any
prohibited action or inaction by Executive; or (iv) such information has been
rightfully received by a member of the Hotel Industry or has been published in a
form generally available to the Hotel Industry prior to the date Executive
proposes to disclose or use such Confidential Information. Executive further
agrees that he will not during employment and/or at any time thereafter use such
Confidential Information in competing, directly or indirectly, with the
Companies. At such time as Executive shall cease to be employed by the
Companies, he will immediately turn over to the Companies all Confidential
Information, including papers, documents, writings, electronically stored
information, other property, and all copies of them provided to or created by
him during the course of his employment with the Companies.
(b) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing
provisions of this Paragraph 4 shall be binding upon Executive's heirs and legal
representatives. The provisions of this Paragraph 4 shall survive the
termination of this Agreement for any reason.
5. COVENANT NOT TO COMPETE. In consideration for Executive's employment by
the Companies under the terms provided in this Agreement and as a means to aid
in the performance and enforcement of the terms of the Unauthorized Disclosure
provisions of Paragraph 4, Executive agrees that
(a) during the term of Executive's employment with the Companies and for a
period of six (6) months after any termination other than termination without
Cause under Subparagraph 6(e), termination for Good Reason under Subparagraph
6(f), and termination upon a Change in Control under Subparagraph 8(b),
Executive will not, directly or indirectly, as an owner, director, principal,
agent, officer, employee, partner, consultant, servant, or otherwise, carry on,
operate, manage, control, or become involved in any manner with any business,
operation, corporation, partnership, association, agency, or other person or
entity which is in the business of owning, operating, managing or granting
franchise rights with respect to hotels, motels or other lodging facilities in
any area or territory in which the
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Companies conduct operations; provided, however, that the foregoing shall not
prohibit Executive from (i) owning up to one percent (1%) of the outstanding
stock of a publicly held company engaged in the hospitality business, or (ii)
returning to the accounting profession after his termination of employment.
Notwithstanding the foregoing, Executive shall be permitted to engage in such
activities with respect to any other hotel, motel or lodging facility that would
be immaterial to the operations of the Companies in the area or territory in
question. Immateriality, for purposes of the foregoing sentence, shall be
determined in the sole discretion of the Boards in good faith.
(b) during the term of Executive's employment with the Companies and for a
period of two (2) years thereafter, Executive will not, directly or indirectly,
either for himself or for any other business, operation, corporation,
partnership, association, agency, or other person or entity, call upon, compete
for, solicit, divert, or take away, or attempt to divert or take away any of the
customers (including, without limitation, any hotel owner, lessor or lessee,
asset manager, trustee, consumer with whom the Companies from time to time (i)
have an existing agreement or business relationship; or (ii) have included as a
prospect in their applicable pipelines) or vendors of the Companies in any of
the areas or territories in which the Companies conduct operations if such
action has the intent or effect of interfering with the Companies' relationship
with the vendor or customer.
(c) during the term of Executive's employment with the Companies and for a
period of two (2) years thereafter, Executive will not directly or indirectly
solicit or induce any present or future employee of the Companies to accept
employment with Executive or with any business, operation, corporation,
partnership, association, agency, or other person or entity with which Executive
may be associated, and Executive will not employ or cause any business,
operation, corporation, partnership, association, agency, or other person or
entity with which Executive may be associated to employ any present or future
employee of the Companies without providing the Companies with ten (10) days'
prior written notice of such proposed employment.
Should Executive violate the provisions of this Paragraph, then in addition
to all other rights and remedies available to the Companies at law or in equity,
the duration of this covenant shall automatically be extended for the period of
time from which Executive began such violation until he permanently ceases such
violation.
6. TERMINATION. Executive's employment hereunder may be terminated without
any breach of this Agreement under the following circumstances:
(a) DEATH. Executive's employment hereunder shall terminate upon his
death.
(b) DISABILITY. If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have been absent from his duties hereunder on
a full-time basis for one hundred eighty (180) calendar days in the aggregate in
any twelve (12) month period, the Companies may terminate Executive's employment
hereunder.
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(c) TERMINATION BY COMPANIES FOR CAUSE. At any time during the Period of
Employment, the Companies may terminate Executive's employment hereunder for
Cause if such termination is approved by not less than a majority of each Board
at a meeting of each Board called and held for such purpose. For purposes of
this Agreement "Cause" shall mean: (A) conduct by Executive constituting a
material act of willful misconduct in connection with the performance of his
duties, including, without limitation, misappropriation of funds or property of
the Companies or the affiliates of either of them other than the occasional,
customary and de minimis use of the Companies' property for personal purposes;
(B) criminal or civil conviction or conduct by Executive that would reasonably
be expected to result in material injury to the reputation of the Companies if
he were retained in his position with the Companies, including, without
limitation, conviction of a felony involving moral turpitude; (C) continued,
willful and deliberate non-performance by Executive of his duties hereunder
(other than by reason of Executive's physical or mental illness, incapacity or
disability) and such non-performance has continued for more than thirty (30)
days following written notice of such non-performance from the Boards; or (D) a
nonaccidental breach by Executive of any of the provisions contained in
Paragraphs 4 and 5 of this Agreement.
(d) TERMINATION BY COMPANIES FOR PERFORMANCE REASONS. At any time during
the Period of Employment, the Companies may terminate Executive's employment if
(i) such termination is approved by not less than a majority of each Board at a
meeting of each Board called and held for such purpose; and (ii) Executive has
materially failed to perform his duties hereunder or has violated, in material
respects, the policies and procedures of the Companies and such failure or
violation has continued for more than ninety (90) days following written notice
of such violation from the Boards.
(e) TERMINATION WITHOUT CAUSE. At any time during the Period of
Employment, the Companies may terminate Executive's employment hereunder without
Cause if such termination is approved by a majority of each Board at a meeting
of each Board called and held for such purpose. Any termination by the
Companies of Executive's employment under this Agreement which does not
constitute a termination for Cause under Subparagraph 6(c), or termination for
performance under Subparagraph 6(d), or result from the death or disability of
the Executive under Subparagraph 6(a) or (b) or result from the expiration of
the Period of Employment without extension, shall be deemed a termination
without Cause.
(f) TERMINATION BY EXECUTIVE. At any time during the Period of
Employment, Executive may terminate his employment hereunder for any reason,
including, but not limited to, Good Reason. For purposes of this Agreement,
"Good Reason" shall mean that Executive has complied with the "Good Reason
Process" (hereinafter defined) following the occurrence of any of the following
events: (A) a substantial diminution or other substantive adverse change, not
consented to by Executive in advance and in writing, in the nature or scope of
Executive's responsibilities, authorities, powers, functions, duties or
reporting relationship from the responsibilities, authorities, powers, functions
or duties described on Schedule I or reporting relationship set forth in
Paragraph 2; (B) except in connection with a termination of Executive's
employment, any removal, during the Period of Employment, of Executive from
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or, any failure by management to nominate, or, if nominated, any failure by the
Boards to re-elect, Executive to any of the positions indicated in Paragraph 2;
(C) a reduction in Executive's Base Salary or Adjusted Base Salary or
involuntary reduction in cash incentive compensation plan (but not reduction in
incentive compensation appropriate for level of performance) except for across-
the-board salary reductions similarly affecting all or substantially all
management employees; (D) a breach by the Companies of any of their other
material obligations under this Agreement and the failure of the Companies to
cure such breach within thirty (30) days after written notice thereof by
Executive; (E) the involuntary relocation of the Companies' offices at which
Executive is principally employed or the involuntary relocation of the offices
of Executive's primary workgroup to a location more than thirty (30) miles from
such offices, or the requirement by the Companies for Executive to be based
anywhere other than the Companies' offices at such location on an extended
basis, except for required travel on the Companies' business to an extent
substantially consistent with Executive's business travel obligations; or (F)
Executive is not the senior most financial officer of the Affiliated Company
with the exception of the President. "Good Reason Process" shall mean that (i)
the Executive reasonably determines in good faith that a "Good Reason" event has
occurred; (ii) Executive notifies the Companies in writing of the occurrence of
the Good Reason event; (iii) Executive cooperates in good faith with the
Companies' efforts, for a period not less than ninety (90) days following such
notice, to modify Executive's employment situation in a manner acceptable to
Executive and the Companies; and (iv) notwithstanding such efforts, one or more
of the Good Reason events continues to exist and has not been modified in a
manner acceptable to Executive.
(g) NOTICE OF TERMINATION. Except for termination as specified in
Subparagraph 6(a), any termination of Executive's employment by the Companies or
any such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(h) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of disability under Subparagraph
6(b) thirty (30) days after the date on which a Notice of Termination is given;
(C) if Executive's employment is terminated by the Companies for Cause under
Subparagraph 6(c), the date on which Notice of Termination is given; (D) if
Executive's employment is terminated by the Companies under Subparagraph 6(d),
fourteen (14) days after the date on which a Notice of Termination is given; (E)
if Executive's employment is terminated by the Companies under Subparagraph
6(e), sixty (60) days after the date on which a Notice of Termination is given;
and (F) if Executive's employment is terminated by Executive under Subparagraph
6(f), thirty (30) days after the date on which a Notice of Termination is given.
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7. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) If Executive's employment terminates by reason of his death, the
Companies shall, within ninety (90) days of death, pay in a lump sum amount to
such person as Executive shall designate in a notice filed with the Companies
or, if no such person is designated, to Executive's estate, Executive's accrued
and unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date
of his death, plus his accrued and unpaid incentive compensation under
Subparagraph 3(b). All unvested stock options and stock-based grants shall
immediately vest in Executive's estate or other legal representatives and become
exercisable, and Executive's estate or other legal representatives shall have
one (1) year from the Date of Termination, or remaining option term, if earlier,
to exercise the stock options. For a period of one (1) year following the Date
of Termination, the Companies shall pay such health insurance premiums as may be
necessary to allow Executive's spouse and dependents to receive health insurance
coverage substantially similar to coverage they received prior to the Date of
Termination. In addition to the foregoing, any payments to which Executive's
spouse, beneficiaries, or estate may be entitled under any employee benefit plan
shall also be paid in accordance with the terms of such plan or arrangement.
Such payments, in the aggregate, shall fully discharge the Companies'
obligations hereunder.
(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued and unpaid Base Salary or, if applicable, his
Adjusted Base Salary and accrued and unpaid incentive compensation payments
under Subparagraph 3(b), until Executive's employment is terminated due to
disability in accordance with Subparagraph 6(b) or until Executive terminates
his employment in accordance with Subparagraph 6(f), whichever first occurs.
All unvested stock options and stock-based grants shall immediately vest and
become exercisable, and Executive shall have one (1) year from the Date of
Termination, or remaining option term, if earlier, to exercise the stock
options. For a period of one (1) year following the Date of Termination, the
Companies shall pay such health insurance premiums as may be necessary to allow
Executive, Executive's spouse and dependents to receive health insurance
coverage substantially similar to coverage they received prior to the Date of
Termination. Upon termination due to death prior to the termination first to
occur as specified in the preceding sentence, Subparagraph 7(a) shall apply.
(c) If Executive's employment is terminated by Executive other than for
Good Reason as provided in Subparagraph 6(f), then the Companies shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given. Thereafter, the Companies shall have no further
obligations to Executive except as otherwise expressly provided under this
Agreement, provided any such termination shall not adversely affect or alter
Executive's rights under any employee benefit plan of the Companies in which
Executive, at the Date of Termination, has a vested interest, unless otherwise
provided in such employee benefit plan or any agreement or other instrument
attendant thereto.
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(d) If Executive terminates his employment for Good Reason as provided in
Subparagraph 6(f) or if Executive's employment is terminated by the Companies
without Cause as provided in Subparagraph 6(e), then the Companies shall,
through the Date of Termination, pay Executive his accrued and unpaid Base
Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the
time Notice of Termination is given and his accrued and unpaid incentive
compensation under Subparagraph 3(b). In addition, subject to signing by
Executive of a general release of claims in a form and manner satisfactory to
the Companies,
(i) the Companies shall provide payments to Executive in an amount
equal to the sum of Executive's Average Base Salary and his Average
Incentive Compensation for a year and one-half or if termination of
employment occurs within the first eighteen (18) months of the Commencement
Date, the sum of Executive's Average Base Salary and Average Incentive
Compensation payable for the remaining length of the original three-year
term after the Date of Termination (the "Severance Amount"). The Severance
Amount shall be paid out in substantially equal quarterly installments, in
advance. For purposes of this Agreement, "Average Base Salary" shall mean
the average of the annual Base Salary or, if applicable, Adjusted Base
Salary received by Executive for each of the three (3) immediately
preceding fiscal years or such fewer number of complete fiscal years as
Executive may have been employed by the Companies. For purposes of this
Agreement, "Average Incentive Compensation" shall mean the average of the
annual incentive compensation under Subparagraph 3(b) received by Executive
for the three (3) immediately preceding fiscal years or such fewer number
of complete fiscal years as Executive may have been employed by the
Companies. Notwithstanding the foregoing, if the Executive nonaccidentally
breaches any of the provisions contained in Paragraphs 4 and 5 of this
Agreement, all payments of the Severance Amount shall immediately cease.
Notwithstanding the foregoing, in the event Executive terminates his
employment for Good Reason as provided in Subparagraph 6(f), he shall be
entitled to the Severance Amount only if he provides the Notice of
Termination provided for in Subparagraph 6(g) within thirty (30) days after
the occurrence of the event or events which constitute such Good Reason as
specified in clauses (A), (B), (C), (D), (E) and (F) of Subparagraph 6(f);
(ii) in addition to any other benefits to which Executive may be
entitled in accordance with the Companies' then existing severance
policies, the Companies shall,
(a) for a period of six (6) months commencing on the Date of
Termination or through the date Executive secures new employment, if
earlier, pay for the cost of executive outplacement services selected
by Executive for use in connection with obtaining alternate
employment; and
(b) for a period of one (1) year commencing on the Date of
Termination, pay such health insurance premiums as may be necessary to
allow Executive, Executive's spouse and dependents to continue to
receive health
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insurance coverage substantially similar to the coverage they received
prior to his termination of employment; and
(iii) Executive shall receive all the rights and benefits granted or
in effect with respect to Executive under the Companies' employee stock
option or incentive plans and agreements with Executive pursuant thereto.
In addition to the foregoing, all unvested stock options and other stock-
based awards shall immediately accelerate and become exercisable or
nonforfeitable as of the Date of Termination.
(e) If Executive's employment is terminated by the Companies for Cause as
provided in Subparagraph 6(c) or for performance as provided in Subparagraph
6(d), then the Companies shall, through the Date of Termination, pay Executive
his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary
at the rate in effect at the time Notice of Termination is given and in case of
termination for performance as provided by Subparagraph 6(d), his accrued and
unpaid incentive compensation under Subparagraph 3(b) and any severance pay
provided under the Companies' then current severance policy. Thereafter, the
Companies shall have no further obligations to Executive except as otherwise
expressly provided under this Agreement, provided any such termination shall not
adversely affect or alter Executive's rights under any employee benefit plan of
the Companies in which Executive, at the Date of Termination, has a vested
interest, unless otherwise provided in such employee benefit plan or any
agreement or other instrument attendant thereto. Notwithstanding the foregoing
and in addition to whatever other rights or remedies the Companies may have at
law or in equity, all stock options held by Executive shall immediately expire
on the Date of Termination if Executive's employment is terminated by the
Companies for Cause as provided by Subparagraph 6(c).
(f) If upon the expiration of the Period of Employment, Executive shall
cease to be employed for any reason other than Cause, then the Companies shall,
through the date of termination, pay Executive his accrued and unpaid Base
Salary or, if applicable, his Adjusted Base Salary at the rate in effect at such
time, his accrued and unpaid incentive compensation under Subparagraph 3(b) and
the amount provided under the Companies' then current severance policy.
Executive shall receive all the rights and benefits granted or in effect with
respect to Executive under the Companies' employee stock option or incentive
plans and agreements with Executive pursuant thereto. In addition to the
foregoing, subject to compliance with the provisions of Paragraphs 4 and 5,
Executive shall continue to vest in all options and other stock-based awards for
an additional twelve months and Executive shall be given an additional 90-day
period after the expiration of the twelve-month period to exercise his options.
Thereafter, the Companies shall have no further obligations to Executive except
as otherwise expressly provided under this Agreement, provided any such
termination shall not adversely affect or alter Executive's rights under any
employee benefit plan of the Companies in which Executive, at the date of
termination, has a vested interest, unless otherwise provided in such employee
benefit plan or any agreement or other instrument attendant thereto.
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(g) Regardless of the reason for termination, for a period of five (5)
years beginning on the Date of Termination, the Companies will provide such
reasonable assistance and support to Executive as he shall reasonably require in
connection with the preparation and filing of tax returns, statements and forms
insofar as such returns, statements or forms relate to Executive's association
with the Companies or any of their respective predecessors or affiliates. At
the Companies' election, such assistance and support shall be provided by either
tax personnel from the Companies or certified public accountants selected and
compensated by the Companies.
(h) Nothing contained in the foregoing Subparagraphs 7(a) through 7(g)
shall be construed so as to affect Executive's rights or the Companies'
obligations relating to agreements or benefits which are unrelated to
termination of employment.
8. PARACHUTE PAYMENT. The provisions of this Paragraph 8 set forth certain
terms of an agreement reached between Executive and the Companies regarding
Executive's rights and obligations upon the occurrence of a Change in Control of
the Companies. These provisions are intended to assure and encourage in advance
Executive's continued attention and dedication to his assigned duties and his
objectivity during the pendency and after the occurrence of any such event.
These provisions shall apply in lieu of, and expressly supersede, the provisions
of Subparagraph 7(d)(i) regarding severance pay upon a termination of
employment, if such termination of employment occurs within eighteen (18) months
after the occurrence of the first event constituting a Change of Control;
provided that such first event occurs during the Period of Employment. These
provisions shall terminate and be of no further force or effect beginning
eighteen (18) months after the occurrence of a Change of Control.
(a) ESCROW. Within fifteen (15) days after the occurrence of the first
event constituting a Change of Control, the Companies shall place funds in an
amount equal to the estimated Parachute Amount in escrow, pursuant to
arrangements that are mutually acceptable to the Companies and Executive
providing for the payment of the Parachute Amount in the event Executive becomes
entitled thereto pursuant to Subparagraph 8(b)(i) (the "Escrow Arrangement").
The Escrow Arrangement shall be maintained until the earlier of (A) eighteen
(18) months after the occurrence of the first event constituting a Change of
Control or (B) the payment to Executive of the Parachute Amount pursuant to the
provisions of Subparagraph 8(b)(i).
(b) CHANGE IN CONTROL.
(i) If within eighteen (18) months after the occurrence of the first
event constituting a Change in Control, Executive's employment terminates
for any reason other than (A) death, (B) his inability, due to illness,
accident, or other physical or mental incapacity, to perform his duties for
more than one hundred eighty (180) days during any twelve-month period, (C)
for Cause or (D) his Voluntary Resignation ("Termination"), then the
Companies shall pay Executive in a lump sum an amount
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equal to the applicable Parachute Amount on the tenth (10th) day following
Executive's Termination; and
(ii) Notwithstanding anything to the contrary in any applicable
option agreement or stock-based award agreement, upon the effective date of
the Change in Control, all stock options and other stock-based awards
granted to Executive by the Companies shall immediately accelerate and
become exercisable or non-forfeitable as of the date of Change in Control,
and Executive shall be entitled to any other rights and benefits with
respect to stock-related awards, to the extent and upon the terms provided
in the employee stock option or incentive plan or any agreement or other
instrument attendant thereto pursuant to which such options or awards were
granted.
(c) GROSS UP PAYMENT.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Companies will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local income taxes and employment taxes (together with
penalties and interest) and Excise Tax upon the payment provided for by
this Subparagraph 8(c)(i), will be equal to the Parachute Amount.
(ii) Applicable Rates. For purposes of determining the amount of
the Gross Up Payment, Executive will be deemed to pay federal income taxes
at the highest marginal rate of federal income taxation in the calendar
year in which the Gross Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality
of Executive's residence on the date of Executive's Termination, net of the
maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Executive and approved by the
Companies, which approval will not be unreasonably withheld. If such
opinion is not finally accepted by the Internal Revenue Service (or state
and local taxing authorities), then appropriate adjustments to the Excise
Tax will be computed and additional Gross Up Payments will be made in the
manner provided by this Subparagraph (c).
(iv) Time For Payment. The Companies will pay the estimated amount
of the Gross Up Payment in cash to Executive concurrent with Employee's
Termination. Executive, and the Companies agree to reasonably cooperate in
the determination of the actual amount of the Gross Up Payment. Further,
Executive and the Companies agree to make such adjustments to the estimated
amount of the Gross Up Payment as may be
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necessary to equal the actual amount of the Gross Up Payment, which in the
case of Executive will refer to refunds of prior overpayments and in the
case of the Companies will refer to makeup of prior underpayments.
(d) DEFINITIONS. For purposes of this Paragraph 8, the following terms
shall have the following meanings:
"AFFILIATED COMPANY" shall mean not only Wyndham International, Inc.,
but also its successors by merger or otherwise.
"CHANGE IN CONTROL" shall mean an event which shall be deemed to have
occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Companies, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Companies representing
twenty-five percent (25%) or more of the combined voting power of the
Companies' then outstanding securities; or (ii) individuals who at the
Commencement Date constitute the Board of either the Company or the
Affiliated Company and any new director (other than a director designated
by a person who has entered into an agreement with the Company or the
Affiliated Company to effect a transaction described in clauses (i) or
(iii) of this paragraph) whose election by the Board of either the Company
or the Affiliated Company or nomination for election by the Companies'
stockholders was approved by a vote of at least eighty percent (80%) of the
directors then still in office who either were directors at the
Commencement Date or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of
the Board of either the Company or the Affiliated Company; or (iii) the
stockholders of the Companies approve a merger or consolidation of the
Companies with or into any other corporation, other than a merger or
consolidation which would result in the voting securities of the Companies
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least sixty percent (60%) of the combined voting power
of the voting securities of the Companies or such surviving entity
outstanding immediately after such merger or consolidation, or the
stockholders of the Companies approve a plan of complete liquidation of the
Company or the Affiliated Company or an agreement for the sale or
disposition by the Company or the Affiliated Company of all or
substantially all the Company's or Affiliated Company's assets.
"COMPANY" shall mean not only Patriot American Hospitality, Inc., but
also its successors by merger or otherwise.
"PARACHUTE AMOUNT" shall mean an amount equal to the Severance Amount
provided for in Subparagraph 7(d)(i).
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"VOLUNTARY RESIGNATION" shall mean any termination of Executive's
employment by his own act, unless such termination is for Good Reason.
9. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive:
At his home address as shown
in the Companies' personnel records;
if to the Company:
Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attention: President
if to the Affiliated Company:
Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attention: President and Chief Operating Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Companies as may be
specifically designated by the Boards. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Texas (without regard to principles of
conflicts of laws).
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11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement, if any, shall be modified by any
court having jurisdiction to the extent necessary to render such portion
enforceable.
12. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. ARBITRATION; OTHER DISPUTES. In the event of any dispute or controversy
arising under or in connection with this Agreement, the parties shall first
promptly try in good faith to settle such dispute or controversy by mediation
under the Commercial Mediation Rules of the American Arbitration Association
before resorting to arbitration. In the event such dispute or controversy
remains unresolved in whole or in part for a period of thirty (30) days after it
arises, the parties will settle any remaining dispute or controversy exclusively
by arbitration in Dallas, Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding the above,
the Companies shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
Paragraph 4 or 5 hereof. Furthermore, should a dispute occur concerning
Executive's mental or physical capacity as described in Subparagraph 6(b), 6(c)
or 7(b), a doctor selected by Executive and a doctor selected by the Companies
shall be entitled to examine Executive. If the opinion of the Companies' doctor
and Executive's doctor conflict, the Companies' doctor and Executive's doctor
shall together agree upon a third doctor, whose opinion shall be binding. Any
amount to which Executive is entitled under this Agreement (including any
disputed amount), which is not paid when due, shall bear interest at a rate
equal to the lesser of eighteen percent (18%) per annum or the maximum lawful
rate.
14. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Companies
that Executive's execution of this Agreement, Executive's employment with the
Companies and the performance of Executive's proposed duties for the Companies
will not violate any obligations Executive may have to any employer or other
party, and Executive will not bring to the premises of the Companies any copies
or other tangible embodiments of non-public information belonging to or obtained
from any such previous employment or other party.
15. LITIGATION AND REGULATORY COOPERATION. During and after Executive's
employment, Executive shall reasonably cooperate with the Companies in the
defense or prosecution of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Companies which relate to
events or occurrences that transpired while Executive was employed by the
Companies; provided, however, that such cooperation shall not materially and
adversely affect Executive or expose Executive to an increased probability of
civil or criminal litigation. Executive's cooperation in connection with such
claims or actions shall include, but not be limited to, being available to meet
with counsel to prepare for discovery or trial and to
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act as a witness on behalf of the Companies at mutually convenient times. During
and after Executive's employment, Executive also shall cooperate fully with the
Companies in connection with any investigation or review of any federal, state
or local regulatory authority as any such investigation or review relates to
events or occurrences that transpired while Executive was employed by the
Companies. The Companies shall also provide Executive with compensation on an
hourly basis calculated at his final base compensation rate for requested
litigation and regulatory cooperation that occurs after his termination of
employment, and reimburse Executive for all costs and expenses incurred in
connection with his performance under this Paragraph 15, including, but not
limited to, reasonable attorneys' fees and costs.
16. ALLOCATION OF OBLIGATIONS. The Company and the Affiliated Company shall
allocate among themselves which party shall be responsible for paying the salary
and other benefits required to be paid by this Agreement. The payment by either
party of such salary and other benefits shall satisfy the obligations of the
non-paying party under this Agreement. Both the Company and the Affiliated
Company shall be jointly and severally liable in the event of a failure by both
parties to pay compensation and other benefits hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ WILLIAM W. EVANS, III
----------------------------------------
Its: President and Chief Operating Officer
---------------------------------------
WYNDHAM INTERNATIONAL, INC.
By: /s/ WILLIAM W. EVANS, III
----------------------------------------
Its: Executive Vice President
---------------------------------------
/s/ LAWRENCE S. JONES
----------------------------------------
Lawrence S. Jones
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SCHEDULE I
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Duties and Responsibilities: 1. To supervise the Companies' financial
reporting, financial control and accounting
functions as well as direct forecasting,
budgeting, cash management, operations
management and executive management reporting
activities (other than management information
systems).
2. To act as the senior-most financial officer
at the Affiliated Company with the exception of
the President.
3. To evaluate and restructure financial
functions of the Companies as needed.
4. To oversee the Companies' cash management
policies.
5. To oversee the Companies' treasury
function, with the assistance of appropriate
personnel.
6. To participate, as appropriate, in investor
and analyst meetings and conferences.
7. To have access to the Companies' senior-
most executive officers to (a) understand and
participate in the Companies' strategic
initiatives, (b) maintain a current
understanding of the Companies' progress in
achieving stated financial goals and objectives
(i.e., internal and Wall Street estimates)
relative to applicable projections and budgets
of the Companies.
The Companies recognize that to accomplish
these responsibilities, the Executive will
require full cooperation and extensive
interaction with each of the Presidents of
Patriot American Hospitality, Inc. (William W.
Evans, III) and Wyndham International, Inc.
(Karim Alibhai) and the other senior executive
officers of the Companies, as well as the use
of reasonably necessary staff resources
dedicated exclusively to assisting the
Executive in discharging his duties.
<PAGE>
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This Indemnification Agreement made and entered into this 9th day of March,
1998 ("Agreement"), by and between Patriot American Hospitality, Inc., a
Delaware corporation (the "Company," which term shall include, where
appropriate, any Entity (as hereinafter defined) controlled directly or
indirectly by the Company) and Lawrence S. Jones ("Indemnitee"):
WHEREAS, it is essential to the Company that it be able to retain and
attract as officers the most capable persons available;
WHEREAS, increased corporate litigation has subjected officers to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's by-laws require it to indemnify its officers to the
fullest extent permitted by law and permit it to make other indemnification
arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of any such by-laws or any change in the ownership of the
Company or the composition of its Board of Directors); and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in entering into an employment agreement with the Company:
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. DEFINITIONS.
(a) "Corporate Status" describes the status of a person who is
serving or has served (i) as a director or officer of the Company,
(ii) in any capacity with respect to any employee benefit plan of the
Company, or (iii) as a director, partner, trustee, officer, employee,
or agent of any other Entity at the request of the Company. For
purposes of subsection (iii) of this Section 1(a), an officer or
director of the Company who is serving or has served as a director,
partner, trustee, officer, employee or agent of a Subsidiary shall be
deemed to be serving at the request of the Company.
(b) "Entity" shall mean any corporation, partnership, limited
liability company, joint venture, trust, foundation, association,
organization or other legal entity.
<PAGE>
(c) "Expenses" shall mean all fees, costs and expenses incurred in
connection with any Proceeding (as defined below), including, without
limitation, attorneys' fees, disbursements and retainers (including,
without limitation, any such fees, disbursements and retainers
incurred by Indemnitee pursuant to Sections 10 and 11(c) of this
Agreement), fees and disbursements of expert witnesses, private
investigators and professional advisors (including, without
limitation, accountants and investment bankers), court costs,
transcript costs, fees of experts, travel expenses, duplicating,
printing and binding costs, telephone and fax transmission charges,
postage, delivery services, secretarial services, and other
disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those
terms in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities, losses,
penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed
claim, action, suit, arbitration, alternate dispute resolution
process, investigation, administrative hearing, appeal, or any other
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, whether formal or informal, including a proceeding
initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other Entity of which the
Company owns (either directly or through or together with another
Subsidiary of the Company) either (i) a general partner, managing
member or other similar interest or (ii) (A) 50% or more of the voting
power of the voting capital equity interests of such corporation,
partnership, limited liability company, joint venture or other Entity,
or (B) 50% or more of the outstanding voting capital stock or other
voting equity interests of such corporation, partnership, limited
liability company, joint venture or other Entity.
2. SERVICES OF INDEMNITEE. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to serve as an
executive officer of the Company. However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.
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<PAGE>
3. AGREEMENT TO INDEMNIFY. The Company agrees to indemnify Indemnitee as
follows:
(a) Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the
Company) by reason of Indemnitee's Corporate Status, Indemnitee shall
be indemnified by the Company against all Expenses and Liabilities
incurred or paid by Indemnitee in connection with such Proceeding
(referred to herein as "Indemnifiable Expenses" and "Indemnifiable
Liabilities," respectively, and collectively as "Indemnifiable
Amounts").
(b) Subject to the exceptions contained in Section 4(b) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding by or in the right of the Company to procure a judgment
in its favor by reason of Indemnitee's Corporate Status, Indemnitee
shall be indemnified by the Company against all Indemnifiable
Expenses.
4. EXCEPTIONS TO INDEMNIFICATION. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:
(a) If indemnification is requested under Section 3(a) and it has
been adjudicated finally by a court of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim
for indemnification has arisen, Indemnitee failed to act (i) in good
faith and (ii) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, or, with respect to
any criminal action or proceeding, Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful, Indemnitee shall not
be entitled to payment of Indemnifiable Amounts hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a court of competent
jurisdiction that, in connection with the subject of the
Proceeding out of which the claim for indemnification has
arisen, Indemnitee failed to act (A) in good faith and (B)
in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, Indemnitee
shall not be entitled to payment of Indemnifiable Expenses
hereunder; or
(ii) it has been adjudicated finally by a court of competent
jurisdiction that Indemnitee is liable to the Company with
respect to any claim, issue or matter involved in the
Proceeding out of which the claim for indemnification has
arisen, including, without limitation, a claim that
Indemnitee received an improper personal
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<PAGE>
benefit, no Indemnifiable Expenses shall be paid with
respect to such claim, issue or matter unless the Court of
Chancery or another court in which such Proceeding was
brought shall determine upon application that, despite the
adjudication of liability, but in view of all the
circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Indemnifiable
Expenses which such court shall deem proper.
5. PROCEDURE FOR PAYMENT OF INDEMNIFIABLE AMOUNTS. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and a short
description of the basis for the claim. The Company shall pay such
Indemnifiable Amounts to Indemnitee within twenty (20) calendar days of receipt
of the request. At the request of the Company, Indemnitee shall furnish such
documentation and information as are reasonably available to Indemnitee and
necessary to establish that Indemnitee is entitled to indemnification hereunder.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
7. EFFECT OF CERTAIN RESOLUTIONS. Neither the settlement or termination
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
8. AGREEMENT TO ADVANCE EXPENSES; CONDITIONS. The Company shall pay to
Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with
any Proceeding, including a Proceeding by or in the right of the Company, in
advance of the final disposition of such Proceeding. To the extent required by
Delaware law, Indemnitee hereby undertakes to repay the amount of Indemnifiable
Expenses paid to Indemnitee if it is finally
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<PAGE>
determined by a court of competent jurisdiction that Indemnitee is not entitled
under this Agreement to indemnification with respect to such Expenses. This
undertaking is an unlimited general obligation of Indemnitee.
9. PROCEDURE FOR ADVANCE PAYMENT OF EXPENSES. Indemnitee shall submit to
the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than twenty (20) calendar days after the Company's receipt of such
request.
10. REMEDIES OF INDEMNITEE.
(a) Right to Petition Court. In the event that Indemnitee makes a
request for payment of Indemnifiable Amounts under Sections 3 and 5
above or a request for an advancement of Indemnifiable Expenses under
Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this
Agreement, Indemnitee may petition the Court of Chancery to enforce
the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under Section
10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.
(c) Expenses. The Company agrees to reimburse Indemnitee in full for
any Expenses incurred by Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any action brought by
Indemnitee under Section 10(a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith.
(d) Validity of Agreement. The Company shall be precluded from
asserting in any Proceeding, including, without limitation, an action
under Section 10(a) above, that the provisions of this Agreement are
not valid, binding and enforceable or that there is insufficient
consideration for this Agreement and shall stipulate in court that the
Company is bound by all the provisions of this Agreement.
(e) Failure to Act Not a Defense. The failure of the Company
(including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination
concerning the permissibility of the payment of Indemnifiable Amounts
or the advancement of Indemnifiable Expenses under this Agreement
shall not be a defense in any action brought under Section 10(a)
above, and shall not create a presumption that such payment or
advancement is not permissible.
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<PAGE>
11. DEFENSE OF THE UNDERLYING PROCEEDING.
(a) Notice by Indemnitee. Indemnitee agrees to notify the Company
promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any
Proceeding which may result in the payment of Indemnifiable Amounts or
the advancement of Indemnifiable Expenses hereunder; provided,
however, that the failure to give any such notice shall not disqualify
Indemnitee from the right to receive payments of Indemnifiable Amounts
or advancements of Indemnifiable Expenses unless the Company's ability
to defend in such Proceeding is materially and adversely prejudiced
thereby.
(b) Defense by Company. Subject to the provisions of the last
sentence of this Section 11(b) and of Section 11(c) below, the Company
shall have the right to defend Indemnitee in any Proceeding which may
give rise to the payment of Indemnifiable Amounts hereunder; provided,
however that the Company shall notify Indemnitee of any such decision
to defend within ten (10) days of receipt of notice of any such
Proceeding under Section 11(a) above. The Company shall not, without
the prior written consent of Indemnitee, consent to the entry of any
judgment against Indemnitee or enter into any settlement or compromise
which (i) includes an admission of fault of Indemnitee or (ii) does
not include, as an unconditional term thereof, the full release of
Indemnitee from all liability in respect of such Proceeding, which
release shall be in form and substance reasonably satisfactory to
Indemnitee. This Section 11(b) shall not apply to a Proceeding
brought by Indemnitee under Section 10(a) above or pursuant to Section
19 below.
(c) Indemnitee's Right to Counsel. Notwithstanding the provisions of
Section 11(b) above, if in a Proceeding to which Indemnitee is a party
by reason of Indemnitee's Corporate Status, Indemnitee reasonably
concludes that it may have separate defenses or counterclaims to
assert with respect to any issue which may not be consistent with the
position of other defendants in such Proceeding, or if the Company
fails to assume the defense of such proceeding in a timely manner,
Indemnitee shall be entitled to be represented by separate legal
counsel of Indemnitee's choice at the expense of the Company. In
addition, if the Company fails to comply with any of its obligations
under this Agreement or in the event that the Company or any other
person takes any action to declare this Agreement void or
unenforceable, or institutes any action, suit or proceeding to deny or
to recover from Indemnitee the benefits intended to be provided to
Indemnitee hereunder, Indemnitee shall have the right to retain
counsel of Indemnitee's choice, at the expense of the Company, to
represent Indemnitee in connection with any such matter.
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<PAGE>
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
enter into, and be bound by the terms of, this Agreement, and the
execution, delivery and performance of the undertakings contemplated
by this Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by
the Company in accordance with the provisions hereof, shall be a
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally.
13. INSURANCE. The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with a reputable insurance company
providing the Indemnitee with coverage for losses from wrongful acts, and to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit. The Company
shall promptly notify Indemnitee of any good faith determination not to provide
such coverage.
14. CONTRACT RIGHTS NOT EXCLUSIVE. The rights to payment of Indemnifiable
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's by-laws or certificate
of incorporation, or any other agreement, vote of stockholders or directors (or
a committee of directors), or otherwise, both as to action in Indemnitee's
official capacity and as to action in any other capacity as a result of
Indemnitee's serving as a director of the Company.
15. SUCCESSORS. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This
7
<PAGE>
Agreement shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
16. SUBROGATION. In the event of any payment of Indemnifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
17. CHANGE IN LAW. To the extent that a change in Delaware law (whether
by statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the by-laws of the
Company and this Agreement, Indemnitee shall be entitled to such broader
indemnification and advancements, and this Agreement shall be deemed to be
amended to such extent.
18. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
19. INDEMNITEE AS PLAINTIFF. Except as provided in Section 10(c) of this
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless the
Company has consented to the initiation of such Proceeding. This Section shall
not apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.
20. MODIFICATIONS AND WAIVER. Except as provided in Section 17 above with
respect to changes in Delaware law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
21. GENERAL NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by
8
<PAGE>
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(i) If to Indemnitee, to:
At his home address as shown
in the Company's personnel records;
(ii) If to the Company, to:
Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attention: President
or to such other address as may have been furnished in the same manner by any
party to the others.
22. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced under the laws of Delaware without giving effect to the provisions
thereof relating to conflicts of law.
23. CONSENT TO JURISDICTION. The Company hereby irrevocably and
unconditionally consents to the jurisdiction of the courts of the State of
Delaware and the United States District Court for the District of Delaware. The
Company hereby irrevocably and unconditionally waives any objection to the
laying of venue of any Proceeding arising out of or relating to this Agreement
in the courts of the State of Delaware or the United States District Court for
the District of Delaware, and hereby irrevocably and unconditionally waives and
agrees not to plead or claim that any such Proceeding brought in any such court
has been brought in an inconvenient forum.
[END OF TEXT]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ WILLIAM W. EVANS, III
----------------------------------------------
Its: President and Chief Operating Officer
INDEMNITEE
/s/ LAWRENCE S. JONES
--------------------------------------------------
Lawrence S. Jones
10
<PAGE>
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement made and entered into this 9th day of March,
1998 ("Agreement"), by and between Wyndham International, Inc., a Delaware
corporation (the "Company," which term shall include, where appropriate, any
Entity (as hereinafter defined) controlled directly or indirectly by the
Company) and Lawrence S. Jones ("Indemnitee"):
WHEREAS, it is essential to the Company that it be able to retain and
attract as officers the most capable persons available;
WHEREAS, increased corporate litigation has subjected officers to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's by-laws require it to indemnify its officers to the
fullest extent permitted by law and permit it to make other indemnification
arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of any such by-laws or any change in the ownership of the
Company or the composition of its Board of Directors); and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in entering into an employment agreement with the Company:
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. DEFINITIONS.
(a) "Corporate Status" describes the status of a person who is
serving or has served (i) as a director or officer of the Company,
(ii) in any capacity with respect to any employee benefit plan of the
Company, or (iii) as a director, partner, trustee, officer, employee,
or agent of any other Entity at the request of the Company. For
purposes of subsection (iii) of this Section 1(a), an officer or
director of the Company who is serving or has served as a director,
partner, trustee, officer, employee or agent of a Subsidiary shall be
deemed to be serving at the request of the Company.
(b) "Entity" shall mean any corporation, partnership, limited
liability company, joint venture, trust, foundation, association,
organization or other legal entity.
<PAGE>
(c) "Expenses" shall mean all fees, costs and expenses incurred in
connection with any Proceeding (as defined below), including, without
limitation, attorneys' fees, disbursements and retainers (including,
without limitation, any such fees, disbursements and retainers
incurred by Indemnitee pursuant to Sections 10 and 11(c) of this
Agreement), fees and disbursements of expert witnesses, private
investigators and professional advisors (including, without
limitation, accountants and investment bankers), court costs,
transcript costs, fees of experts, travel expenses, duplicating,
printing and binding costs, telephone and fax transmission charges,
postage, delivery services, secretarial services, and other
disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those
terms in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities, losses,
penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed
claim, action, suit, arbitration, alternate dispute resolution
process, investigation, administrative hearing, appeal, or any other
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, whether formal or informal, including a proceeding
initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other Entity of which the
Company owns (either directly or through or together with another
Subsidiary of the Company) either (i) a general partner, managing
member or other similar interest or (ii) (A) 50% or more of the voting
power of the voting capital equity interests of such corporation,
partnership, limited liability company, joint venture or other Entity,
or (B) 50% or more of the outstanding voting capital stock or other
voting equity interests of such corporation, partnership, limited
liability company, joint venture or other Entity.
2. SERVICES OF INDEMNITEE. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to serve as an
executive officer of the Company. However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.
2
<PAGE>
3. AGREEMENT TO INDEMNIFY. The Company agrees to indemnify Indemnitee as
follows:
(a) Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the
Company) by reason of Indemnitee's Corporate Status, Indemnitee shall
be indemnified by the Company against all Expenses and Liabilities
incurred or paid by Indemnitee in connection with such Proceeding
(referred to herein as "Indemnifiable Expenses" and "Indemnifiable
Liabilities," respectively, and collectively as "Indemnifiable
Amounts").
(b) Subject to the exceptions contained in Section 4(b) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding by or in the right of the Company to procure a judgment
in its favor by reason of Indemnitee's Corporate Status, Indemnitee
shall be indemnified by the Company against all Indemnifiable
Expenses.
4. EXCEPTIONS TO INDEMNIFICATION. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:
(a) If indemnification is requested under Section 3(a) and it has
been adjudicated finally by a court of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim
for indemnification has arisen, Indemnitee failed to act (i) in good
faith and (ii) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, or, with respect to
any criminal action or proceeding, Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful, Indemnitee shall not
be entitled to payment of Indemnifiable Amounts hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a court of competent
jurisdiction that, in connection with the subject of the
Proceeding out of which the claim for indemnification has
arisen, Indemnitee failed to act (A) in good faith and (B)
in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, Indemnitee
shall not be entitled to payment of Indemnifiable Expenses
hereunder; or
(ii) it has been adjudicated finally by a court of
competent jurisdiction that Indemnitee is liable to the
Company with respect to any claim, issue or matter involved
in the Proceeding out of which the claim for indemnification
has arisen, including, without limitation, a claim that
Indemnitee received an improper personal
3
<PAGE>
benefit, no Indemnifiable Expenses shall be paid with
respect to such claim, issue or matter unless the Court of
Chancery or another court in which such Proceeding was
brought shall determine upon application that, despite the
adjudication of liability, but in view of all the
circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Indemnifiable
Expenses which such court shall deem proper.
5. PROCEDURE FOR PAYMENT OF INDEMNIFIABLE AMOUNTS. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and a short
description of the basis for the claim. The Company shall pay such
Indemnifiable Amounts to Indemnitee within twenty (20) calendar days of receipt
of the request. At the request of the Company, Indemnitee shall furnish such
documentation and information as are reasonably available to Indemnitee and
necessary to establish that Indemnitee is entitled to indemnification hereunder.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
7. EFFECT OF CERTAIN RESOLUTIONS. Neither the settlement or termination
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
8. AGREEMENT TO ADVANCE EXPENSES; CONDITIONS. The Company shall pay to
Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with
any Proceeding, including a Proceeding by or in the right of the Company, in
advance of the final disposition of such Proceeding. To the extent required by
Delaware law, Indemnitee hereby undertakes to repay the amount of Indemnifiable
Expenses paid to Indemnitee if it is finally
4
<PAGE>
determined by a court of competent jurisdiction that Indemnitee is not entitled
under this Agreement to indemnification with respect to such Expenses. This
undertaking is an unlimited general obligation of Indemnitee.
9. PROCEDURE FOR ADVANCE PAYMENT OF EXPENSES. Indemnitee shall submit to
the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than twenty (20) calendar days after the Company's receipt of such
request.
10. REMEDIES OF INDEMNITEE.
(a) Right to Petition Court. In the event that Indemnitee makes a
request for payment of Indemnifiable Amounts under Sections 3 and 5
above or a request for an advancement of Indemnifiable Expenses under
Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this
Agreement, Indemnitee may petition the Court of Chancery to enforce
the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under Section
10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.
(c) Expenses. The Company agrees to reimburse Indemnitee in full for
any Expenses incurred by Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any action brought by
Indemnitee under Section 10(a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith.
(d) Validity of Agreement. The Company shall be precluded from
asserting in any Proceeding, including, without limitation, an action
under Section 10(a) above, that the provisions of this Agreement are
not valid, binding and enforceable or that there is insufficient
consideration for this Agreement and shall stipulate in court that the
Company is bound by all the provisions of this Agreement.
(e) Failure to Act Not a Defense. The failure of the Company
(including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination
concerning the permissibility of the payment of Indemnifiable Amounts
or the advancement of Indemnifiable Expenses under this Agreement
shall not be a defense in any action brought under Section 10(a)
above, and shall not create a presumption that such payment or
advancement is not permissible.
5
<PAGE>
11. DEFENSE OF THE UNDERLYING PROCEEDING.
(a) Notice by Indemnitee. Indemnitee agrees to notify the Company
promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any
Proceeding which may result in the payment of Indemnifiable Amounts or
the advancement of Indemnifiable Expenses hereunder; provided,
however, that the failure to give any such notice shall not disqualify
Indemnitee from the right to receive payments of Indemnifiable Amounts
or advancements of Indemnifiable Expenses unless the Company's ability
to defend in such Proceeding is materially and adversely prejudiced
thereby.
(b) Defense by Company. Subject to the provisions of the last
sentence of this Section 11(b) and of Section 11(c) below, the Company
shall have the right to defend Indemnitee in any Proceeding which may
give rise to the payment of Indemnifiable Amounts hereunder; provided,
however that the Company shall notify Indemnitee of any such decision
to defend within ten (10) days of receipt of notice of any such
Proceeding under Section 11(a) above. The Company shall not, without
the prior written consent of Indemnitee, consent to the entry of any
judgment against Indemnitee or enter into any settlement or compromise
which (i) includes an admission of fault of Indemnitee or (ii) does
not include, as an unconditional term thereof, the full release of
Indemnitee from all liability in respect of such Proceeding, which
release shall be in form and substance reasonably satisfactory to
Indemnitee. This Section 11(b) shall not apply to a Proceeding
brought by Indemnitee under Section 10(a) above or pursuant to Section
19 below.
(c) Indemnitee's Right to Counsel. Notwithstanding the provisions of
Section 11(b) above, if in a Proceeding to which Indemnitee is a party
by reason of Indemnitee's Corporate Status, Indemnitee reasonably
concludes that it may have separate defenses or counterclaims to
assert with respect to any issue which may not be consistent with the
position of other defendants in such Proceeding, or if the Company
fails to assume the defense of such proceeding in a timely manner,
Indemnitee shall be entitled to be represented by separate legal
counsel of Indemnitee's choice at the expense of the Company. In
addition, if the Company fails to comply with any of its obligations
under this Agreement or in the event that the Company or any other
person takes any action to declare this Agreement void or
unenforceable, or institutes any action, suit or proceeding to deny or
to recover from Indemnitee the benefits intended to be provided to
Indemnitee hereunder, Indemnitee shall have the right to retain
counsel of Indemnitee's choice, at the expense of the Company, to
represent Indemnitee in connection with any such matter.
6
<PAGE>
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
enter into, and be bound by the terms of, this Agreement, and the
execution, delivery and performance of the undertakings contemplated
by this Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by the
Company in accordance with the provisions hereof, shall be a legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors'
rights generally.
13. INSURANCE. The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with a reputable insurance company
providing the Indemnitee with coverage for losses from wrongful acts, and to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit. The Company
shall promptly notify Indemnitee of any good faith determination not to provide
such coverage.
14. CONTRACT RIGHTS NOT EXCLUSIVE. The rights to payment of Indemnifiable
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's by-laws or certificate
of incorporation, or any other agreement, vote of stockholders or directors (or
a committee of directors), or otherwise, both as to action in Indemnitee's
official capacity and as to action in any other capacity as a result of
Indemnitee's serving as an executive officer of the Company.
15. SUCCESSORS. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This
7
<PAGE>
Agreement shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
16. SUBROGATION. In the event of any payment of Indemnifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
17. CHANGE IN LAW. To the extent that a change in Delaware law (whether
by statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the by-laws of the
Company and this Agreement, Indemnitee shall be entitled to such broader
indemnification and advancements, and this Agreement shall be deemed to be
amended to such extent.
18. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
19. INDEMNITEE AS PLAINTIFF. Except as provided in Section 10(c) of this
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless the
Company has consented to the initiation of such Proceeding. This Section shall
not apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.
20. MODIFICATIONS AND WAIVER. Except as provided in Section 17 above with
respect to changes in Delaware law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
21. GENERAL NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by
8
<PAGE>
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(i) If to Indemnitee, to:
At his home address as shown
in the Company's personnel records;
(ii) If to the Company, to:
Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attention: President
or to such other address as may have been furnished in the same manner by any
party to the others.
22. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced under the laws of Delaware without giving effect to the provisions
thereof relating to conflicts of law.
23. CONSENT TO JURISDICTION. The Company hereby irrevocably and
unconditionally consents to the jurisdiction of the courts of the State of
Delaware and the United States District Court for the District of Delaware. The
Company hereby irrevocably and unconditionally waives any objection to the
laying of venue of any Proceeding arising out of or relating to this Agreement
in the courts of the State of Delaware or the United States District Court for
the District of Delaware, and hereby irrevocably and unconditionally waives and
agrees not to plead or claim that any such Proceeding brought in any such court
has been brought in an inconvenient forum.
[END OF TEXT]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WYNDHAM INTERNATIONAL, INC.
By: /s/ WILLIAM W. EVANS, III
--------------------------------------------
Its: Executive Vice President
INDEMNITEE
/s/ LAWRENCE S. JONES
----------------------------------------------
Lawrence S. Jones
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997 AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1997 OF PATRIOT AMERICAN HOSPITALITY, INC.
</LEGEND>
<CIK> 0000016343
<NAME> PATRIOT AMERICAN HOSPITALITY, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 7,387 20,360
<SECURITIES> 0 0
<RECEIVABLES> 44,976 14,458
<ALLOWANCES> 0 0
<INVENTORY> 1,306 1,306
<CURRENT-ASSETS> 0 0
<PP&E> 2,662,066 2,083,768
<DEPRECIATION> 67,027 67,501
<TOTAL-ASSETS> 3,728,516 2,321,105
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
49 0
<COMMON> 1,077 733
<OTHER-SE> 1,791,257 908,294
<TOTAL-LIABILITY-AND-EQUITY> 3,728,516 2,321,105
<SALES> 0 0
<TOTAL-REVENUES> 113,165 35,388
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 44,260 14,824
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34,251 7,805
<INCOME-PRETAX> 38,245 13,780
<INCOME-TAX> 371 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 18,716 0
<CHANGES> 0 0
<NET-INCOME> 15,497 11,348
<EPS-PRIMARY> 0.16 0.26
<EPS-DILUTED> 0.14 0.25
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
OF WYNDHAM INTERNATIONAL, INC.
</LEGEND>
<CIK> 0000715273
<NAME> WYNDHAM INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
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<SECURITIES> 0 0
<RECEIVABLES> 122,801 46,340
<ALLOWANCES> 0 0
<INVENTORY> 14,753 9,144
<CURRENT-ASSETS> 272,202 100,662
<PP&E> 590,833 29,686
<DEPRECIATION> 34,894 1,304
<TOTAL-ASSETS> 1,493,038 252,088
<CURRENT-LIABILITIES> 594,584 115,656
<BONDS> 0 0
0 0
0 0
<COMMON> 1,077 733
<OTHER-SE> 118,141 80,132
<TOTAL-LIABILITY-AND-EQUITY> 1,493,038 252,088
<SALES> 290,644 0
<TOTAL-REVENUES> 329,982 0
<CGS> 0 0
<TOTAL-COSTS> 200,555 0
<OTHER-EXPENSES> 116,213 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,699 0
<INCOME-PRETAX> 9,235 0
<INCOME-TAX> 3,187 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,180 0
<EPS-PRIMARY> 0.03 0
<EPS-DILUTED> 0.03 0
</TABLE>
