<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1998
REGISTRATION STATEMENT NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
<TABLE>
<CAPTION>
<S> <C>
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF ORGANIZATION) (STATE OR OTHER JURISDICTION OF ORGANIZATION)
6798 7948
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE) (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE)
94-0358820 94-2878485
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1950 STEMMONS FREEWAY 1950 STEMMONS FREEWAY
SUITE 6001 SUITE 6001
DALLAS, TX 75207 DALLAS, TX 75207
(214) 863-1000 (214) 863-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
PAUL A. NUSSBAUM JAMES D. CARREKER
CHAIRMAN OF THE BOARD AND CHIEF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
EXECUTIVE OFFICER OFFICER
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
1950 STEMMONS FREEWAY 1950 STEMMONS FREEWAY
SUITE 6001 SUITE 6001
DALLAS, TX 75207 DALLAS, TX 75207
(214) 863-1000 (214) 863-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
GILBERT G. MENNA, P.C. ROBERT A. PROFUSEK, ESQ.
MARTIN CARMICHAEL III, P.C. JONES, DAY, REAVIS & POGUE
GOODWIN, PROCTER & HOAR LLP 599 LEXINGTON AVENUE
EXCHANGE PLACE NEW YORK, NY 10022
BOSTON, MA 02109-2881 (212) 326-3939
(617) 570-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger of Interstate Hotels Company ("Interstate") with
and into Patriot American Hospitality, Inc. pursuant to an Agreement and Plan
of Merger dated as of December 2, 1997 (the "Merger Agreement"), described in
the enclosed Joint Proxy Statement and Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
--------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share, of
Patriot American
Hospitality, Inc.
("Patriot Common
Stock") paired with
shares of Common
Stock, par value $.01
per share, of Wyndham
International, Inc.
("Wyndham
International Common
Stock")(1)............ 29,775,812(2) $34.75(3) $771,595,429(3) $227,621
=====================================================================================
</TABLE>
(1) This Registration Statement also relates to any public reoffers or resales
of paired shares (the "Paired Shares") of Patriot Common Stock and Wyndham
International Common Stock acquired by certain stockholders of Interstate.
(2) Represents the estimated maximum number of Paired Shares to be issued to
stockholders of Interstate pursuant to the Merger Agreement.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) and based on the average of the high and
low sales prices per share of Interstate Common Stock on January 7, 1998
on the New York Stock Exchange, multiplied by an aggregate of 22,204,185
shares of Interstate Common Stock expected to be exchanged for Paired
Shares pursuant to the Merger Agreement.
--------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
1950 STEMMONS FREEWAY, SUITE 6001 1950 STEMMONS FREEWAY, SUITE 6001
DALLAS, TX 75207 DALLAS, TX 75207
, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meetings of Stockholders of
Patriot American Hospitality, Inc. ("Patriot") and Wyndham International, Inc.
(formerly known as Patriot American Hospitality Operating Company, "Wyndham
International"), to be held on , 1998 at a.m. and a.m. local time,
respectively, at . At the Special Meetings, you will be asked to
consider and vote upon a proposal to approve the Agreement and Plan of Merger,
dated as of December 2, 1997, by and among Interstate Hotels Company
("Interstate"), Patriot and Wyndham International (the "Merger Agreement"),
the merger of Interstate with and into Patriot (the "Merger"), with Patriot
being the surviving company, and the other transactions contemplated by the
Merger Agreement.
Pursuant to the 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 as
described below) (the "Cash Consideration") or (ii) the number of paired
shares of Patriot common stock and Wyndham International common stock ("Paired
Shares") equal to $37.50 divided by the average closing price of a Paired
Share on the New York Stock Exchange over the 20 trading days immediately
preceding the fifth trading day prior to the meeting of Interstate's
stockholders at which the approval of the Merger will be sought (the "Average
Closing Price"), subject to adjustment under certain circumstances depending
on the Average Closing Price (the "Exchange Ratio"). After the elections are
made by stockholders of Interstate, proration will be used to ensure that 40%
of the outstanding shares of Interstate common stock will be converted into
the right to receive 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 Exchange Ratio, subject to adjustment in the
event of the exercise of dissenters' rights in respect of more than 100,000
shares of Interstate common stock.
Your Paired Shares will remain outstanding after the Merger and will
represent, without any action on your part, the same number of Paired Shares
that were held by you immediately prior to the Merger. While you will own the
same number of Paired Shares following the Merger, you will own a lesser
percentage of the total number of Paired Shares than you owned before the
Merger because of the issuance of Paired Shares to Interstate's stockholders
in connection with the Merger.
The Boards of Directors of Patriot and Wyndham International believe that
the Merger is fair to, and in the best interests of, Patriot and Wyndham
International and their respective stockholders. In connection with the
Merger, the investment banking firm of PaineWebber Incorporated has issued its
opinion to the Boards of Directors of Patriot and Wyndham International to the
effect that, as of the date of such opinion, and subject to the considerations
and limitations set forth in such opinion, the merger consideration was fair
from a financial point of view to the stockholders of Patriot and Wyndham
International. A copy of this opinion is attached as Annex B to the
accompanying Joint Proxy Statement/Prospectus. Each of the Boards of Directors
of Patriot and Wyndham International has unanimously approved the Merger
Agreement, the Merger and the transactions contemplated thereby and
unanimously recommends that you vote in favor of the Merger Agreement, the
Merger and the transactions contemplated thereby at the Special Meetings.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the Merger Agreement and the proposed Merger, the
reasons for each Board of Directors' recommendation of the Merger and certain
additional information, including, without limitation, the information set
forth under the heading "Risk Factors," which describes, among other things,
potential adverse effects to stockholders of Patriot and Wyndham International
as a result of the Merger. We urge you to carefully consider all of the
information in the Joint Proxy Statement/Prospectus.
IT IS IMPORTANT THAT YOUR SHARES OF PATRIOT COMMON STOCK AND WYNDHAM
INTERNATIONAL COMMON STOCK BE REPRESENTED AT THE SPECIAL MEETINGS, REGARDLESS
OF THE NUMBER OF SHARES YOU HOLD. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND
RETURN YOUR PROXY CARD AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETINGS. ALL STOCKHOLDERS ARE URGED TO VOTE TO APPROVE THE
MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY BY
COMPLETING, SIGNING, DATING AND RETURNING THE ENCLOSED PROXY CARD.
We look forward to the successful combination of Patriot and Interstate and
to your continued support as a stockholder.
/s/ Paul A. Nussbaum /s/ James D. Carreker
Paul A. Nussbaum James D. Carreker
Chairman and Chief Executive Officer Chairman and Chief
Patriot American Hospitality, Inc. Executive Officer
Wyndham International,
Inc.
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
1950 STEMMONS FREEWAY, SUITE 6001 1950 STEMMONS FREEWAY, SUITE 6001
DALLAS, TX 75207 DALLAS, TX 75207
----------------
JOINT NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD ON , 1998
----------------
To the Stockholders of Patriot American Hospitality, Inc. and Wyndham
International, Inc.:
Notice is hereby given that Special Meetings of Stockholders of Patriot
American Hospitality, Inc., a Delaware corporation ("Patriot"), and Wyndham
International, Inc., a Delaware corporation (formerly known as Patriot
American Hospitality Operating Company, "Wyndham International"), will be held
on , 1998 at a.m. and a.m. local time, respectively, at
(the "Patriot Companies' Special Meetings"), for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of December 2, 1997, by and among Interstate Hotels Company,
a Pennsylvania corporation ("Interstate"), Patriot and Wyndham International
(the "Merger Agreement"), the merger of Interstate with and into Patriot (the
"Merger"), with Patriot being the surviving company, and the other
transactions contemplated by the Merger Agreement. Pursuant to the Merger
Agreement and subject to proration as described below, stockholders of
Interstate will have the right to elect to have each of their shares of common
stock of Interstate, par value $.01 per share (the "Interstate Common Stock"),
converted into the right to receive either (i) $37.50 in cash (the "Cash
Consideration") or (ii) the number of paired shares of Patriot common stock
and Wyndham International common stock ("Paired Shares") equal to $37.50
divided by the average closing price of a Paired Share as reported on the New
York Stock Exchange over the 20 trading days immediately preceding the fifth
trading day prior to the meeting of stockholders of Interstate at which the
approval of the Merger will be sought (the "Average Closing Price"), subject
to adjustment under certain circumstances depending on the Average Closing
Price as described below (the applicable conversion ratio being referred to
herein as the "Exchange Ratio"). After the elections are made by stockholders
of Interstate, proration will be used to ensure that 40% of the outstanding
shares of Interstate Common Stock (the "Interstate Outstanding Shares") will
be converted into the right to receive Cash Consideration and the remaining
60% of the Interstate Outstanding Shares will be converted into the right to
receive Paired Shares at the Exchange Ratio, subject to adjustment in the
event of the exercise of dissenters' rights in respect of more than 100,000
shares of Interstate Common Stock. Consequently, the aggregate amount of Cash
Consideration (the "Aggregate Cash Consideration") that will be paid to
Interstate stockholders participating in the Merger will be $531.4 million
based on the number of outstanding shares of Interstate Common Stock as of
January 6, 1998. In addition, outstanding options to acquire Interstate Common
Stock will be cashed out for an amount equal to the spread between the
exercise price of such options and $37.50, except that certain senior
executives of Interstate may choose to have their options assumed by Patriot.
The Merger Agreement contains separate provisions for Interstate stockholders
who exercise dissenters' rights, which are described more fully in the Joint
Proxy Statement/Prospectus accompanying this Notice.
The Exchange Ratio will be equal to $37.50 divided by the Average Closing
Price, subject to the following adjustments. In the event that the Average
Closing Price is less than $27.970 but greater than or equal to $26.416, the
Exchange Ratio will be equal to 1.341. In the event that the Average Closing
Price is greater than $34.186 but less than or equal to $37.294 ($38.848, if
the Merger is consummated after March 30, 1998), the Exchange Ratio will be
equal to 1.097. In the event that the Average Closing Price is greater than
$37.294 ($38.848, if the Merger is consummated after March 30, 1998), the
Exchange Ratio will be equal to $40.912 ($42.616, if the Merger is consummated
after March 30, 1998) divided by the Average Closing Price. In the event that
the Average Closing Price is less than $26.416, the Exchange Ratio will be
equal to 1.341, but Interstate will have the right upon notice to Patriot to
terminate the Merger Agreement unless Patriot decides to increase the Exchange
Ratio to an amount equal to $35.424 divided by the Average Closing Price. In
the event Patriot so increases the Exchange Ratio, any prior exercise by
Interstate of its right to so terminate the Merger Agreement will be rescinded
and have no effect.
<PAGE>
A copy of the Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To transact such other business as may properly come before the Patriot
Companies' Special Meetings or any adjournments or postponements thereof.
Holders of record of shares of Patriot common stock and Wyndham
International common stock at the close of business on , 1998 are
entitled to notice of, and to vote at, the Patriot Companies' Special
Meetings. Lists of such stockholders will be available for inspection at the
offices of Patriot at least ten days prior to the Patriot Companies' Special
Meetings. The Merger Agreement and other related matters are more fully
described in the accompanying Joint Proxy Statement/Prospectus and the Annexes
thereto.
By Order of the Board of Directors By Order of the Board of Directors
of Patriot American Hospitality, of Wyndham international, inc.
inc.
Rex E. Stewart
Rex E. Stewart Secretary
Secretary
, 1998
Proxies are being solicited hereby by the Boards of Directors of Patriot and
Wyndham International, respectively. To ensure representation of your stock at
the Patriot Companies' Special Meetings, you must mark, sign and return the
enclosed proxy card.
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE PATRIOT COMPANIES' SPECIAL MEETINGS,
PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE
PATRIOT COMPANIES' SPECIAL MEETINGS, YOU MAY VOTE YOUR SHARES IN PERSON, EVEN
THOUGH YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.
2
<PAGE>
INTERSTATE HOTELS COMPANY
FOSTER PLAZA TEN
680 ANDERSEN DRIVE
PITTSBURGH, PENNSYLVANIA 15220
, 1998
Dear Shareholder:
You are invited to attend Interstate's special meeting of shareholders to be
held at : a.m., local time, on , 1998 at the . The purpose of the
meeting is to vote on the previously announced merger of Interstate and
Patriot American Hospitality, Inc. This letter constitutes notice of the
special meeting.
Interstate's Board of Directors has unanimously determined that the merger
is in the best interests of Interstate and its shareholders and recommends
that shareholders vote in favor of the merger. The record date for voting at
the special meeting is , 1998. Approval of the merger requires the
affirmative vote of the holders of a majority of the shares of Interstate
common stock cast at the special meeting. In connection with the execution of
the merger agreement, certain trusts that I had previously established agreed
to vote 19.9% of the outstanding Interstate common stock in favor of the
merger.
The merger marks the beginning of what I feel will be an exciting new
chapter in Interstate's history. While I am convinced that Interstate is among
the finest hotel management companies in the world, I believe that joining
forces with a much larger, more diversified hospitality company will only
further enhance the Company's prospects for growth, the creation of
shareholder value and the provision of even greater opportunities for
Interstate associates.
I hope that you are able to attend the meeting. Whether or not you are able
to attend, please sign, date and return your proxy card in the enclosed
postage-paid envelope as soon as possible. If you later decide to attend the
meeting and vote in person, or if you wish to revoke your proxy for any reason
prior to the vote at the meeting, you may do so and your proxy will have no
further effect. If you attend the meeting, you may vote in person, if you
wish, even though you previously mailed your proxy.
The proposed merger and related matters are described in full in the
enclosed proxy materials. Please review these materials carefully.
Sincerely,
Milton Fine
Chairman of the
Board
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 13, 1998
PATRIOT AMERICAN HOSPITALITY, INC.,
WYNDHAM INTERNATIONAL, INC.
AND
INTERSTATE HOTELS COMPANY
JOINT PROXY STATEMENT
-----------
PATRIOT AMERICAN HOSPITALITY, INC.
AND
WYNDHAM INTERNATIONAL, INC.
PROSPECTUS
This Joint Proxy Statement and Prospectus (the "Joint Proxy
Statement/Prospectus") relates to, among other things, the shares of common
stock, par value $.01 per share (the "Patriot Common Stock"), of Patriot
American Hospitality, Inc., a Delaware corporation ("Patriot"), and common
stock, par value $.01 per share (the "Wyndham International Common Stock"), of
Wyndham International, Inc., a Delaware corporation (formerly Patriot American
Hospitality Operating Company, "Wyndham International" and, together with
Patriot, the "Patriot Companies"), which shares are paired and trade as a
single unit (the "Paired Shares") on the New York Stock Exchange, Inc. (the
"NYSE"), that may be issued pursuant to an Agreement and Plan of Merger dated
as of December 2, 1997 among Interstate Hotels Company, a Pennsylvania
corporation ("Interstate"), Patriot and Wyndham International (the "Merger
Agreement"). This Joint Proxy Statement/Prospectus and the accompanying forms
of proxy are first being mailed to stockholders of Patriot, Wyndham
International and Interstate on or about , 1998.
Pursuant to the Merger Agreement, Interstate will merge with and into
Patriot, with Patriot being the surviving company (the "Merger"). Upon
consummation of the Merger, and subject to proration as described below,
stockholders of Interstate will have the right to elect to have each of their
shares of common stock of Interstate, par value $.01 per share (the "Interstate
Common Stock" or "Interstate Shares"), converted into the right to receive
either (i) $37.50 in cash (the "Cash Consideration") or (ii) the number of
Paired Shares equal to $37.50 divided by the average closing price of a Paired
Share as reported on the NYSE over the 20 days on which the NYSE is open for
trading ("Trading Days") immediately preceding the fifth Trading Day prior to
the meeting of stockholders of Interstate at which the adoption of the Merger
Agreement and approval of the transactions contemplated thereby (the "Merger
Proposal") will be sought (the "Average Closing Price"), subject to adjustment
under certain circumstances depending on the Average Closing Price as described
below (the applicable conversion ratio being referred to herein as the
"Exchange Ratio"). After the elections are made by stockholders of Interstate,
proration will be used to ensure that 40% of the outstanding shares of
Interstate Common Stock (the "Interstate Outstanding Shares") will be converted
into the right to receive Cash Consideration and the remaining 60% of the
Interstate Outstanding Shares will be converted into the right to receive
Paired Shares at the Exchange Ratio, subject to adjustment in the event of the
exercise of dissenters' rights in respect of more than 100,000 shares of
Interstate Common Stock. Consequently, the aggregate amount of Cash
Consideration (the "Aggregate Cash Consideration") that will be paid to
Interstate stockholders participating in the Merger will be $531.4 million
based on the number of outstanding shares of Interstate Common Stock as of
January 6, 1998. In addition, outstanding options to acquire Interstate Common
Stock will be cashed out for an amount equal to the spread between the exercise
price of such options and $37.50, except that certain senior executives of
Interstate may choose to have their options assumed by Patriot. The Merger
Agreement contains separate provisions for Interstate stockholders who exercise
dissenters' rights which are described more fully herein.
The Exchange Ratio will be equal to $37.50 divided by the Average Closing
Price, subject to the following adjustments. In the event that the Average
Closing Price is less than $27.970 but greater than or equal to $26.416, the
Exchange Ratio will be equal to 1.341. In the event that the Average Closing
Price is greater than $34.186 but less than or equal to $37.294 ($38.848, if
the Merger is consummated after March 30, 1998), the Exchange Ratio will be
equal to 1.097. In the event that the Average Closing Price is greater than
$37.294 ($38.848, if the Merger is consummated after March 30, 1998), the
Exchange Ratio will be equal to $40.912 ($42.616, if the Merger is consummated
after March 30, 1998) divided by the Average Closing Price. In the event that
the Average Closing Price is less than $26.416, the Exchange Ratio will be
equal to 1.341, but Interstate will have the right upon notice to Patriot to
terminate the Merger Agreement unless Patriot decides to increase the Exchange
Ratio to an amount equal to $35.424 divided by the Average Closing Price. In
the event Patriot so increases the Exchange Ratio, any prior exercise by
Interstate of its right to so terminate the Merger Agreement will be rescinded
and have no effect.
<PAGE>
This Joint Proxy Statement/Prospectus is being furnished to (i) the
stockholders of Patriot and Wyndham International in connection with the
solicitation of proxies by the Board of Directors of Patriot (the "Patriot
Board") and the Board of Directors of Wyndham International (the "Wyndham
International Board") from holders of outstanding shares of Patriot Common
Stock and Wyndham International Common Stock, respectively, for use at the
special meetings of stockholders of Patriot (the "Patriot Special Meeting") and
Wyndham International (the "Wyndham International Special Meeting" and,
together with the Patriot Special Meeting, the "Patriot Companies' Special
Meetings") scheduled to be held on , 1998 at the located at
, , , at a.m. and a.m. local time, respectively, and at any
adjournments or postponements thereof and (ii) the stockholders of Interstate
in connection with the solicitation of proxies by the Board of Directors of
Interstate (the "Interstate Board") from holders of outstanding shares of
Interstate Common Stock, for use at the special meeting of stockholders of
Interstate (the "Interstate Special Meeting") scheduled to be held on ,
1998 at the located at , , , at a.m. local time, and
at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus constitutes the Prospectus of Patriot
and Wyndham International with respect to (i) the issuance of up to 29,775,812
Paired Shares to be issued to stockholders of Interstate in connection with the
transactions contemplated by the Merger Agreement and (ii) the offering and
resale from time to time of up to 13,666,787 Paired Shares by certain
stockholders of Interstate. The number of shares in (i) above represents the
estimated maximum number of Paired Shares that could be issued in the Merger.
The numbers above will vary depending upon the Exchange Ratio, exercises of
outstanding options to purchase Interstate Common Stock prior to the effective
time of the Merger (the "Effective Time") and the number of Interstate Shares
as to which dissenters' rights have been exercised by the holders thereof.
The affirmative vote of the holders of a majority of the outstanding shares
of the capital stock of Patriot and Wyndham International, respectively, is
required to approve the Merger at the Patriot Companies' Special Meetings. The
affirmative vote of the holders of a majority of the votes cast is required to
approve the Merger at the Interstate Special Meeting. Pursuant to a
Shareholders Agreement (the "Shareholders Agreement"), dated as of December 2,
1997, Milton Fine, the co-founder of Interstate, and certain entities
affiliated with Mr. Fine (the "Fine Entities") have, subject to certain
conditions, agreed to vote their shares of Interstate Common Stock, up to an
aggregate maximum of 19.9% of the outstanding shares of Interstate Common
Stock, in favor of adoption of the Merger Agreement and approval of the Merger.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING
THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 25.
Any stockholders who would like information with respect to the Exchange
Ratio may call , the proxy solicitor for Patriot, Wyndham International
and Interstate, at 1-800- - . will provide to any requesting
stockholder an estimate of the Exchange Ratio as of any date prior to the final
determination of the Exchange Ratio. also will provide instructions
on how to submit proxies in a timely manner, including for any stockholder who
wishes to wait until the Exchange Ratio is finally determined. In addition, any
Patriot, Wyndham International or Interstate stockholder who wishes to change
its vote relating to the Merger Proposal may do so by transmitting such request
via facsimile to at ( ) - .
All information contained in this Joint Proxy Statement/Prospectus with
respect to Patriot and Wyndham International has been provided by Patriot
and/or Wyndham International. All information contained in this Joint Proxy
Statement/Prospectus with respect to Interstate has been provided by
Interstate.
A STOCKHOLDER WHO HAS GIVEN A PROXY MAY REVOKE IT AT ANY TIME PRIOR TO ITS
EXERCISE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is , 1998.
(ii)
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION, IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN SINCE
THE DATE HEREOF.
AVAILABLE INFORMATION
Patriot, Wyndham International and Interstate are each subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith file reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by Patriot, Wyndham International and
Interstate can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and may be available at the following Regional
Offices of the Commission: Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Patriot, Wyndham International and Interstate are also
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering Analysis and Retrieval
(EDGAR) system. The Commission maintains a world wide web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, reports, proxy and information statements and other
information concerning Patriot, Wyndham International and Interstate can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005, on which the Paired Shares and Interstate Common Stock are currently
listed.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4 and exhibits
relating thereto, including any amendments (the "Registration Statement"), of
which this Joint Proxy Statement/Prospectus is a part, and which Patriot and
Wyndham International have filed with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"). Reference is made to such
Registration Statement for further information with respect to Patriot,
Wyndham International and Interstate and the Paired Shares offered hereby.
Statements contained herein or incorporated herein by reference concerning the
provisions of documents are summaries of such documents. Each such statement
is qualified in its entirety by reference to the copy of the applicable
document if filed with the Commission or attached as an annex hereto.
(iii)
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Joint Proxy Statement/Prospectus:
PATRIOT AND WYNDHAM INTERNATIONAL (FILE NOS. 001-09319 AND 001-09320)
1. Current Reports on Form 8-K of Patriot American Hospitality, Inc. and
Wyndham International, Inc. dated (i) July 1, 1997 (filed July 11, 1997), (ii)
July 15, 1997 (filed July 21, 1997), (iii) July 22, 1997 (filed July 22,
1997), (iv) September 17, 1997 (filed September 17, 1997), (v) September 30,
1997, as amended (filed October 14, 1997 and October 28, 1997), (vi) September
30, 1997 (filed November 12, 1997), (vii) December 2, 1997 (filed December 4,
1997), (viii) December 10, 1997 (filed December 10, 1997) and (ix) January 5,
1998 (filed January 13, 1998);
2. The description of the Paired Shares of Patriot Common Stock and Wyndham
International Common Stock contained or incorporated by reference in Patriot's
and Wyndham International's Registration Statement on Form 8-A, including any
amendments thereto (filed November 30, 1986, July 17, 1997 and July 21, 1997);
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Wyndham International, Inc. for the fiscal quarter ended June 30, 1997 (filed
August 14, 1997); and
4. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Wyndham International, Inc. for the fiscal quarter ended September 30, 1997
(filed November 14, 1997).
CAL JOCKEY AND BAY MEADOWS (FILE NOS. 001-09319 AND 001-09320)
1. Annual Report on Form 10-K of California Jockey Club and Bay Meadows
Operating Company for the fiscal year ended December 31, 1996 (filed March 31,
1997);
2. Current Reports on Form 8-K of California Jockey Club and Bay Meadows
Operating Company dated (i) February 24, 1997 (filed March 3, 1997) and (ii)
May 28, 1997 (filed June 5, 1997);
3. Quarterly Report on Form 10-Q of California Jockey Club and Bay Meadows
Operating Company for the fiscal quarter ended March 31, 1997 (filed May 12,
1997); and
4. Quarterly Report on Form 10-Q/A of California Jockey Club and Bay Meadows
Operating Company for the fiscal quarter ended March 31, 1997 (filed May 16,
1997).
PATRIOT AMERICAN HOSPITALITY, INC. (OLD PATRIOT) (FILE NO. 001-13898)
1. Annual Report on Form 10-K of Patriot American Hospitality, Inc. for the
fiscal year ended December 31, 1996 (filed March 26, 1997);
2. Current Reports on Form 8-K of Patriot American Hospitality, Inc. dated
(i) April 2, 1996, as amended (filed April 17, 1996 and June 14, 1996), (ii)
December 5, 1996 (filed December 5, 1996), (iii) January 16, 1997, as amended
(filed January 31, 1997, February 21, 1997, April 8, 1997, April 9, 1997 and
May 19, 1997), (iv) February 24, 1997 (filed March 3, 1997) and (v) April 14,
1997, as amended (filed April 17, 1997 and April 18, 1997); and
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. for
the fiscal quarter ended March 31, 1997 (filed May 12, 1997).
WYNDHAM HOTEL CORPORATION (OLD WYNDHAM) (FILE NO. 001-11723)
1. Annual Report on Form 10-K of Wyndham Hotel Corporation for the fiscal
year ended December 31, 1996 (filed March 27, 1997);
2. Current Reports on Form 8-K of Wyndham Hotel Corporation dated (i) April
14, 1997 (filed April 23, 1997) and (ii) July 31, 1997, as amended (filed
August 15, 1997 and September 18, 1997);
(iv)
<PAGE>
3. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation for the fiscal
quarter ended March 31, 1997 (filed May 12, 1997);
4. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation for the
fiscal quarter ended March 31, 1997 (filed June 2, 1997);
5. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation for the fiscal
quarter ended June 30, 1997 (filed August 14, 1997);
6. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation for the
fiscal quarter ended June 30, 1997 (filed August 29, 1997);
7. Proxy Statement of Wyndham Hotel Corporation for the Annual Meeting of
Stockholders held April 28, 1997 (filed March 27, 1997); and
8. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation for the fiscal
quarter ended September 30, 1997 (filed November 14, 1997).
INTERSTATE (FILE NO. 001-11731)
1. Annual Report on Form 10-K of Interstate Hotels Company for the fiscal
year ended December 31, 1996 (filed March 21, 1997);
2. Proxy Statement of Interstate Hotels Company for the Annual Meeting of
Stockholders held May 21, 1997 (filed March 27, 1997);
3. Quarterly Report on Form 10-Q of Interstate Hotels Company for the fiscal
quarter ended March 31, 1997 (filed May 14, 1997);
4. Quarterly Report on Form 10-Q of Interstate Hotels Company for the fiscal
quarter ended June 30, 1997 (filed August 14, 1997);
5. Current Reports on Form 8-K of Interstate Hotels Company dated (i)
December 27, 1996 (filed January 13, 1997) and (ii) August 28, 1997 (filed
September 12, 1997); and
6. Quarterly Report on Form 10-Q of Interstate Hotels Company for the fiscal
quarter ended September 30, 1997 (filed November 14, 1997).
In addition, all reports and other documents filed by each of Patriot,
Wyndham International and Interstate pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
Patriot Special Meeting, the Wyndham International Special Meeting and the
Interstate Special Meeting shall be deemed to be incorporated by reference
herein and to be made a part hereof from the date of filing of such reports
and documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein, or in any other subsequently filed document
that also is incorporated or deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST OF ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS JOINT PROXY STATEMENT/ PROSPECTUS IS DELIVERED BY DIRECTING REQUESTS
TO 1950 STEMMONS FREEWAY, SUITE 6001, DALLAS, TEXAS 75207, ATTENTION:
STOCKHOLDER RELATIONS (TELEPHONE NO. (214) 863-1000). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY .
(v)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
SUMMARY................................................................... 1
General................................................................. 1
The Companies........................................................... 1
The Meetings of Stockholders; Recommendations of the Boards of Direc-
tors................................................................... 4
Opinions of Financial Advisors.......................................... 5
The Merger.............................................................. 6
Certain Federal Income Tax Consequences................................. 6
Accounting Treatment.................................................... 7
Certain Resale Restrictions............................................. 7
New York Stock Exchange Listing......................................... 7
Shareholders Agreement.................................................. 7
Summary Risk Factors.................................................... 8
The Merger Agreement.................................................... 11
Comparison of Stockholders Rights....................................... 12
Dissenters' Rights...................................................... 12
Interests of Certain Officers, Directors and Stockholders of Inter-
state.................................................................. 12
Summary Financial Information........................................... 13
Comparative Market Data................................................. 20
Selected Comparative Per Share Data..................................... 22
Distribution and Dividend Policy........................................ 23
RISK FACTORS.............................................................. 25
Failure to Manage Rapid Growth and Integrate Operations ................ 25
Substantial Debt Obligations............................................ 25
Financing............................................................... 26
Dilution to Earnings Caused by the Merger............................... 26
Noncomparability of Historical Financial Information.................... 27
Conversions to Wyndham Brand; Other Consents and Approvals.............. 27
Potential Conflicts of Interest Between Patriot and Wyndham Internation-
al..................................................................... 27
REIT Tax Risks.......................................................... 28
Patriot's Dependence on Lessees and Payments under the Participating
Leases................................................................. 30
Hotel Industry Risks.................................................... 30
Real Estate Investment Risks............................................ 31
Dependence on Management Contracts...................................... 33
Possible Adverse Effects of Failure to Consummate the WHG Merger or the
CHCI Merger............................................................ 34
Risks of Operating Hotels Under Franchise or Brand Affiliations......... 34
Lack of Control Over Operations of Certain Hotels Leased or Managed by
Third Parties.......................................................... 34
Stock Price Fluctuations................................................ 34
Conflicts in Certain Hotel Markets...................................... 35
Horse Racing Industry Risks............................................. 35
Casino Gaming Regulation................................................ 35
Comparison of Stockholders Rights....................................... 35
Possible Adverse Effects on Market Price of Paired Shares Arising from
Shares Available for Future Sale....................................... 36
Adverse Effect of Increase in Market Interest Rates on Prices for Paired
Shares................................................................. 37
Dissenters' Rights...................................................... 37
</TABLE>
(vi)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
THE COMPANIES............................................................. 38
The Patriot Companies................................................... 38
Interstate.............................................................. 41
Surviving Companies..................................................... 41
THE MEETINGS OF STOCKHOLDERS.............................................. 44
Patriot Companies' Special Meetings..................................... 44
Interstate Special Meeting.............................................. 45
THE MERGER AND SUBSCRIPTION............................................... 47
Terms of the Merger and Subscription.................................... 47
Background of the Merger................................................ 49
The Patriot Companies' Reasons for the Merger; Recommendations of the
Boards of Directors of the Patriot Companies........................... 53
Opinion of Financial Advisor to the Patriot Companies................... 56
Interstate's Reasons for the Merger; Recommendation of the Interstate
Board.................................................................. 61
Opinion of Financial Advisor to Interstate.............................. 62
Interests of Certain Officers, Directors and Shareholders of
Interstate............................................................. 68
Accounting Treatment.................................................... 71
Regulatory Approval..................................................... 71
Certain Resale Restrictions............................................. 72
New York Stock Exchange Listing......................................... 72
Dissenters' Rights...................................................... 72
THE MERGER AGREEMENT...................................................... 75
General................................................................. 75
The Merger and Subscription............................................. 75
Effective Time of the Merger............................................ 76
Charters and Bylaws..................................................... 76
Board of Directors, Committees and Officers............................. 76
Cash Election Procedure................................................. 76
Exchange of Interstate Stock Certificates............................... 77
Stock Options and Equity Incentives..................................... 78
Conditions to the Merger................................................ 79
Representations and Warranties.......................................... 80
Certain Covenants....................................................... 80
Indemnification......................................................... 84
Termination............................................................. 85
Fees and Expenses....................................................... 86
Amendments.............................................................. 87
CERTAIN RELATED AGREEMENTS................................................ 88
Shareholders Agreement.................................................. 88
Nondissent Agreements................................................... 89
OWNERSHIP OF INTERSTATE COMMON STOCK PRIOR TO THE MERGER.................. 90
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 91
Tax Consequences of the Merger.......................................... 91
Merger Dividend......................................................... 93
REIT Qualification...................................................... 94
Effects of Compliance with REIT Requirements............................ 96
Non-Deductibility of Parachute Payment.................................. 97
Taxation of Wyndham International; Corporate Subsidiaries............... 97
Federal Income Taxation of Holders of Paired Shares..................... 97
</TABLE>
(vii)
<PAGE>
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MANAGEMENT OF PATRIOT AND WYNDHAM INTERNATIONAL........................... 101
Patriot................................................................. 101
Wyndham International................................................... 103
DESCRIPTION OF CAPITAL STOCK.............................................. 108
Common Stock............................................................ 108
Preferred Stock......................................................... 108
Patriot Series A Preferred Stock........................................ 109
Wyndham International Series A Preferred Stock and Series B Preferred
Stock.................................................................. 109
Excess Stock............................................................ 110
The Pairing Agreement................................................... 110
The Cooperation Agreement............................................... 111
Certain Provisions of the Charters and the Bylaws....................... 118
COMPARISON OF STOCKHOLDERS RIGHTS......................................... 128
SELLING SECURITYHOLDERS................................................... 135
PLAN OF DISTRIBUTION...................................................... 136
OTHER MATTERS............................................................. 137
LEGAL MATTERS............................................................. 137
EXPERTS................................................................... 138
STOCKHOLDER PROPOSALS..................................................... 140
GLOSSARY OF DEFINED TERMS................................................. 141
</TABLE>
ANNEXES
A.Agreement and Plan of Merger
B.Opinion of Financial Advisor to Patriot and Wyndham International:
PaineWebber Incorporated
C.Opinion of Financial Advisor to Interstate: Merrill Lynch, Pierce, Fenner
& Smith Incorporated
D.Pennsylvania Statutory Dissenters' Rights
(viii)
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus and the Annexes hereto relating to the Merger
Agreement and the transactions contemplated thereby. This summary does not
purport to contain all information relating to the Merger Agreement or the
transactions contemplated thereby, including the Merger, and is qualified in
its entirety by the more detailed information and financial statements
contained or incorporated by reference in this Joint Proxy
Statement/Prospectus. STOCKHOLDERS OF PATRIOT, WYNDHAM INTERNATIONAL AND
INTERSTATE SHOULD READ CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE
ANNEXES HERETO. CAPITALIZED TERMS USED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
AND NOT OTHERWISE DEFINED HAVE THE MEANINGS ASCRIBED TO SUCH TERMS UNDER THE
SECTION OF THIS JOINT PROXY STATEMENT/PROSPECTUS ENTITLED "GLOSSARY OF DEFINED
TERMS," WHICH BEGINS ON PAGE 141.
GENERAL
This Joint Proxy Statement/Prospectus relates to the Merger and to the Paired
Shares that may be issued pursuant to the Merger Agreement. It also relates to
the resale of Paired Shares by certain stockholders of Interstate from time to
time following the Merger. Pursuant to the Merger Agreement, Interstate will
merge with and into Patriot, with Patriot being the surviving company. In
connection with the Merger, stockholders of Interstate will have the right to
elect to have their shares of Interstate Common Stock converted into the right
to receive either (i) the Cash Consideration or (ii) Paired Shares at the
Exchange Ratio. After the elections are made by stockholders of Interstate,
proration will be used to ensure that 40% of the Interstate Outstanding Shares
will be converted into the right to receive Cash Consideration and the
remaining 60% of the Interstate Outstanding Shares will be converted into the
right to receive Paired Shares at the Exchange Ratio, subject to adjustment in
the event of the exercise of dissenters' rights in respect of more than 100,000
shares of Interstate Common Stock. Consequently, the Aggregate Cash
Consideration will be $531.4 million based on the number of outstanding shares
of Interstate Common Stock as of January 6, 1998. The Exchange Ratio will be
equal to $37.50 divided by the Average Closing Price, subject to adjustment if
the Average Closing Price is less than $27.97 or greater than $34.186, as more
fully described herein. The Merger Agreement is attached to this Joint Proxy
Statement/Prospectus as Annex A and is incorporated by reference herein.
This Joint Proxy Statement/Prospectus also relates to the Patriot Special
Meeting, the Wyndham International Special Meeting and the Interstate Special
Meeting. At such meetings, the respective stockholders of Patriot, Wyndham
International and Interstate will be asked to vote on the Merger Proposal.
THE COMPANIES
The Patriot Companies
Patriot is a self-administered real estate investment trust ("REIT") which as
of January 6, 1998 owned interests in 114 hotels (excluding one hotel closed
for renovations) with an aggregate of over 27,500 guest rooms. Patriot's hotels
are diversified by franchise or brand affiliation and serve primarily major
U.S. business centers, including Atlanta, Boston, Chicago, Cleveland, Dallas,
Denver, Houston, Miami, San Francisco and Seattle. In addition to hotels
catering primarily to business travelers, Patriot's portfolio includes world-
class resort hotels, including The Boulders, near Scottsdale, Arizona; The
Lodge at Ventana Canyon in Tucson, Arizona; The Peaks Resort & Spa in
Telluride, Colorado and Carmel Valley Ranch Resort in Carmel, California
(collectively, the "Carefree Resorts"); and prominent hotels in major tourist
destinations. The hotels include 104 full service hotels, five resort hotels,
four limited service hotels and an executive conference center. All but three
of the 114 hotels are operated under franchise or brand affiliations with
nationally recognized hotel companies, including Crowne Plaza(R), Radisson(R),
Ramada(R), Hilton(R), Hyatt(R), Four Points by Sheraton(R), Holiday Inn(R),
Wyndham SM, Wyndham Garden(R), WestCoast(R), Doubletree(R), Embassy Suites(R),
Hampton Inn(R), Registry(R), Carefree(R), Grand Heritage(R), Marriott(R),
Marriott Courtyard(R), Sheraton(R), Grand Bay(R) and ClubHouse(R).
Additionally, the Patriot Companies lease 13 hotels from third parties, manage
57 hotels (excluding one hotel closed for renovations) for
<PAGE>
independent owners and franchise eight hotels. Wyndham International currently
leases from Patriot 78 of the 114 hotels owned by Patriot. Patriot expects that
substantially all of its future acquisitions will be leased to Wyndham
International.
On July 1, 1997, Patriot's predecessor ("Old Patriot") consummated its
acquisition of California Jockey Club ("Cal Jockey") and Bay Meadows Operating
Company ("Bay Meadows") by merger (the "Cal Jockey Merger"). In the Cal Jockey
Merger, Old Patriot merged with and into Cal Jockey, Cal Jockey changed its
name to "Patriot American Hospitality, Inc." and Bay Meadows changed its name
to "Patriot American Hospitality Operating Company." As a result of the Cal
Jockey Merger, Patriot became one of two hotel REITs with a paired share
ownership structure. Each share of Patriot Common Stock is "paired" and trades
on the NYSE as a unit with one share of Wyndham International Common Stock.
On January 5, 1998, Patriot consummated its acquisition by merger (the
"Wyndham Merger") of Wyndham Hotel Corporation ("Old Wyndham"). Pursuant to an
Agreement and Plan of Merger, dated as of April 14, 1997, as amended (the
"Wyndham Merger Agreement"), Old Wyndham merged with and into Patriot, and
Patriot American Hospitality Operating Company changed its name to "Wyndham
International, Inc." As a result of the Wyndham Merger, Patriot acquired Old
Wyndham's portfolio of owned, leased or managed hotels consisting of 98 hotels
operated by Old Wyndham (including 16 hotels owned by Patriot and managed by
Old Wyndham), as well as eight franchised hotels, which in the aggregate
contain approximately 25,900 rooms.
In addition to entering into the Wyndham Merger Agreement, during 1997 the
Patriot Companies entered into and/or completed the following acquisitions:
. Wyndham International acquired the management operations of Grand
Heritage Hotels and Carefree Resorts.
. In connection with the Wyndham Merger, Patriot entered into a definitive
agreement with partnerships affiliated with members of the Trammell Crow
family, (the "Crow Family Entities") providing for Patriot's acquisition
of up to 11 full-service Wyndham-branded hotels (the "Crow Assets").
Patriot acquired nine of these hotels in December 1997.
. Patriot acquired ten hotels (including an approximate 50% controlling
ownership interest in one of the hotels) from entities affiliated with
the Gencom American Hospitality group of companies ("Gencom") and CHC
International, Inc. ("CHCI"). Patriot also acquired the leasehold
interests relating to eight of 25 hotels leased from Patriot by CHC
Lease Partners (previously the largest independent lessee of Patriot's
hotels). Additionally, Patriot acquired an approximate 50% managing and
controlling interest in GAH II, L.P. ("GAH"), an affiliate of CHCI and
Gencom.
. On September 30, 1997, Patriot, Wyndham International and CHCI entered
into a merger agreement providing for the merger of the hospitality-
related business of CHCI with and into Wyndham International, with
Wyndham International being the surviving company (the "CHCI Merger").
As a result of the CHCI Merger, Wyndham International will acquire the
remaining 50% investment interest in GAH, the remaining 17 leasehold
interests relating to hotels leased by CHC Lease Partners and 16 of the
associated management contracts related to the Patriot hotels leased by
CHC Lease Partners, the Grand Bay and Registry Hotels & Resorts
proprietary brand names, certain management and lease contracts, and
certain other hospitality management assets. It is anticipated that the
CHCI Merger will be consummated in the first or second quarter of 1998,
although the precise timing is subject to certain conditions, including
receipt of all necessary regulatory approvals. See "The Companies--The
Patriot Companies--General."
. Patriot, Wyndham International and WHG Resorts & Casinos Inc. ("WHG")
entered into a merger agreement on September 30, 1997 providing for the
merger of a newly formed subsidiary of Wyndham International with and
into WHG (the "WHG Merger"). As a result of the WHG Merger, Wyndham
International will acquire the 570-room Condado Plaza Hotel & Casino, a
50% interest in the 389-room El San Juan Hotel & Casino and a 23.3%
interest in the 751-room El Conquistador Resort & Country Club (the "El
Conquistador"), all of which are located in Puerto Rico, as well as a
62% interest in the
2
<PAGE>
management company for the three hotels and the Las Casitas Village at
the El Conquistador. The Patriot Companies expect to close the WHG
Merger in the first quarter of 1998, but there can be no assurance that
the WHG Merger will be consummated.
. Patriot has entered into agreements to purchase an aggregate 95% equity
interest in the 1,014-room Buena Vista Palace Hotel in Orlando, Florida
for an aggregate purchase price of $97.3 million (the "Buena Vista
Acquisition"). As part of the agreement, Patriot also was granted an
option to acquire the remaining 5% equity interest in the hotel. Patriot
has also entered into an agreement to purchase the 173-room Holiday Inn
Beachwood Hotel located in Cleveland, Ohio for an aggregate purchase
price of $14.5 million. The Buena Vista Acquisition and the acquisition
of the Holiday Inn Beachwood Hotel are collectively referred to as the
"Other Hotel Acquisitions." The Other Hotel Acquisitions are subject to
various closing conditions and no assurance can be given that the Other
Hotel Acquisitions will be consummated.
. Patriot also acquired 26 individual hotels and resorts with a total of
approximately 6,460 rooms for an aggregate investment of $801.0 million.
In addition to leasing and managing hotels, Wyndham International is also
engaged in the business of conducting and offering pari-mutuel wagering on
thoroughbred horse racing, the principal business conducted by Bay Meadows
prior to the Cal Jockey Merger.
The Patriot Companies' principal executive offices are located at 1950
Stemmons Freeway, Suite 6001, Dallas, Texas 75207, and the telephone number at
this location is (214) 863-1000.
Interstate
Interstate is the largest independent hotel management company in the United
States based on number of properties and rooms managed and total revenues
produced for owners. As of December 31, 1997, Interstate owned, managed, leased
or performed related services for 223 hotels with a total of 45,329 rooms in
the United States, Canada, the Caribbean and Russia. Interstate owned or had a
controlling interest in 40 of these properties, with 11,580 rooms,
substantially all of which are geographically diverse upscale or luxury
properties. Interstate's owned hotels operate under the Embassy Suites(R),
Hilton(TM), Holiday Inn(R), Marriott(R), Radisson(TM), Sheraton(TM) and
Westin(TM) brand names, principally in major metropolitan markets such as
Atlanta, Boston, Chicago, Denver, Fort Lauderdale, Houston, Los Angeles, Miami,
Philadelphia, Phoenix and Washington, D.C. Interstate also operates in the mid-
scale, upper economy and budget segments of the lodging industry.
In June 1996, Interstate completed its initial public offering of Interstate
Common Stock at $21.00 per share (the "Interstate IPO"). During the 18 months
ending with the execution of the Merger Agreement, Interstate completed the
acquisition of 26 full-service hotels and the acquisition of the leasing and
management businesses affiliated with Equity Inns, Inc., a publicly traded
limited-service hotel REIT, by which Interstate obtained management rights to
56 limited-service hotels. Interstate's largest stockholders are the Fine
Entities, which beneficially own 36.1% of the outstanding shares of Interstate
Common Stock, and entities affiliated with Blackstone Group Merchant Banking
Fund II, L.P. (the "Blackstone Group"), which beneficially own 7.1% of the
outstanding shares of Interstate Common Stock.
Interstate's principal executive offices are located at Foster Plaza Ten, 680
Andersen Drive, Pittsburgh, Pennsylvania 15220, and its telephone number is
(412) 937-0600.
Surviving Companies
Pursuant to the Merger Agreement, Interstate will merge with and into
Patriot, and Interstate's operations will continue within the Patriot
Companies' paired share structure. Following the Merger, the 130 hotels that
are
3
<PAGE>
currently owned or leased by Interstate will be owned or leased by Patriot and
leased or subleased to Wyndham International. Additionally, Patriot expects to
complete the transactions contemplated by a non-binding letter of intent (the
"Marriott Letter Agreement") with Marriott International, Inc. ("Marriott
International") through which over the next two years Patriot will terminate
franchise agreements with Marriott International related to ten hotels owned by
Interstate and convert such hotels to the Wyndham brand. In return, Wyndham
International expects to enter into management agreements with Marriott
International with respect to ten other Marriott hotels currently owned by
Interstate which will be owned by Patriot and leased to Wyndham International
following the Merger. These management agreements will be terminable upon
termination of such franchise agreements.
Assuming completion of the Merger, the CHCI Merger, the WHG Merger, the
acquisition of the Crow Assets (the "Crow Assets Acquisition") and the Other
Hotel Acquisitions, the Patriot Companies will have a combined portfolio
consisting of 449 owned, leased, managed, franchised or serviced hotels and
resorts throughout North America and in the Caribbean and Russia, with an
aggregate of approximately 103,700 rooms. The portfolio will include 157 owned
hotels and resorts, 103 hotels leased from independent third parties and 189
managed, franchised or serviced hotels and resorts.
Upon completion of these transactions, and particularly after the Wyndham
Merger and the Merger, the Patriot Companies will have evolved from a pure
owner of hotel properties to a fully integrated and branded hotel company
within a paired share ownership structure. As a result of the Wyndham Merger,
Patriot acquired, in addition to hotels and management rights, the rights to a
nationally recognized hotel brand and a proven hotel management organization
which it believes will substantially enhance its management capabilities. With
the Merger, Patriot will acquire, in addition to hotels and management rights,
the largest independent hotel management organization in the United States.
Following the Merger, Patriot and Wyndham International intend to continue the
process of integrating the best talents and practices of the acquired companies
into the management organizations of the Patriot Companies. Patriot and Wyndham
International believe that, as a result of these transactions, it will have a
talented and deep hotel management organization to complement Patriot's
recognized acquisition and asset management capabilities. Following the Merger,
the Patriot Companies intend to continue to pursue an aggressive growth
strategy including acquisition of lodging and leisure-related properties and
businesses, continued expansion of Wyndham's branded and Interstate's
independent, non-proprietary branded hotel management businesses and selective
development of hotel properties.
THE MEETINGS OF STOCKHOLDERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Patriot Companies' Special Meetings
The Patriot Companies' Special Meetings will be held on , 1998 at
located at . At the Patriot Companies' Special Meetings, holders of shares
of the capital stock of Patriot and Wyndham International will consider and
vote upon the Merger Proposal. The affirmative vote of the holders of a
majority of the outstanding shares of the capital stock of Patriot and Wyndham
International, respectively, entitled to vote thereon is required to approve
the Merger Proposal. The Patriot Special Meeting will be held at a.m. local
time and the Wyndham International Special Meeting will be held at a.m.
local time.
Holders of Paired Shares are entitled to one vote per share at each of the
Patriot Companies' Special Meetings and holders of Series A Preferred Stock,
par value $.01 per share, of Patriot ("Patriot Series A Preferred Stock") are
entitled to one vote per share at the Patriot Special Meeting. Only holders of
Paired Shares and Patriot Series A Preferred Stock at the close of business on
(the "Patriot Record Date") will be entitled to notice of and to vote at
the Patriot Companies' Special Meetings.
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THE PATRIOT BOARD AND THE WYNDHAM INTERNATIONAL BOARD HAVE UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
UNANIMOUSLY RECOMMEND THAT THE RESPECTIVE STOCKHOLDERS OF PATRIOT AND WYNDHAM
INTERNATIONAL VOTE FOR APPROVAL OF THE MERGER PROPOSAL. SEE "THE MERGER AND
SUBSCRIPTION--BACKGROUND OF THE MERGER" AND "--THE PATRIOT COMPANIES' REASONS
FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE PATRIOT
COMPANIES."
Interstate Special Meeting
The Interstate Special Meeting will be held at the located at , on
, at a.m. local time. At the Interstate Special Meeting, holders of
shares of Interstate Common Stock will consider and vote upon the Merger
Proposal. The affirmative vote of the holders of a majority of the votes cast
is required to approve the Merger Proposal at the Interstate Special Meeting.
Holders of Interstate Common Stock are entitled to one vote per share. Only
holders of Interstate Common Stock at the close of business on (the
"Interstate Record Date") will be entitled to notice of and to vote at the
Interstate Special Meeting. The Fine Entities have agreed in the Shareholders
Agreement, subject to certain conditions, to vote an aggregate of 19.9% of the
outstanding shares of Interstate Common Stock in favor of the Merger Proposal.
THE INTERSTATE BOARD HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND RECOMMENDS THAT INTERSTATE STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND
OF THE MERGER" AND "--INTERSTATE'S REASONS FOR THE MERGER; RECOMMENDATION OF
THE INTERSTATE BOARD."
OPINIONS OF FINANCIAL ADVISORS
The Patriot Companies
PaineWebber Incorporated ("PaineWebber") has acted as financial advisor to
the Patriot Companies in connection with the Merger and has rendered to the
Patriot Board and the Wyndham International Board its opinion to the effect
that, as of the date of such opinion, based on PaineWebber's review and subject
to the considerations and limitations set forth in such opinion, the
consideration to be paid to Interstate stockholders pursuant to the Merger
Agreement (the "Merger Consideration") was fair from a financial point of view
to the stockholders of Patriot and Wyndham International. A copy of the full
text of the written opinion of PaineWebber, which sets forth the assumptions
made, procedures followed, matters considered and limits of its review, is
attached as Annex B to this Joint Proxy Statement/Prospectus, and should be
read carefully in its entirety. The opinion of PaineWebber is addressed to the
Boards of Directors of Patriot and Wyndham International and addresses only the
fairness from a financial point of view of the Merger Consideration and does
not constitute a recommendation to any holder of Paired Shares as to how such
holder should vote at the Patriot Companies' Special Meetings.
Interstate
Interstate received the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") at the meeting of the Interstate Board on
December 1, 1997, which was subsequently confirmed in writing on December 2,
1997, that, as of the date of such written opinion, the proposed Merger
Consideration was fair to holders of Interstate Common Stock from a financial
point of view. A copy of Merrill Lynch's written opinion, which sets forth the
assumptions made, procedures followed, matters considered and certain
limitations on the
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scope of review by Merrill Lynch in rendering its opinion, is attached as Annex
C to this Joint Proxy Statement/Prospectus and should be read carefully in its
entirety. Interstate has agreed to pay certain fees to Merrill Lynch for its
services in connection with the Merger, a substantial portion of which are
contingent upon consummation of the Merger. This opinion is addressed to the
Interstate Board and addresses only the fairness from a financial point of view
of the proposed Merger Consideration to the Interstate stockholders and does
not constitute a recommendation to any Interstate stockholder as to how such
stockholder should vote or otherwise act in respect of the Merger.
THE MERGER
On December 2, 1997, Interstate, Patriot and Wyndham International entered
into the Merger Agreement pursuant to which Interstate will merge with and into
Patriot, with Patriot being the surviving company. Each of the Patriot Board,
the Wyndham International Board and the Interstate Board has approved the
Merger Agreement and the transactions contemplated thereby.
Pursuant to the Merger Agreement, stockholders of Interstate will have the
right to elect to have each of their shares of Interstate Common Stock
converted into the right to receive either (i) the Cash Consideration or (ii)
Paired Shares at the Exchange Ratio. After the elections are made by
stockholders of Interstate, proration will be used to ensure that 40% of the
Interstate Outstanding Shares will be converted into the right to receive Cash
Consideration and the remaining 60% of the Interstate Outstanding Shares will
be converted into the right to receive Paired Shares at the Exchange Ratio,
subject to adjustment in the event of the exercise of dissenters' rights in
respect of more than 100,000 shares of Interstate Common Stock. Consequently,
the Aggregate Cash Consideration that will be paid to Interstate stockholders
participating in the Merger will be $531.4 million based on the number of
outstanding shares of Interstate Common Stock as of January 6, 1998. In
addition, outstanding options to acquire Interstate Common Stock will be cashed
out for an amount equal to the spread between the exercise price of such
options and $37.50, except that certain senior executives of Interstate may
choose to have their options assumed by Patriot. The Merger Agreement contains
separate provisions for Interstate stockholders who exercise dissenters' rights
which are described more fully below.
The Exchange Ratio will be equal to $37.50 divided by the Average Closing
Price, subject to the following adjustments. In the event that the Average
Closing Price is less than $27.970 but greater than or equal to $26.416, the
Exchange Ratio will be equal to 1.341. In the event that the Average Closing
Price is greater than $34.186 but less than or equal to $37.294 ($38.848, if
the Merger is consummated after March 30, 1998), the Exchange Ratio will be
equal to 1.097. In the event that the Average Closing Price is greater than
$37.294 ($38.848, if the Merger is consummated after March 30, 1998), the
Exchange Ratio will be equal to $40.912 ($42.616, if the Merger is consummated
after March 30, 1998) divided by the Average Closing Price. In the event that
the Average Closing Price is less than $26.416, the Exchange Ratio will be
equal to 1.341, but Interstate will have the right upon notice to Patriot to
terminate the Merger Agreement unless Patriot decides to increase the Exchange
Ratio to an amount equal to $35.424 divided by the Average Closing Price. In
the event Patriot so increases the Exchange Ratio, any prior exercise by
Interstate of its right to so terminate the Merger Agreement will be rescinded
and have no effect.
In the Merger, each outstanding Paired Share will remain outstanding and,
following the Merger, will automatically, without any action on the part of the
stockholders of Patriot and Wyndham International, continue to represent one
Paired Share.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Prior to the closing of the transactions contemplated by the Merger Agreement
(the "Closing"), Goodwin, Procter & Hoar llp, counsel to the Patriot Companies,
will deliver an opinion to Patriot and Interstate to the effect that, on the
basis of the representations, assumptions and conditions set forth in such
opinion, the Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that Patriot and
Interstate will
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each be a party to such reorganization within the meaning of Section 368(b) of
the Code. Accordingly, no gain or loss will be recognized by Interstate as a
result of the Merger. In general, stockholders of Interstate will recognize
gain, but not loss, on the exchange of shares of Interstate Common Stock for
Paired Shares in the Merger in an amount equal to the lesser of (i) the amount
of cash and the fair market value of the Wyndham International Common Stock
received by the stockholder in exchange therefor and (ii) the amount by which
the fair market value of the Paired Shares and any cash received in the
exchange exceeds the stockholder's adjusted tax basis in the Interstate Common
Stock exchanged therefor.
ACCOUNTING TREATMENT
Patriot will account for the Merger as a purchase, with the result being that
Interstate's results of operations will be included in the results of
operations of the Patriot Companies commencing with the Effective Time.
CERTAIN RESALE RESTRICTIONS
All Paired Shares received by Interstate stockholders pursuant to the Merger
Agreement will be freely transferable as Paired Shares, except that Paired
Shares received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of Interstate at the time of the Interstate
Special Meeting may be resold by them only in certain permitted circumstances.
Certain of the Paired Shares issued to affiliates of Interstate in connection
with the Merger will be the subject of a registration rights agreement (the
"Registration Rights Agreement") entitling the holders of such shares to
certain "shelf," "demand" and "piggyback" registration rights. In accordance
with their obligations under the Registration Rights Agreement, the Patriot
Companies have registered for sale to the public in the Registration Statement
relating to this Joint Proxy Statement/Prospectus the Paired Shares to be
received by certain of such affiliates pursuant to the Merger Agreement. See
"The Merger and the Subscription--Interests of Certain Officers, Directors and
Stockholders of Interstate."
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot, Wyndham International and
Interstate to consummate the Merger that, prior to the Effective Time, the
Paired Shares issuable in the Merger be approved for listing on the NYSE
subject to official notice of issuance. Following the Merger, the Paired Shares
will continue to trade on the NYSE under the symbol "PAH."
SHAREHOLDERS AGREEMENT
Pursuant to the Shareholders Agreement, each of the Fine Entities appointed
Patriot its proxy to vote the shares of Interstate Common Stock owned by it, up
to an aggregate maximum of 19.9% of the total outstanding shares of Interstate
Common Stock, with respect to certain matters relating to the Merger. As of
January 6, 1998, the Fine Entities owned an aggregate of 12,771,530 shares of
Interstate Common Stock and the proxy given to Patriot applied to 7,049,834 of
such shares. The term of the proxy lasts from December 2, 1997 to the earlier
of the termination of the Merger Agreement and the Effective Time.
The proxy described above generally gives Patriot the right to vote the
shares of Interstate Common Stock to which it applies in favor of the Merger
Agreement and the transactions contemplated by the Merger Agreement. Patriot
also has the right to vote such shares against (i) any Company Takeover
Proposal, as that term is defined in the Merger Agreement, (ii) any proposal
for any action that would result in a breach of any provision of the Merger
Agreement or which is reasonably likely to result in any of the conditions of
Interstate's obligations under the Merger Agreement not being fulfilled, (iii)
any change in the directors of Interstate, Interstate's present capitalization,
Interstate's certificate of incorporation or bylaws or Interstate's corporate
structure or business, or (iv) any other action which could reasonably be
expected to impede, interfere with, delay, postpone or materially adversely
affect the transactions contemplated by the Merger Agreement or the likelihood
of such transactions being consummated.
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Under the Shareholders Agreement, during the proxy term Milton Fine and each
of the Fine Entities are prohibited from selling, transferring, assigning or
otherwise disposing of, or entering into any voting trust, voting arrangement,
contract, option or other undertaking with respect to, any of their shares of
Interstate Common Stock (except for 360,000 shares which may be sold pursuant
to Rule 144 under the Securities Act or contributed to certain tax-exempt
charitable institutions). In addition, if the Merger is consummated, Milton
Fine and each of the Fine Entities are prohibited for 90 days thereafter from
selling, transferring, assigning or otherwise disposing of, or entering into
any voting trust, voting arrangement, contract, option or other undertaking
with respect to, any Paired Shares received by them pursuant to the Merger
Agreement.
The Shareholders Agreement also contains certain other provisions, including
(i) the agreement of Milton Fine and the Fine Entities to elect to receive Cash
Consideration in the Merger with respect to all Interstate Shares owned by
them, (ii) the agreement of Milton Fine and the Fine Entities not to exercise
dissenters' rights with respect to the Merger, (iii) the agreement of Milton
Fine to cause or use reasonable efforts to cause the extension of certain
management contracts for hotels in which Mr. Fine has a direct or indirect
equity interest and to which Interstate or one of its affiliates is a party,
and (iv) the agreement of Patriot to cause the election of a designee of Milton
Fine and the Fine Entities as a director of Patriot for a specified period.
SUMMARY RISK FACTORS
Stockholders of Patriot, Wyndham International and Interstate, in considering
whether to approve the Merger, should consider, in addition to the other
information in this Joint Proxy Statement/Prospectus, the matters discussed
under "Risk Factors." Such matters include, among others:
. Risks associated with the Patriot Companies' rapid growth, and the Patriot
Companies' ability to manage their operations following the Merger. Based
upon the respective portfolios of the Patriot Companies and Interstate at
January 6, 1998, and after giving effect to the Merger, the consummation of
the acquisition of GAH (the "GAH Acquisition"), the CHCI Merger, the Wyndham
Merger, the WHG Merger and the Buena Vista Acquisition (collectively, the
"Other Transactions") and the acquisition of the Holiday Inn Beachwood
Hotel, the Patriot Companies' aggregate rooms portfolio will be
approximately 103,700 rooms, representing an increase in the Patriot
Companies' rooms portfolio of approximately 99,500 since Old Patriot's
initial public offering in October 1995 (the "Initial Offering"). Failure of
the Patriot Companies to expand their operations to satisfy the needs of a
rapidly growing asset base in a functionally and economically efficient
manner, or the failure of the Patriot Companies to successfully integrate
their operations with those being acquired, could have a material adverse
effect on the results of operations and financial condition of the Patriot
Companies, and could result in the Patriot Companies' failure to recognize
the anticipated benefits of these acquisitions.
. Possible adverse consequences to the stockholders of the Patriot Companies
as a result of (i) the increase in the amount of pro forma combined total
indebtedness of the Patriot Companies following the Merger and assuming
consummation of the Other Transactions to approximately $2.9 billion
(approximately $1.2 billion attributable to the Merger), from $1.7 billion
(pre-Merger); and (ii) the increase in the pro forma ratio of combined debt
to total market capitalization of the Patriot Companies following the Merger
and assuming consummation of the Other Transactions to approximately 41.2%
(based on a $27.06 closing price of the Paired Shares on the NYSE on January
6, 1998) from 34.7%.
. Risks associated with the pro forma dilution to earnings caused by the
acquisition of Interstate. The Merger has a dilutive effect on net income
per share on a pro forma combined basis for 1996 and the nine months ended
September 30, 1997. On a pro forma combined basis for the Patriot Companies,
assuming consummation of the Other Transactions, net loss per Paired Share
is $0.38 for the year ended December 31, 1996 and net income per Paired
Share is $0.09 for the nine months ended September 30, 1997, as compared to
net income per Paired Share of less than $0.01 and $0.31 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively, on a pro forma combined basis for the Patriot Companies
without giving effect to the Merger.
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. Risks associated with the noncomparability of historical financial
information. The Patriot Companies engaged in a number of acquisition
transactions during 1996, 1997 and early 1998, including the Cal Jockey
Merger, the Wyndham Merger, the Crow Assets Acquisition and the acquisition
of numerous individual hotels and hotel portfolios. In addition, the Patriot
Companies expect to close the WHG Merger, the CHCI Merger and the Merger in
the first quarter or early second quarter of 1998. Under the purchase method
of accounting, the assets, liabilities and results of operations associated
with such acquisition transactions have been, or will be if consummated,
included in the Patriot Companies' financial position and results of
operations since the respective dates thereof. Accordingly, the financial
position and results of operations of the Patriot Companies' based on
historical financial information as of and for the year ended December 31,
1996 and as of and for the nine months ended September 30, 1997 are not
directly comparable to the financial position and results of operations of
the Patriot Companies as of and for prior dates and periods.
. Risks associated with locating additional financing prior to the closing
date of the Merger (the "Closing Date"). The Patriot Companies have received
"highly confident" letters from both Paine Webber Real Estate Securities,
Inc. ("PaineWebber Real Estate") and The Chase Manhattan Bank ("Chase") in
order to address the financing of the cash portion of the Merger
Consideration. The Patriot Companies are exploring various alternative means
by which to obtain financing prior to the Closing Date. Such financing may
consist of public or private offerings of equity or debt, or a combination
thereof. No assurance can be given, however, that the Patriot Companies will
successfully obtain the financing necessary to consummate the Merger or, if
obtained, that such financing will be on terms and conditions favorable to
the Patriot Companies. The Patriot Companies' obligations under the Merger
Agreement are not conditioned on the obtaining of financing.
. Risks associated with the planned conversion of a number of the hotels owned
by Interstate to the Wyndham brand, which conversions will be subject to the
conditions of certain franchise agreements and the consent of the
franchisors of the brand names (the "Franchisors") under which such hotels
are currently operated (and/or the payment of certain termination
penalties). Such conversions, if completed, may also result in a reduction
in occupancy, average daily room rates ("ADR") and room revenue per
available room ("REVPAR") at the converted hotels.
. Risks associated with the actual and potential conflicts of interest between
Patriot and Wyndham International. Patriot and Wyndham International have
several of the same directors, although a majority of the directors and
officers of each of Patriot and Wyndham International do not serve as
directors or officers of the other company. Patriot and Wyndham
International have entered into the Cooperation Agreement, dated as of
December 18, 1997 (the "Cooperation Agreement"), which the Patriot Companies
believe will, in conjunction with the overlaps of the companies' Boards of
Directors, help decrease the possibility of disagreements between the two
companies. No assurance can be given, however, that such disagreements will
not arise or that the interests of the officers and/or directors of one
company who also serve as officers and/or directors of the other company
will not conflict with their interests as officers and/or directors of such
other company or that their actions as officers and/or directors of one
company will not adversely affect the interests of the other company.
. Patriot has operated and will continue to operate in a manner designed to
permit it to qualify as a REIT for federal income tax purposes.
Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. If Patriot fails to qualify as a REIT,
Patriot will be subject to federal income taxation as if it were a domestic
corporation, and Patriot's stockholders will be taxed in the same manner as
stockholders of ordinary corporations. In this event, Patriot could be
subject to potentially significant tax liabilities, and the amount of cash
available for distribution to stockholders would be reduced and possibly
eliminated.
. Risks associated with the adoption of legislation, regulations or
administrative interpretations which affect the Patriot Companies' paired
share structure. Section 269B(a)(3) of the Code provides that if the shares
of
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a REIT and a non-REIT are paired, then the REIT and the non-REIT will be
treated as one entity for purposes of determining whether either company
qualifies as a REIT. If Section 269B(a)(3) applied to Patriot and Wyndham
International, then Patriot would not be eligible to be taxed as a REIT.
Section 269B(a)(3) does not apply, however, if the shares of the REIT and
the non-REIT were paired on June 30, 1983 and the REIT was taxable as a REIT
on June 30, 1983. As a result of this "grandfathering" rule, Section
269B(a)(3) did not apply to Cal Jockey and Bay Meadows for periods prior to
the Cal Jockey Merger, and, by its terms, this "grandfathering" rule
continued to apply to the Patriot Companies after the Cal Jockey Merger and
will continue to apply to the Patriot Companies following the Merger. On
November 5, 1997, Representative William Archer, Chairman of the Ways and
Means Committee of the United States House of Representatives, publicly
announced that he plans to review this "grandfathering" rule to determine
whether there should be future restrictions on companies that are
grandfathered. While Representative Archer stated that he does not plan to
eliminate the "grandfathering" rule, no assurance can be given that new
legislation, new regulations or administrative interpretations with respect
to the "grandfathering" rules of Section 269B will not be adopted.
. Due to the paired share structure, Patriot, Wyndham International, Patriot
American Hospitality Partnership, L.P. ("Patriot Partnership"), Patriot
American Hospitality Operating Partnership, L.P. ("Wyndham International
Partnership" and, together with Patriot Partnership, the "Patriot
Partnerships") and their respective subsidiaries are and will be controlled
by the same interests. As a result, the Internal Revenue Service (the "IRS")
could seek to distribute, apportion or allocate gross income, deductions,
credits or allowances between or among them if it determines that such
distribution, apportionment or allocation is necessary in order to prevent
evasion of taxes or to clearly reflect income.
. The primary businesses of the Patriot Companies are buying, selling,
leasing, managing and franchising hotels which are subject to operating
risks common to the hotel industry. These risks include, among other things,
(i) competition for guests from other hotels, a number of which may have
greater marketing and financial resources and experience than the Patriot
Companies and Patriot's lessees, (ii) increases in operating costs due to
inflation and other factors, which increases may not have been offset in
past years, and may not be offset in future years, by increased room rates,
(iii) dependence on business and commercial travelers and tourism, which may
fluctuate and be seasonal, (iv) increases in energy costs and other expenses
of travel, which may deter travelers, and (v) adverse effects of general and
local economic conditions.
. The Patriot Companies' ability to acquire additional hotels could be
negatively impacted by the paired share ownership structure because hotel
management companies, franchisees and others who historically approached Old
Patriot with acquisition opportunities in hopes of establishing lessee or
management relationships may not do so in the future knowing that Patriot
will rely primarily on Wyndham International to lease and/or manage the
acquired properties. Such persons may instead provide such acquisition
opportunities to hotel companies that will allow them to continue to manage
the properties following the sale.
. The Patriot Companies' investments are subject to varying degrees of risk
generally incident to the ownership of real property, including economic and
other conditions that may adversely affect real estate investments,
including the relative illiquidity of real estate, increases in interest
rates, increases in taxes caused by increased assessed values or property
tax rates and potential liabilities, including liabilities from known or
unknown or future environmental problems. In addition, Patriot leases
substantially all of its existing hotels to Wyndham International and
certain other lessees (the "Lessees") pursuant to separate participating
leases (the "Participating Leases"). Patriot's ability to make distributions
to stockholders depends primarily upon the ability of the Lessees and
Wyndham International to make rent payments under the Participating Leases
(which ability in turn is dependent primarily on the Lessees' and Wyndham
International's ability to generate sufficient revenues from those hotels
which are leased to them). Any failure or delay by the Lessees or Wyndham
International in making rent payments may adversely affect Patriot's ability
to make distributions to stockholders.
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THE MERGER AGREEMENT
Effective Time of the Merger
In accordance with the Delaware General Corporation Law (the "DGCL") and the
Pennsylvania Business Corporation Law (the "PBCL"), the Effective Time of the
Merger will occur upon the acceptance for recording of the Certificate of
Merger by the Delaware Secretary of State and the Articles of Merger by the
Pennsylvania Department of State, unless the parties agree to a later Effective
Time and so specify in the Certificate of Merger and Articles of Merger.
Subject to the fulfillment or waiver of the other conditions to the obligations
of Patriot and Interstate to consummate the Merger, it is currently expected
that the Merger will be consummated as soon as practicable following the
approval by the stockholders of Patriot, Wyndham International and Interstate
of the Merger Proposal at their respective stockholders meetings.
Cash Election Procedure
A Form of Election is being mailed to holders of record of Interstate Common
Stock together with this Joint Proxy Statement/Prospectus. For an election to
receive the Cash Consideration (a "Cash Election") to be effective, holders of
Interstate Common Stock must properly complete a Form of Election, and such
Form of Election, together with certificates ("Interstate Certificates")
representing all Interstate Shares as to which a Cash Election has been made,
duly endorsed in blank or otherwise in form acceptable for transfer on the
books of Interstate (or an appropriate guarantee of delivery as set forth in
such Form of Election), must be received by American Stock Transfer & Trust
Company (the "Exchange Agent") at the address listed on the Form of Election,
and not withdrawn, by 5:00 p.m., New York City time, on the last Trading Day
preceding the date of the Interstate Special Meeting.
A Cash Election may be revoked by a stockholder only by written notice
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
last business day preceding the date of the Interstate Special Meeting. In
addition, all Cash Elections will automatically be revoked if the Exchange
Agent is notified by Patriot and Interstate that the Merger has been abandoned.
If a Cash Election is revoked, the Interstate Certificate or Interstate
Certificates (or guarantees of delivery, as appropriate) to which such Form of
Election relates will be promptly returned to the stockholder who submitted it
or them to the Exchange Agent.
The determination of the Exchange Agent will be binding as to whether or not
a Cash Election has been properly made or revoked. If the Exchange Agent
determines that any Cash Election was not properly made with respect to shares
of Interstate Common Stock, such shares shall be treated as shares that were
not subject to a Cash Election at the Effective Time, and such shares will be
exchanged in the Merger for Paired Shares based on the Exchange Ratio.
Conditions to the Merger
The obligations of each of Patriot and Interstate to effect the Merger and
the transactions contemplated by the Merger Agreement are subject to the
satisfaction or waiver of certain conditions on or prior to the Closing Date.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Proposal by the
stockholders of Interstate, Patriot and/or Wyndham International, in a number
of circumstances.
Break-up Fee and Expenses
The Merger Agreement provides for the payment by Interstate or Patriot, as
the case may be, of a break-up fee of $50 million if the Merger Agreement is
terminated under certain circumstances. In addition, the Merger Agreement
provides for Patriot to reimburse Interstate for out-of-pocket fees and
expenses of up to $9 million if the Merger Agreement is terminated under
certain other circumstances.
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COMPARISON OF STOCKHOLDERS RIGHTS
State Law and Organizational Documents
Interstate is a Pennsylvania corporation; Patriot and Wyndham International
are Delaware corporations. Differences between Pennsylvania and Delaware law
and between the articles of incorporation and bylaws of Interstate and the
certificates of incorporation and bylaws of Patriot and Wyndham International,
respectively, will result in differences in the rights of Interstate
stockholders who receive Paired Shares in the Merger.
Cooperation Agreement
The Cooperation Agreement provides that the Patriot Companies will cooperate
to the fullest extent possible in the conduct of their respective operations
and take all necessary action to preserve the paired share structure and
maximize the economic and tax advantages associated therewith. Certain
provisions of the Cooperation Agreement, and the provisions contained in the
certificates of incorporation of Patriot and Wyndham International effecting
certain terms of the Cooperation Agreement, could make it more difficult for a
third party to acquire control of the Patriot Companies, including certain
acquisitions that stockholders may deem to be in their best interests.
DISSENTERS' RIGHTS
Under the DGCL, stockholders of Patriot and Wyndham International are not
entitled to dissenters' rights in connection with the Merger.
Interstate stockholders have the right to dissent in respect of the Merger
and to be paid in cash the fair value of their shares. Pursuant to Subchapter
15D of the PBCL ("Subchapter 15D"), any holder of Interstate Common Stock who
does not vote in favor of the adoption of the Merger Agreement and who complies
with the procedures specified in Subchapter 15D has the right to obtain cash
payment for the fair value of his or her shares. A copy of Subchapter 15D is
attached as Annex D to this Joint Proxy Statement/Prospectus and incorporated
herein by reference and should be read in its entirety by Interstate
stockholders.
INTERESTS OF CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS OF INTERSTATE
In considering the recommendation of the Interstate Board to approve the
Merger Proposal, Interstate stockholders should be aware that the Fine Entities
and certain members of the Interstate Board and Interstate's senior management
have interests in, and will receive benefits as a consequence of, the Merger
that raise issues concerning certain potential conflicts of interest. Such
interests arise from the terms of the Merger Agreement and related agreements
providing for payments under existing employment and severance agreements and
option and other incentive rights previously entered into or awarded by
Interstate. In addition, in connection with the Merger, certain officers of
Interstate, including Milton Fine, Chairman of the Interstate Board and
Interstate's largest stockholder, W. Thomas Parrington, Jr., Interstate's Chief
Executive Officer and a member of the Interstate Board, and J. William
Richardson, Interstate's Executive Vice President and Chief Financial Officer,
have entered or are expected to enter into agreements providing for them to
continue in varying capacities with Patriot or Wyndham International. In
addition, Blackstone Real Estate Advisors, L.P. ("Blackstone"), affiliates of
which beneficially own 7.1% of the outstanding shares of Interstate Common
Stock and have a designee on the Interstate Board, is entitled to certain fees
for acting as a co-financial advisor to Interstate in connection with the
Merger. For a more detailed discussion of such interests, see "The Merger and
Subscription--Interests of Certain Officers, Directors and Stockholders of
Interstate." Such matters were considered by the Interstate Board in approving
the Merger Agreement and the transactions contemplated thereby.
12
<PAGE>
SUMMARY FINANCIAL INFORMATION
PATRIOT AND WYNDHAM INTERNATIONAL
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth separate and combined historical financial
information for Patriot and Wyndham International (formerly Patriot American
Hospitality Operating Company). The following financial information should be
read in conjunction with, and is qualified in its entirety by, the historical
financial statements and notes thereto of Patriot, Wyndham International and
Old Patriot incorporated by reference into this Joint Proxy
Statement/Prospectus.
Unless otherwise indicated, all references to the number of shares and per
share amounts of Patriot, Wyndham International and Old Patriot have been
restated to reflect the impact of the conversion of each share of Old Patriot
Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and the
1.927-for-1 stock split effected in the form of a stock dividend distributed in
July 1997. In addition, all references to the number of shares and per share
amounts related to periods prior to March 1997 have been restated to reflect
the impact of the 2-for-1 stock split on Old Patriot Common Stock effected in
the form of a stock dividend distributed in March 1997.
13
<PAGE>
PATRIOT AND WYNDHAM INTERNATIONAL
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF NINE MONTHS
OPERATIONS) THROUGH YEAR ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenue........... $ 11,095 $ 76,493 $ 154,756
Income before income tax
provision, minority
interests and
extraordinary item..... 7,064 44,813 1,480
Income (loss) before ex-
traordinary item....... 6,096 37,991 (1,304)
Net income (loss) appli-
cable to holders of
Paired Shares.......... $ 5,359 $ 37,991 $ (3,838)
PER SHARE DATA(1):
Income (loss) before ex-
traordinary item....... $ 0.21 $ 1.06 $ (0.03)
Extraordinary item, net
of minority interests.. (0.03) -- (0.05)
--------- --------- ----------
Net income (loss) per
Paired Share........... $ 0.18 $ 1.06 $ (0.08)
========= ========= ==========
Dividends per Paired
Share(2)............... $ 0.24 $ 0.9825 $ 0.8475
========= ========= ==========
Weighted average number
of Paired Shares and
Paired Share
equivalents
outstanding............ 29,350 35,938 51,104
========= ========= ==========
CASH FLOW DATA:
Cash provided by operat-
ing activities......... $ 7,618 $ 61,196 $ 75,886
Cash used in investing
activities............. (306,948) (419,685) (710,127)
Cash provided by financ-
ing activities......... 304,099 360,324 649,152
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real
estate and related
improvements, at cost,
net.................... $ 265,759 $ 641,825 $1,477,512
Total assets............ 324,224 760,931 1,980,107
Total debt.............. 9,500 214,339 727,177
Minority interest in Pa-
triot Partnerships..... 41,522 68,562 257,274
Minority interest in
consolidated subsidiar-
ies.................... -- 11,711 29,284
Stockholders' equity.... 261,778 437,039 880,329
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF NINE MONTHS
OPERATIONS) THROUGH YEAR ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
OTHER DATA:
Funds from opera-
tions(3)............... $ 9,798 $ 64,463 $ 78,112
Cash available for dis-
tribution(4)........... 8,603 55,132 65,533
Weighted average number
of common shares and
OP Units outstand-
ing(5)................. 34,001 42,200 59,630
</TABLE>
14
<PAGE>
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF NINE MONTHS
OPERATIONS) THROUGH YEAR ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenue........... $11,095 $76,493 $123,308
Income before minority
interests and
extraordinary item..... 7,064 44,813 549
Income (loss) before ex-
traordinary item....... 6,096 37,991 (2,013)
Net income (loss)
applicable to common
stockholders........... $ 5,359 $37,991 $ (4,547)
PER SHARE DATA(1):
Income (loss) before ex-
traordinary item....... $ 0.21 $ 1.06 $ (0.04)
Extraordinary item, net
of minority interests.. (0.03) -- (0.05)
------- ------- --------
Net income (loss) per
common share........... $ 0.18 $ 1.06 $ (0.09)
======= ======= ========
Dividends per common
share(2)............... $ 0.24 $0.9825 $ 0.8475
======= ======= ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,350 35,938 51,104
======= ======= ========
</TABLE>
WYNHDAM INTERNATIONAL
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
OPERATING DATA:
Total revenue.............................................. $44,184
Income before income tax provision and minority interests.. 931
Net income applicable to common stockholders............... $ 709
PER SHARE DATA:
Net income per common share................................ $ 0.01
=======
Dividends per common share(2).............................. $ --
=======
Weighted average number of common shares and common share
equivalents outstanding................................... 51,104
=======
</TABLE>
15
<PAGE>
NOTES TO PATRIOT AND WYNDHAM INTERNATIONAL SELECTED FINANCIAL INFORMATION
(1) On January 30, 1997, the Old Patriot Board declared a 2-for-1 stock split
effected in the form of a stock dividend distributed on March 18, 1997 to
stockholders of record on March 7, 1997. On July 1, 1997, by operation of
the Cal Jockey Merger, each issued and outstanding share of Old Patriot
Common Stock was converted into 0.51895 Paired Shares. In addition, on July
10, 1997, the respective Boards of Directors of Patriot and Wyndham
International declared a 1.927-for-1 stock split on their shares of common
stock effected in the form of a stock dividend distributed on July 25, 1997
to stockholders of record on July 15, 1997. All references herein to the
number of shares, per share amounts and market prices of Patriot Common
Stock and options to purchase Patriot Common Stock have been restated to
reflect the impact of the Cal Jockey Merger and the above-described stock
splits, as applicable.
(2) Dividends paid for the nine months ended September 30, 1997 include a
special dividend of $0.06 per share by Old Patriot on June 30, 1997. To
maintain its qualification as a REIT prior to consummation of the Cal
Jockey Merger, Old Patriot was required to distribute to its stockholders
any undistributed "real estate investment trust taxable income" of Old
Patriot for Old Patriot's short taxable year ending with the consummation
of the Cal Jockey Merger. No dividends have been paid by Wyndham
International for the three months ended September 30, 1997.
(3) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations ("FFO") represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains
or losses from debt restructuring or sales of property, plus depreciation
of real property, and after adjustments for unconsolidated partnerships,
joint ventures and corporations. Adjustments for Patriot's unconsolidated
subsidiaries are calculated to reflect FFO on the same basis. Patriot and
Wyndham International have also made certain adjustments to FFO for real
estate related amortization expense and the write off of certain costs of
acquiring leaseholds. FFO should not be considered as an alternative to net
income or other measurements under generally accepted accounting principles
as an indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure or liquidity. FFO does not
reflect working capital changes, cash expenditures for capital improvements
or principal payments on indebtedness. Under the Participating Leases,
Patriot is obligated to establish a reserve for capital improvements at its
hotels (including the replacement or refurbishment of furniture, fixtures
and equipment ("FF&E") and to pay real estate and personal property taxes
and casualty insurance. Management believes that FFO is helpful to
investors as a measure of the performance of an equity REIT, because, along
with cash flows from operating activities, investing activities and
financing activities, it provides investors with an understanding of the
ability of Patriot and Wyndham to incur and service debt and make capital
expenditures.
(4) Cash available for distribution represents FFO, as adjusted for certain
non-cash items (e.g. non-real estate related depreciation and
amortization), less reserves for capital expenditures.
(5) The number of limited partnership units of the Patriot Partnerships ("OP
Units") used in the calculation is based on the equivalent number of shares
of Patriot Common Stock and Wyndham International Common Stock after giving
effect to the change in the OP Unit conversion factor which coincides with
the 2-for-1 stock split, the conversion of shares in the Cal Jockey Merger
and the 1.927-for-1 stock split.
16
<PAGE>
INTERSTATE
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected consolidated historical financial
information for Interstate and should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements and notes
thereto of Interstate incorporated by reference into this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 NINE MONTHS
---------------------------------------- ENDED
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
------- ------- ------- ------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........... $19,873 $25,564 $36,726 $45,018 $190,385 $469,589
Operating income........ 3,622 6,904 12,345 15,537 34,133 83,752
Net income (loss)....... 3,620 6,910 12,389 15,839 (1,616) 32,500
Net income per share.... N/A N/A N/A N/A N/A $ 0.91
Weighted average number
of common shares out-
standing............... N/A N/A N/A N/A N/A 35,638
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------- AS OF
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
------- ------- ------- ------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....... $24,270 $24,436 $30,741 $61,401 $883,761 $1,350,253
Total equity....... 16,685 16,627 18,858 9,256 409,298 445,117
</TABLE>
17
<PAGE>
PATRIOT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE MERGER
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
and Wyndham International (formerly Patriot American Hospitality Operating
Company) and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Patriot,
Wyndham International, Old Patriot, Cal Jockey, Bay Meadows, Interstate, Old
Wyndham and WHG and the combined historical financial statements of the Crow
Family Hotel Partnerships incorporated by reference into this Joint Proxy
Statement/Prospectus. The pro forma operating information is presented as if
the Merger, the Buena Vista Acquisition, the WHG Merger, the Wyndham Merger and
the transactions related thereto, the Cal Jockey Merger, the GAH Acquisition,
the CHCI Merger and certain other recent transactions (which include (i) the
sale of substantially all of the Cal Jockey land to an affiliate of
PaineWebber; (ii) the leaseback of the land on which the Bay Meadows Racecourse
(the "Racecourse") is situated from the PaineWebber affiliate to Patriot; (iii)
the sublease of the Racecourse land and related improvements from Patriot to
Wyndham International; (iv) the leasing of certain land from Patriot to
Borders, Inc.; (v) the acquisition of 26 hotels by Patriot (excluding the Park
Shore Hotel); (vi) the funding of $103 million in mortgage notes to affiliates
of CHC Lease Partners; (vii) the replacement of Patriot's old credit facility
with the three-year, $900 million unsecured revolving line of credit with
PaineWebber Real Estate, Chase and certain other lenders (the "Revolving Credit
Facility") and the $350 million term loan from PaineWebber Real Estate, Chase
and various other lenders (the "Term Loan"); (viii) the acquisition of a
participating note; (ix) consummation of the offering of 10.58 million Paired
Shares; (x) the leasing of 137 hotels to Wyndham International; and (xi) the
acquisition of 24 hotels, the private placement of equity securities and the
public offering of common stock, which were consummated by Old Patriot during
1996) had occurred on January 1, 1996. The pro forma combined balance sheet
data of Patriot and Wyndham International is presented as if the Merger, the
Buena Vista Acquisition, the WHG Merger, the Wyndham Merger and the
transactions contemplated thereby, the CHCI Merger and certain other
transactions, as described above, had occurred as of September 30, 1997.
PATRIOT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE MERGER
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................ $1,917,162 $1,555,773
Income (loss) before income tax provision
and minority interests.................. (38,211) 32,042
Net income (loss) applicable to holders
of Paired Shares........................ $ (49,755) $ 13,558
PER SHARE DATA:
Net income (loss) per Paired Share....... $ (0.38) $ 0.09
========== ==========
Weighted average number of Paired Shares
and Paired Share equivalents
outstanding............................. 132,346 143,100
========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related improvements, net..... $4,668,296
Total assets................................................ 6,301,050
Total debt.................................................. 2,930,840
Minority interests in the Patriot Partnerships.............. 227,624
Stockholders' equity........................................ 2,696,614
</TABLE>
18
<PAGE>
PATRIOT
ADJUSTED FOR THE MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................ $567,498 $480,622
Income (loss) before income tax provision
and minority interests.................. (24,632) 21,974
Net income (loss) applicable to common
stockholders............................ $(30,915) $ 14,319
PER SHARE DATA:
Net income (loss) per common share....... $ (0.23) $ 0.10
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................. 132,346 143,100
======== ========
</TABLE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................ $1,884,439 $1,526,411
Income (loss) before income tax provision
and minority interest................... (19,411) 10,106
Net income (loss) applicable to common
stockholders............................ $ (18,840) $ (761)
PER SHARE DATA:
Net income (loss) per common share....... $ (0.14) --
========== ==========
Weighted average number of common shares
and common share equivalents
outstanding............................. 132,346 132,403
========== ==========
</TABLE>
- --------
(1) The pro forma information does not purport to represent what Patriot's and
Wyndham International's combined financial position or results of
operations actually would have been if the Merger and the Other
Transactions had in fact occurred on such date or at the beginning of the
period presented, or to project the results of operations of Patriot and
Wyndham International for any future periods.
19
<PAGE>
COMPARATIVE MARKET DATA
On July 1, 1997, Old Patriot merged with and into Cal Jockey and Cal Jockey
changed its name to Patriot American Hospitality, Inc. The Cal Jockey Merger
was accounted for as a reverse acquisition and, consequently, the historical
financial information of Old Patriot became the historical financial
information of Patriot. The following table sets forth (i) the quarterly high
and low closing sale prices per share as reported on the NYSE of Old Patriot
Common Stock (symbol "PAH") from September 27, 1995 (the date Old Patriot's
shares began trading on the NYSE) through July 1, 1997, and the distributions
paid by Old Patriot with respect to each such period, (ii) the quarterly high
and low closing sale prices per share of the Paired Shares as reported on the
NYSE (symbol "PAH") from and after July 2, 1997, and (iii) the quarterly high
and low sale prices per share of Interstate Common Stock as reported on the
NYSE (symbol "IHC") from and after June 20, 1996 (the date Interstate Common
Stock began trading on the NYSE). The sales prices and distributions in the
table through July 1, 1997 have been adjusted to reflect Old Patriot's 2-for-1
stock split in March 1997, and the sales prices from and after July 1, 1997
have been adjusted to reflect the Patriot Companies' July 1997 92.7% stock
dividend. No dividends have been paid on shares of Interstate Common Stock
since the Interstate IPO.
<TABLE>
<CAPTION>
PAIRED SHARES OF
PATRIOT COMMON STOCK
AND WYNDHAM INTERNATIONAL INTERSTATE
COMMON STOCK(1) COMMON STOCK
------------------------------ -------------
PER SHARE
HIGH LOW DIVIDENDS HIGH LOW
-------- -------- ------------ ------ ------
<S> <C> <C> <C> <C> <C>
1995:
First Quarter................... N/A N/A N/A N/A N/A
Second Quarter.................. N/A N/A N/A N/A N/A
Third Quarter................... $12.81 $12.38 N/A N/A N/A
Fourth Quarter.................. 12.88 11.75 $0.2400 N/A N/A
1996:
First Quarter................... 14.38 12.94 0.2400 N/A N/A
Second Quarter.................. 14.81 13.38 0.2400 $23.38 $21.00
Third Quarter................... 16.81 14.06 0.2400 27.75 22.13
Fourth Quarter.................. 21.75 16.31 0.2625 29.63 24.13
1997:
First Quarter................... 26.38 20.75 0.2625 32.50 26.63
Second Quarter.................. 25.50 20.25 0.3225(2) 30.13 23.63
Third Quarter................... 32.00 23.36 0.2625 33.38 25.75
Fourth Quarter.................. 33.38 27.44 0.3200(3) 37.25 28.63
1998:
First Quarter (through January
6, 1998)....................... 28.19 27.06 -- 35.88 34.75
</TABLE>
- --------
(1) Represents shares of Old Patriot Common Stock for periods through July 1,
1997, and Paired Shares for periods after July 1, 1997, except that
dividends have been paid only on shares of Patriot Common Stock for periods
after July 1, 1997. No dividends have been paid on shares of Wyndham
International Common Stock.
(2) Includes a $0.06 per share special dividend paid in connection with the Cal
Jockey Merger.
(3) Patriot established a record date of January 8, 1998 for the dividend
related to the fourth quarter of 1997. This dividend is payable on January
30, 1998.
20
<PAGE>
The following table sets forth the last reported sales prices per Paired
Share and per Interstate Share on (i) December 1, 1997, the last Trading Day
preceding public announcement of the execution of the definitive Merger
Agreement, and (ii) January 6, 1998.
<TABLE>
<CAPTION>
PAIRED SHARES OF
PATRIOT COMMON
STOCK AND WYNDHAM
INTERNATIONAL INTERSTATE
COMMON STOCK COMMON STOCK
----------------- ------------
<S> <C> <C>
December 1, 1997................................. $31.56 $36.75
January 6, 1998.................................. 27.06 34.81
</TABLE>
BECAUSE THE MARKET PRICE FOR PAIRED SHARES AND INTERSTATE SHARES ARE SUBJECT
TO FLUCTUATION, STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
SUCH SHARES.
21
<PAGE>
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth the combined historical per share data, the
unaudited pro forma per share data giving effect to the Merger using the
purchase method of accounting and the equivalent unaudited pro forma combined
per share amounts for Interstate. The pro forma combined data are not
necessarily indicative of actual financial position or future operating
results or that which would have occurred or will occur upon consummation of
the Merger.
The information shown below should be read in conjunction with (i) the
consolidated financial statements and notes thereto of Patriot, Wyndham
International, Old Patriot, Cal Jockey and Bay Meadows, Old Wyndham, WHG and
Interstate incorporated herein by reference and (ii) the Current Report on
Form 8-K of Patriot and Wyndham International dated January 5, 1998 (filed
January 13, 1998) incorporated herein by reference.
Unless otherwise indicated, all references to the number of shares and per
share amounts have been restated to reflect the impact of (i) the conversion
of each share of Old Patriot Common Stock into 0.51895 Paired Shares issued in
the Cal Jockey Merger, (ii) the 1.927-for-1 stock split on the Paired Shares
effected in the form of a stock dividend distributed on July 25, 1997 to
stockholders of record on July 15, 1997, and (iii) the 2-for-1 stock split on
Old Patriot Common Stock effected in the form of a stock dividend distributed
on March 18, 1997 to stockholders of record on March 7, 1997, as applicable.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------------------ -------------------------------------
PRO INTERSTATE PRO INTERSTATE
HISTORICAL FORMA EQUIVALENT(2) HISTORICAL FORMA EQUIVALENT(2)
---------- ----------- ------------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Income/(Loss):
Patriot/Wyndham International
(1)(3)...................... $ 1.06 $ 0.03 $ (0.08) $ 0.27
Interstate (unaudited)(4).... N/A $ (0.50) 0.91 $ 0.12
Patriot/Wyndham International
(post-Merger)(5)............ (0.38) 0.09
Cash Distributions/Dividends:
Patriot/Wyndham
International............... $0.9825 N/A $0.8475 N/A
Interstate................... -- N/A -- N/A
Patriot/Wyndham International
(post-Merger)............... N/A N/A
Book Value per Common Share:
Patriot/Wyndham
International(6)............ $ 10.02 $15.41 $ 12.94 $15.25
Interstate(4)................ 11.82 $25.29 12.57 $25.00
Patriot/Wyndham International
(post-Merger)(6)............ 19.26 19.04
</TABLE>
NOTES TO COMPARATIVE PER SHARE DATA (IN THOUSANDS, EXCEPT PER SHARE AND HOTEL
INFORMATION)
(1) The pro forma combined per share data for Patriot and Wyndham
International for the year ended December 31, 1996 and the nine months
ended September 30, 1997 are presented as if the Cal Jockey Merger, the
GAH Acquisition, the CHCI Merger, the Wyndham Merger and the transactions
contemplated thereby, the Buena Vista Acquisition and certain other recent
transactions (which include (i) the sale of substantially all of the Cal
Jockey land to an affiliate of PaineWebber, (ii) the leaseback of the land
on which the Racecourse is situated from the PaineWebber affiliate to
Patriot, (iii) the sublease of the Racecourse land and related
improvements from Patriot to Wyndham International, (iv) the leasing of
certain land from Patriot to Borders, Inc., (v) the acquisition of 26
hotels by Patriot (excluding the Park Shore Hotel), (vi) the funding
22
<PAGE>
of $103,000 in mortgage notes to affiliates of CHC Lease Partners, (vii)
the replacement of the old credit facility with the Revolving Credit
Facility and the Term Loan, (viii) the acquisition of a participating note,
(ix) the consummation of the Offering of 10,580 Paired Shares, (x) the
leasing of 137 hotels to Wyndham International, and (xi) the acquisition of
24 hotels, the private placement of equity securities and the public
offering of common stock, which were consummated by Old Patriot during
1996) had occurred as of January 1, 1996.
(2) The equivalent pro forma combined share amounts of Interstate are
calculated by multiplying pro forma net income per Paired Share, pro forma
cash distributions/dividends per Paired Share and pro forma book value per
Paired Share (post-Merger) by a relative value ratio of existing Paired
Shares to Interstate (based on an estimated Exchange Ratio of 1.313).
(3) The pro forma combined net income per share for Patriot and Wyndham
International for the year ended December 31, 1996 and the nine months
ended September 30, 1997 is based on weighted average Paired Shares and
Paired Share equivalents outstanding prior to the Merger of 102,552 and
103,126, respectively.
(4) The pro forma information is presented as if the Merger had occurred as of
January 1, 1996. The pro forma combined net income per share for Patriot
and Wyndham International after the effect of the Merger for the year
ended December 31, 1996 and the nine months ended September 30, 1997 is
based on weighted average Paired Shares and Paired Share equivalents
outstanding of 132,346 and 143,100, respectively.
(5) Book value per common share was calculated using stockholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of shares of common stock outstanding. The pro forma book value
per common share of Patriot and Wyndham International prior to the Merger
is based on total outstanding Paired Shares (including convertible
preferred securities) of 101,678 at December 31, 1996 and September 30,
1997.
(6) The pro forma book value per common share of Patriot and Wyndham
International after the Merger is based on total outstanding Paired Shares
and shares of Patriot Series A Preferred Stock of 141,596 at December 31,
1996 and September 30, 1997.
DISTRIBUTION AND DIVIDEND POLICY
The Patriot Companies
Patriot (or Old Patriot prior to the Cal Jockey Merger) paid a regular
quarterly dividend of $0.24 per share of Old Patriot common stock for each of
the first three quarters of 1996, a quarterly dividend of $0.2625 per share of
Patriot Common Stock for the fourth quarter of 1996 and the first three
quarters of 1997 and will pay, on January 30, 1998, a quarterly dividend of
$0.32 per share of Patriot Common Stock to holders of record as of January 8,
1998 related to the fourth quarter of 1997. In addition, in connection with
the Cal Jockey Merger, Old Patriot paid a special dividend of $0.06 per share
on June 30, 1997. Such dividend amounts represent dividends of $0.9825 per
share for the full year of 1996 and $1.1075 per share (or $1.1675 per share
including the special dividend) for the full year of 1997. The 22% increase in
Patriot's dividend for the fourth quarter of 1997 represents an annualized
dividend of $1.28 per share. Historically, Wyndham International has not paid
dividends.
Distributions by Patriot to the extent of its current and accumulated
earnings and profits for federal income tax purposes ("E&P") generally are
taxable to stockholders as ordinary dividend income unless properly designated
as capital gain dividends. Distributions in excess of E&P are treated as a
non-taxable reduction of the stockholder's basis in its shares of Patriot
Common Stock to the extent thereof, and thereafter as taxable gain.
Distributions that are treated as a reduction of the stockholder's basis in
its shares of Patriot Common Stock will have the effect of deferring taxation
until the sale of the stockholder's shares. Patriot has determined that, for
federal income tax purposes, none of the $0.9825 and $1.1675 per share
dividends paid by Patriot for 1996 and 1997, respectively, exceeded Patriot's
E&P. Given the dynamic nature of Patriot's acquisition strategy and the fact
that any future acquisitions could alter this calculation, no assurances can
be given regarding what percent of future distributions, if any, will
constitute return of capital for federal income tax purposes.
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Distributions by Patriot will be at the discretion of the Patriot Board and
will depend on the actual cash flow of Patriot, its financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Patriot Board deems
relevant. However, Patriot currently intends to maintain Patriot's quarterly
distribution of $0.32 per share.
For a discussion of the tax consequences on the payment of dividends by the
Patriot Companies, see "Certain Federal Income Tax Considerations--Federal
Income Taxation of Holders of Paired Shares."
Interstate
Since the Interstate IPO, Interstate has retained its earnings for use in its
business and has not paid dividends on shares of Interstate Common Stock.
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RISK FACTORS
Stockholders of Patriot, Wyndham International and Interstate, in
considering whether to approve the Merger, should consider, in addition to the
other information in this Joint Proxy Statement/Prospectus, the matters
discussed in this section.
Any statements in this Joint Proxy Statement/Prospectus, including the
documents that are incorporated by reference as set forth under "Available
Information" and "Incorporation of Documents by Reference," that are not
strictly historical are forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act. These
statements include, among other things, statements regarding the intent,
belief or expectations of the Patriot Companies and Interstate and their
respective directors and officers with respect to (i) the declaration or
payment of distributions by the Patriot Companies, (ii) the consummation of
the Merger, (iii) the ownership, management and operation of hotels, including
the integration of the acquisitions effected or proposed by the Patriot
Companies, (iv) potential acquisitions or dispositions of properties, assets
or other public or private companies by the Patriot Companies including CHCI
and WHG, (v) the policies of the Patriot Companies regarding investments,
acquisitions, dispositions, financings, conflicts of interest and other
matters, (vi) Patriot's qualification as a REIT under the Code and the
"grandfathering" rule under Section 269B of the Code, (vii) the hotel and
lodging industry and real estate markets in general, (viii) the availability
of debt and equity financing, (ix) interest rates, (x) general economic
conditions, and (xi) trends affecting the Patriot Companies' financial
condition or results of operations. Stockholders are cautioned that, while
forward-looking statements reflect the respective companies' good faith
beliefs, they are not guarantees of future performance and they involve known
and unknown risks and uncertainties, and that actual results may differ
materially from those in the forward-looking statements as a result of various
factors. The information contained or incorporated by reference in this Joint
Proxy Statement/Prospectus, including, without limitation, the information set
forth below, identifies important factors that could cause such differences.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS
The Patriot Companies are currently experiencing a period of rapid growth.
Since the Initial Offering in October 1995, the Patriot Companies have
consummated the acquisitions of, among others, Cal Jockey and Bay Meadows,
Carefree Resorts, Grand Heritage Hotels, Gencom, Old Wyndham and the Crow
Assets and have entered into definitive agreements relating to the
acquisitions of CHCI, WHG and Interstate. Based upon the respective portfolios
of the Patriot Companies and Interstate at January 6, 1998, the Patriot
Companies' aggregate rooms portfolio after giving effect to the Merger, the
Other Transactions and the acquisition of the Holiday Inn Beachwood Hotel,
will be approximately 103,700 rooms, representing an increase in the Patriot
Companies' rooms portfolio of approximately 95,500 since the Initial Offering.
Failure of the Patriot Companies to expand their operations to satisfy the
needs of a rapidly growing asset base in a functionally and economically
efficient manner, or the failure of the Patriot Companies to integrate their
operations successfully with those being acquired, could have a material
adverse effect on the results of operations and financial condition of the
Patriot Companies, and could result in the Patriot Companies' failure to
recognize the anticipated benefits of these acquisitions.
SUBSTANTIAL DEBT OBLIGATIONS
Subsequent to the consummation of the Merger and the Other Transactions, the
Patriot Companies will have approximately $2.9 billion of pro forma combined
total indebtedness (approximately $1.2 billion attributable to the Merger), as
compared to pro forma combined total indebtedness of the Patriot Companies,
without giving effect to the Merger and the Other Transactions, of $1.7
billion. The pro forma ratio of combined debt to total market capitalization
of the Patriot Companies, assuming an aggregate indebtedness of approximately
$2.9 billion, will be approximately 41.2%. The calculation of the pro forma
ratio of combined debt to total market
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capitalization is based on a $27.06 closing price for the Paired Shares on the
NYSE on January 6, 1998. The Patriot Companies may issue additional equity
securities in an attempt to lower their debt to market capitalization ratio.
No assurance can be given, however, that the Patriot Companies will be able to
issue any such equity securities, or that any such issuance will be on terms
favorable to the Patriot Companies.
Substantially all of the Patriot Companies' combined debt bears interest at
variable rates, although the Patriot Companies have entered into hedging
transactions with respect to approximately $375 million of such variable rate
debt, effectively converting the variable rate obligations to fixed rate
obligations. The interest rates on the Patriot Companies' Revolving Credit
Facility and Term Loan bear interest at variable rates based, in part, on the
Patriot Companies' leverage ratio. Consequently, the incurrence of
indebtedness in connection with the Merger, and the resulting increase in the
Patriot Companies' leverage ratio, may result in increased interest expense
under the Revolving Credit Facility and a higher interest rate on the Term
Loan. In addition, increases in market interest rates will also result in
increased borrowing cost for the Patriot Companies, which would adversely
affect the Patriot Companies' cash flow and the amounts available for
distributions to their stockholders.
There can be no assurance that the Patriot Companies, following consummation
of the Merger and the Other Transactions, will be able to meet their debt
service obligations and, to the extent that they cannot, the Patriot Companies
risk the loss of some or all of their assets, including their hotels, to
foreclosure. Adverse economic conditions could cause the terms on which
borrowings become available to be unfavorable. In such circumstances, if the
Patriot Companies are in need of capital to repay indebtedness in accordance
with its terms or otherwise, they could be required to liquidate one or more
investments in properties at times which may not permit realization of the
maximum return on such investments.
The foregoing risks associated with the debt obligations of the Patriot
Companies may adversely affect the market prices for the Paired Shares
following the Merger and may inhibit the ability of the Patriot Companies to
raise capital in both the public and private markets following the
consummation of the Merger and the Other Transactions.
FINANCING
The Patriot Companies have received "highly confident" letters from both
PaineWebber Real Estate and Chase in order to address the financing of the
cash portion of the Merger Consideration. The Patriot Companies are exploring
various alternative means by which to obtain financing prior to the Closing
Date. Such financing may consist of public or private offerings of equity or
debt, or a combination thereof. No assurance can be given, however, that the
Patriot Companies will successfully obtain the financing necessary to
consummate the Merger, or if obtained, that such financing will be on terms
and conditions favorable to the Patriot Companies. The Patriot Companies'
obligations under the Merger Agreement are not conditioned on the obtaining of
financing. See "The Companies--The Surviving Companies--Liquidity and
Financial Resources."
DILUTION TO EARNINGS CAUSED BY THE MERGER
The Merger will have a dilutive effect on the Patriot Companies' net income
per Paired Share on a pro forma combined basis for the year ended December 31,
1996 and the nine months ended September 30, 1997. On a pro forma combined
basis (post-Merger) for the Patriot Companies, including the $531.4 million of
Cash Consideration to be paid by Patriot pursuant to the Merger (based on the
number of shares of Interstate Common Stock outstanding as of January 6, 1998
and assuming the exercise of dissenters' rights in respect of no more than
100,000 shares of Interstate Common Stock), assuming consummation of the CHCI
Merger and the WHG Merger, pro forma net loss per Paired Share would be $0.38
for the year ended December 31, 1996 and net income per Paired Share would be
$0.09 for the nine months ended September 30, 1997, as compared to net income
per Paired Share of less than $0.01 and $0.31 for the year ended December 31,
1996 and the nine months ended September 30, 1997, respectively, on a pro
forma combined basis for the Patriot Companies without giving effect to the
Merger.
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NONCOMPARABILITY OF HISTORICAL FINANCIAL INFORMATION
The Patriot Companies engaged in a number of acquisition transactions during
1996, 1997 and early 1998, including the Cal Jockey Merger, the Wyndham
Merger, the Crow Assets Acquisition and the acquisition of numerous individual
hotels and hotel portfolios. In addition, the Patriot Companies expect to
close the WHG Merger, the CHCI Merger and the Merger in the first quarter or
early second quarter of 1998. Under the purchase method of accounting, the
assets, liabilities and results of operations associated with such
transactions have been, or will be if consummated, included in the Patriot
Companies' financial position and results of operations since the respective
dates thereof. Accordingly, the financial position and results of operations
of the Patriot Companies' based on historical information as of and for the
year ended December 31, 1996 and the nine months ended September 30, 1997 are
not directly comparable to the financial position and results of operations of
the Patriot Companies as of and for prior dates and periods.
CONVERSIONS TO WYNDHAM BRAND; OTHER CONSENTS AND APPROVALS
Interstate's hotel portfolio consists of owned, leased and managed hotels
and hotels for which Interstate provides limited services. Interstate operates
its hotels under a variety of brand names subject to franchise agreements (the
"Franchise Agreements") with the Franchisors. Following the Merger, the
Patriot Companies intend to convert a number of the hotels currently owned by
Interstate to the Wyndham brand. The ability of the Patriot Companies to
convert such hotels to the Wyndham brand will be subject to the terms of the
Franchise Agreements and the termination of such agreements prior to the
expiration of their respective terms will generally require the consent of the
Franchisors and/or the payment of certain termination penalties. In addition,
such consent, if obtained, may require the Patriot Companies to pay additional
consideration to the Franchisor. Although the Patriot Companies believe that
the Marriott Letter Agreement will facilitate the conversion of a number of
Interstate-owned hotels to the Wyndham brand, the Marriott Letter Agreement is
non-binding and there can be no assurance that the Marriott Franchise
Agreements relating to these hotels will be terminated. Failure of the Patriot
Companies to convert Interstate-owned hotels to the Wyndham brand
successfully, or to convert such hotels in a cost effective manner, could
result in the failure of the Patriot Companies to recognize certain of the
anticipated strategic and economic benefits of the Merger, including the
achievement of greater brand awareness with respect to the Wyndham brand and
the economic benefits to the holders of Paired Shares resulting from the
ownership of the Wyndham brand.
The terms of agreements governing the relationships between Interstate and
certain third parties require the consent of such third parties in the event
of a transaction involving a change of control of Interstate or similar event
affecting Interstate. If such consents are not obtained prior to or in
connection with the consummation of the Merger, the Patriot Companies may be
required to pay termination or other fees to such third parties as a result of
the consummation of the Merger. There can be no assurance that the Patriot
Companies will successfully obtain required third-party consents in connection
with the Merger or that the Patriot Companies will not incur significant
expenses whether or not such consents are obtained.
POTENTIAL CONFLICTS OF INTEREST BETWEEN PATRIOT AND WYNDHAM INTERNATIONAL
Patriot and Wyndham International are separate corporate entities with
separate Boards of Directors and executive officers. Although the companies
have several of the same directors, a majority of the directors and officers
of each of Patriot and Wyndham International do not serve as directors or
officers of the other company. In addition, Patriot and Wyndham International
generally have different employees, separate creditors and are subject to
different state law licensing and regulatory requirements. Since the
consummation of the Wyndham Merger on January 5, 1998, the companies have also
had separate Chairmen of the Board and Chief Executive Officers. As a result,
the interests of the Patriot Board and the Wyndham International Board may
conflict, and such conflicts may possibly rise to disputes between the
companies. Patriot and Wyndham International have entered into the Cooperation
Agreement which the Patriot Companies believe will help decrease the
possibility of disagreements. There can be no assurance, however, that such
disagreements will not arise. In addition, there can be no assurance that the
interests of the officers and/or directors of one company who also serve as
officers and/or directors of the other company will not conflict with their
interests as officers and/or directors of such
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other company or that their actions as officers and/or directors of one
company will not adversely affect the interests of the other company. Any such
disagreements or conflicts could have a material adverse effect on the results
of operations of Patriot and Wyndham International.
REIT TAX RISKS
Dependence on Qualification as a REIT
Patriot has operated, and following the Merger, Patriot will continue to
operate, in a manner designed to permit it to qualify as a REIT for federal
income tax purposes, but no assurance can be given that Patriot has operated
or will be able to continue to operate in a manner as to so qualify or remain
so qualified. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited
judicial or administrative interpretations. The complexity of these provisions
is greater in the case of a REIT that owns hotels and leases them to an
operating company with which its stock is paired. Qualification as a REIT also
involves the determination of various factual matters and circumstances not
entirely within Patriot's control. In addition, Patriot's ability to qualify
as a REIT is dependent upon its continued exemption from the anti-pairing
rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would
ordinarily prevent a corporation from qualifying as a REIT if its stock is
paired with the stock of a corporation whose activities are inconsistent with
REIT status, such as Wyndham International. The "grandfathering" rules
governing Section 269B generally provide, however, that Section 269B(a)(3)
does not apply to a paired REIT if the REIT and its paired operating company
were paired on June 30, 1983. There are, however, no judicial or
administrative authorities interpreting this "grandfathering" rule in the
context of a merger or otherwise. Moreover, if for any reason Cal Jockey
failed to qualify as a REIT in 1983, the benefit of the "grandfathering" rule
would not be available to Patriot, in which case Patriot would not qualify as
a REIT for any taxable year. On November 5, 1997, Representative William
Archer, Chairman of the Ways and Means Committee of the United States House of
Representatives, publicly announced that he plans to review this
"grandfathering" rule to determine whether there should be future restrictions
on companies that are grandfathered. While Representative Archer stated that
he does not plan to eliminate the "grandfathering" rule, no assurance can be
given that new legislation, new regulations, administrative interpretations or
court decisions will not change the tax laws with respect to qualification as
a REIT (including the "grandfathering" rules of Section 269B) or the federal
income tax consequences of such qualification. Qualification of Patriot as a
REIT also generally depends on the REIT qualification of Old Patriot for
periods prior to the Cal Jockey Merger.
If Patriot fails to qualify as a REIT, Patriot will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions and subject to the discussion above regarding the
impact if Cal Jockey failed to qualify as a REIT in 1983, Patriot also will be
disqualified from re-electing REIT status for the four taxable years following
the year during which qualification is lost. Failure to qualify as a REIT
would reduce the net earnings of Patriot available for distribution to
stockholders because of the additional tax liability to Patriot for the year
or years involved. In addition, distributions would no longer be required to
be made. To the extent that distributions to stockholders would have been made
in anticipation of Patriot's qualifying as a REIT, Patriot might be required
to borrow funds or to liquidate certain of its investments to pay the
applicable tax. The failure to qualify as a REIT would also constitute a
default under certain debt obligations of Patriot.
Patriot believes that it has operated (and that prior to the Cal Jockey
Merger, Old Patriot operated), and will operate through the Merger, in a
manner that permits Patriot to qualify as a REIT under the Code for each
taxable year since its formation. In connection with the mailing of this Joint
Proxy Statement/Prospectus, Goodwin, Procter & Hoar llp will render an opinion
to the effect that (i) for periods ending on or before the date of such
opinion, Patriot has qualified to be treated as a REIT and (ii) for subsequent
periods, including periods following the Merger, Patriot will be organized in
conformity with the requirements for qualification as a REIT and the proposed
manner of operations of Patriot will enable Patriot to continue to qualify as
a REIT.
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Potential Reallocation of Income
Due to the paired share structure, Patriot, Wyndham International, the
Patriot Partnership, the Wyndham International Partnership, and their
respective subsidiary entities are and will be controlled by the same
interests. As a result, the IRS could, pursuant to Section 482 of the Code,
seek to distribute, apportion or allocate gross income, deductions, credits or
allowances between or among them if it determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes
or to clearly reflect income. Patriot and Wyndham International believe that
all material transactions between Patriot and Wyndham International, and among
them and/or their subsidiary entities, have been and will continue to be
negotiated and structured with the intention of achieving an arm's-length
result. If true, the potential application of Section 482 of the Code should
not have a material effect on Patriot or Wyndham International following the
Merger. There can be no assurance, however, that the IRS will not challenge
the terms of such transactions, or that such challenge would not be
successful.
Adverse Effects of REIT Minimum Distribution Requirements
In order to qualify as a REIT, Patriot is generally required each year to
distribute to its stockholders at least 95% of its taxable income (excluding
any net capital gain). In addition, if Patriot disposes of assets acquired
from a taxable corporation (such as Interstate) in a tax-free merger during
the ten-year period following such merger, Patriot will be required to
distribute at least 95% of the amount of any "built-in gain" attributable to
such assets that Patriot recognizes in the disposition, less the amount of any
tax paid with respect to such recognized built-in gain. See "Certain Federal
Income Tax Considerations--REIT Qualification--Built-In Gain Tax." In
addition, Patriot generally is subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of (i) 85% of its ordinary income for that
year, (ii) 95% of its capital gain net income for that year, and (iii) 100% of
its undistributed income from prior years.
Patriot intends to make distributions to its stockholders to comply with the
95% distribution requirement and to avoid the nondeductible excise tax,
although Patriot will be required to pay such tax with respect to its expected
distribution payable January 30, 1998. Differences in timing between the
recognition of taxable income and the receipt of cash available for
distribution and the seasonality of the hotel industry could require Patriot
to borrow funds on a short-term basis to meet the 95% distribution requirement
and to avoid the nondeductible excise tax.
Distributions by the Patriot Companies are determined by their respective
Boards of Directors and depend on a number of factors, including the amount of
cash available for distribution, financial conditions, any decision by either
Board of Directors to reinvest funds rather than to distribute such funds,
capital expenditures, the annual distribution requirements under the REIT
provisions of the Code (in the case of Patriot) and such other factors as
either Board of Directors deems relevant. For federal income tax purposes,
distributions paid to stockholders may consist of ordinary income, capital
gains (in the case of Patriot), nontaxable return of capital, or a combination
thereof. The Patriot Companies will provide stockholders with annual
statements as to the taxability of distributions.
Accumulated Earnings and Profits
To maintain its qualification as a REIT, following the Merger, Patriot will
be required to distribute the E&P of Interstate. Patriot is also required to
distribute any E&P of Old Wyndham accumulated as of the closing of the Wyndham
Merger. Any such distributions will be taken into account by Patriot's taxable
U.S. stockholders as ordinary income to the extent they are made out of E&P
and will not be eligible for the dividends received deduction generally
available for corporations. See "Certain Federal Income Tax Considerations--
Federal Income Taxation of Holders of Paired Shares."
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Interstate has agreed that, at the Closing Date, Interstate will deliver to
Patriot a statement of Interstate's E&P as of a date not more than 30 days
prior to the Closing Date, together with evidence of such E&P of Interstate
from Coopers & Lybrand L.L.P. in a form reasonably satisfactory to Patriot,
and a statement of estimated E&P of Interstate as of the Closing Date.
Interstate has further agreed that, prior to the Closing Date, it will
cooperate in Patriot's efforts to obtain from Coopers & Lybrand L.L.P. such
firm's computation, or confirmation of the Company's computation, of E&P of
Interstate at the Effective Time.
In rendering its opinion regarding REIT qualification, Goodwin, Procter &
Hoar llp will rely upon the representations of Patriot to the effect that it
will distribute with respect to the taxable year in which the Merger closes
all E&P inherited from Interstate or Old Wyndham. However, there can be no
assurance that the IRS will not challenge the calculation of the E&P inherited
from Interstate or Old Wyndham. If the IRS were to determine that Interstate's
or Old Wyndham's actual E&P exceeded the amount distributed, Patriot would be
disqualified as a REIT.
PATRIOT'S DEPENDENCE ON LESSEES AND PAYMENTS UNDER THE PARTICIPATING LEASES
Patriot leases substantially all of its existing hotels to Wyndham
International and the Lessees pursuant to separate Participating Leases.
Patriot's ability to make distributions to stockholders depends primarily upon
the ability of Wyndham International and the Lessees to make rent payments
under the Participating Leases (which ability in turn is dependent primarily
on Wyndham International's and the Lessees' ability to generate sufficient
revenues from those hotels which are leased to them). A failure to make or a
delay in making such payments may be caused by reductions in revenue from such
hotels or in the net operating income of Wyndham International or the Lessees
or otherwise. Any failure or delay by Wyndham International or the Lessees in
making rent payments may adversely affect Patriot's ability to make
distributions to stockholders.
HOTEL INDUSTRY RISKS
Operating Risks
The primary businesses of the Patriot Companies are buying, selling,
leasing, managing and franchising hotels which are subject to operating risks
common to the hotel industry. These risks include, among other things, (i)
competition for guests from other hotels, a number of which may have greater
marketing and financial resources and experience than the Patriot Companies
and the Lessees, (ii) increases in operating costs due to inflation and other
factors, which increases may not have been offset in past years and may not be
offset in future years, by increased room rates, (iii) dependence on business
and commercial travelers and tourism, which may fluctuate and be seasonal,
(iv) increases in energy costs and other expenses of travel, which may deter
travelers, and (v) adverse effects of general and local economic conditions.
These factors could adversely affect the ability of the Lessees or Wyndham
International following the Merger to generate revenues and to make lease
payments to Patriot and therefore Patriot's ability to make distributions to
stockholders.
The Patriot Companies are also subject to the risk that in connection with
the acquisition of hotels and hotel operating companies it may not be possible
to transfer certain operating licenses, such as food and beverage licenses, to
the Lessees, the hotel management entities that manage certain hotels (the
"Operators") or Wyndham International, or to obtain new licenses in a timely
manner in the event such licenses cannot be transferred. Although hotels can
provide alcoholic beverages under interim licenses or licenses obtained prior
to the acquisition of these hotels, there can be no assurance that these
licenses will remain in effect until Patriot or Wyndham International obtains
new licenses or that new licenses will be obtained. The failure to have
alcoholic beverage licenses or other operating licenses could adversely affect
the ability of the affected Lessees, Operators or Wyndham International to
generate revenues and make lease payments to Patriot.
Operating Costs and Capital Expenditures; Hotel Renovations
Hotels, in general, have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
or refurbishment of FF&E . Under the terms of the Participating
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Leases, Patriot is obligated to establish a reserve to pay the cost of certain
capital expenditures at its hotels and pay for periodic replacement or
refurbishment of FF&E. Additionally, the FF&E obligations of Interstate will
be assumed by Patriot in the Merger. If capital expenditures exceed Patriot's
expectations, the additional cost could have an adverse effect on Patriot's
cash available for distribution. In addition, Patriot may acquire hotels where
significant renovation is either required or desirable. Renovation of hotels
involves certain risks, including the possibility of environmental problems,
construction cost overruns and delays, uncertainties as to market demand or
deterioration in market demand after commencement of renovation and the
emergence of unanticipated competition from other hotels.
Competition for Hotel Acquisition Opportunities
The Patriot Companies may be competing for investment opportunities with
entities that have substantially greater financial resources. These entities
may generally be able to accept more risk than the Patriot Companies can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to
the Patriot Companies and increase the bargaining power of property owners
seeking to sell.
Additionally, the Patriot Companies' ability to acquire additional hotels
could be negatively impacted by the paired share ownership structure because
hotel management companies, franchisees and others who historically approached
Old Patriot with acquisition opportunities in hopes of establishing lessee or
management relationships may not do so in the future knowing that Patriot will
rely primarily on Wyndham International to lease and/or manage the acquired
properties. Such persons may instead provide such acquisition opportunities to
hotel companies that will allow them to manage the properties following the
sale. This could have a negative impact on the Patriot Companies' acquisition
activities in the future.
Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other
hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at hotels may cause quarterly fluctuations in the
operating revenues of Wyndham International and the lease revenues of Patriot.
REAL ESTATE INVESTMENT RISKS
General Risks
The Patriot Companies' investments are subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
the Patriot Companies' real estate investments and the Patriot Companies'
income and ability to make distributions to their stockholders will be
dependent upon the ability of the Lessees, the Operators and Wyndham
International to operate Patriot's hotels in a manner sufficient to maintain
or increase revenues and to generate sufficient income in excess of operating
expenses to make rent payments under their leases with Patriot. Income from
Patriot's hotels may be adversely affected by changes in national economic
conditions, changes in local market conditions due to changes in general or
local economic conditions and neighborhood characteristics, changes in
interest rates and in the availability, cost and terms of mortgage funds, the
impact of present or future environmental legislation and compliance with
environmental laws, the ongoing need for capital improvements, particularly in
older structures, changes in real estate tax rates and other operating
expenses, adverse changes in governmental rules and fiscal policies, adverse
changes in zoning laws, civil unrest, acts of God, including earthquakes,
hurricanes and other natural disasters (which may result in uninsured losses),
acts of war and other factors which are beyond the control of the Patriot
Companies.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of Patriot to
vary its portfolio in response to changes in economic and other conditions
will therefore be limited. If Patriot must sell an investment, there can be no
assurance that Patriot will be able to dispose of it in the time period it
desires or that the sale price of any investment will recoup or exceed the
amount of Patriot's investment.
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Property Taxes
The Patriot Companies' hotels and racing facilities are subject to real
property taxes. The real property taxes on hotel properties as well as the
racing facilities in which the Patriot Companies invest may increase or
decrease as property tax rates change and as the value of the properties are
assessed or reassessed by taxing authorities. Additionally, as a result of the
Merger, certain of the Patriot Companies' properties may be subject to
reappraisal or reassessment. If property taxes increase as a result of such
reappraisals or reassessments, the Patriot Companies' ability to make
distributions to its stockholders could be adversely affected.
Consent of Ground Lessor Required for Sale of Certain Hotels
Certain of Patriot's hotels and the Racecourse are subject to ground leases
with third party lessors. In addition, Patriot may acquire hotels in the
future that are subject to ground leases. Any proposed sale of a property that
is subject to a ground lease by Patriot or any proposed assignment of
Patriot's leasehold interest in the ground lease may require the consent of
third party lessors. As a result, Patriot may not be able to sell, assign,
transfer or convey its interest in any such property in the future absent the
consent of such third parties, even if such transaction may be in the best
interests of the stockholders.
Environmental Matters
The operating costs of the Patriot Companies may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. In addition, the
presence of hazardous or toxic substances, or the failure to remediate such
property properly, may adversely affect the owner's ability to borrow by using
such real property as collateral. Persons who arrange for the transportation,
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for releases of hazardous materials,
including asbestos-containing materials ("ACMs"), into the environment, and
third parties may seek recovery from owners or operators of real properties
for personal injury associated with exposure to released ACMs or other
hazardous materials. Environmental laws may also impose restrictions on the
manner in which a property may be used or transferred or in which businesses
may be operated, and these restrictions may require expenditures. In
connection with the ownership and operation of any of Patriot's hotels, the
Patriot Companies, the Lessees or the Operators may be potentially liable for
any such costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect Patriot's results of operations and
financial condition. Phase I environmental site assessments ("ESAs") have been
conducted at all of Patriot's hotels and the Racecourse by qualified
independent environmental engineers. The purpose of Phase I ESAs is to
identify potential sources of contamination for which any of Patriot's hotels
or the Racecourse may be responsible and to assess the status of environmental
regulatory compliance. The ESAs have not revealed any environmental liability
or compliance concerns that Patriot believes would have a material adverse
effect on its business, assets, results of operations or liquidity, nor is
Patriot aware of any such liability or concerns. Nevertheless, it is possible
that these ESAs did not reveal all environmental liabilities or compliance
concerns or that material environmental liabilities or compliance concerns
exist of which Patriot is currently unaware. Patriot has not been notified by
any governmental authority, and has no other knowledge of, any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental substances in connection with any of Patriot's hotels or
the Racecourse.
Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. A determination that the
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Patriot Companies are not in compliance with the ADA could result in the
imposition of fines or an award of damages to private litigants. If the
Patriot Companies were required to make modifications to comply with the ADA,
the ability of the Patriot Companies to make expected distributions to their
stockholders could be adversely affected.
Uninsured and Underinsured Losses
Each of the Participating Leases specifies comprehensive insurance to be
maintained on each of the applicable leased hotels, including liability, fire
and extended coverage. Patriot believes such specified coverage is of the type
and amount customarily obtained for or by an owner of hotels. Leases for
subsequently acquired hotels will contain similar provisions. However, there
are certain types of losses, generally of a catastrophic nature, such as
earthquakes and floods, that may be uninsurable or not economically insurable.
The Board of Directors and management of each of the Patriot Companies will
use their discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to maintaining appropriate insurance
coverage on the investments of the Patriot Companies at a reasonable cost and
on suitable terms. This may result in insurance coverage that, in the event of
a substantial loss, would not be sufficient to pay the full current market
value or current replacement cost of the lost investment of the Patriot
Companies. Inflation, changes in building codes and ordinances, environmental
considerations and other factors also might make it infeasible to use
insurance proceeds to replace the property after such property has been
damaged or destroyed. Under such circumstances, the insurance proceeds
received by the Patriot Companies might not be adequate to restore their
economic position with respect to such property.
Acquisition and Development Risks
The Patriot Companies currently intend to pursue acquisitions of additional
hotels and hotel operating companies and, under appropriate circumstances, may
pursue development opportunities. Acquisitions entail risks that such acquired
hotels or hotel operating companies will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to
market, acquire and operate properties will prove inaccurate as well as
general risks associated with any new real estate or operating company
acquisition. In addition, hotel development is subject to numerous risks,
including risks of construction delays or cost overruns that may increase
project costs, new project commencement risks such as receipt of zoning,
occupancy and other required governmental approvals and permits and the
incurrence of development costs in connection with projects that are not
pursued to completion. The fact that Patriot generally is required to
distribute 95% of its ordinary taxable income in order to maintain its
qualification as a REIT may limit Patriot's ability to rely upon lease income
from its hotels or subsequently acquired properties to finance acquisitions or
new developments. As a result, if debt or equity financing were not available
on acceptable terms, further acquisitions or development activities might be
curtailed or Patriot's cash available for distribution might be adversely
affected.
DEPENDENCE ON MANAGEMENT CONTRACTS
Management contracts are acquired, terminated, renegotiated or converted to
franchise agreements in the ordinary course of the Patriot Companies'
business. As of January 6, 1998, the Patriot Companies managed approximately
57 hotels pursuant to management agreements with various third parties. In
addition, in connection with the Merger the Patriot Companies will assume
Interstate's management and service contracts for an additional 93 hotels.
While, as of January 6, 1998, the average remaining term of the Patriot
Companies' management contracts was approximately 13 years (including
renewals) and the average remaining term of Interstate's management contracts
for full-service hotels (which generated approximately 75% of Interstate's net
management fees in 1997) was approximately five years (including renewals),
these management contracts generally may be terminated by the owner of the
hotel property if the hotel manager fails to meet certain performance
standards, if the property is sold to a third party, if the property owner
defaults on indebtedness encumbering the property and/or upon a foreclosure of
the property. Other grounds for termination of the Patriot Companies' upscale
hotel management contracts include a hotel owner's election to close a hotel
and certain business combinations involving the Patriot Companies in which the
Patriot Companies' name or current management team does not survive.
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There can be no assurance following the Merger that the Patriot Companies
will be able to replace terminated management contracts, including those to be
acquired from Interstate, or that the terms of renegotiated or converted
contracts will be as favorable as the terms that existed before such
renegotiation or conversion. The Patriot Companies also will be subject to the
risk of deterioration in the financial condition of a hotel owner and such
owner's ability to pay management fees to the Patriot Companies. In addition,
in certain circumstances, the Patriot Companies may be required to make loans
to or capital investments or advances in hotel properties in connection with
management contracts. A material deterioration in the operating results of one
or more of these hotel properties and/or a loss of the related management
contracts could adversely affect the value of the Patriot Companies'
investment in such hotel properties.
POSSIBLE ADVERSE EFFECTS OF FAILURE TO CONSUMMATE THE WHG MERGER OR THE CHCI
MERGER
The consummation of the CHCI Merger and the WHG Merger are subject to, among
other things, regulatory approval and the approval of the stockholders of CHCI
or WHG, as the case may be. No assurance can be given that the CHCI Merger or
the WHG Merger will be consummated. If the CHCI Merger and the WHG Merger are
not consummated, the Patriot Companies will not acquire (i) CHCI's hospitality
related business or proprietary brand names or (ii) WHG's leading hotels and
casinos in Puerto Rico.
RISKS OF OPERATING HOTELS UNDER FRANCHISE OR BRAND AFFILIATIONS
As of January 6, 1998, all but three of Patriot's 114 owned hotels were
operated under franchise or brand affiliations. In addition, hotels in which
Patriot subsequently invests may be operated pursuant to franchise or brand
affiliations. The continuation of the franchise licenses relating to the
franchised hotels (the "Franchise Licenses") is subject to specified operating
standards and other terms and conditions. The continued use of a brand is
generally contingent upon the continuation of the management agreement related
to that hotel with the branded Operator. Franchisors typically inspect
licensed properties periodically to confirm adherence to operating standards.
Action on the part of any of the Patriot Companies, the Lessees or the
Operators could result in a breach of such standards or other terms and
conditions of the Franchise Licenses and could result in the loss or
cancellation of a Franchise License. It is possible that a franchisor could
condition the continuation of a Franchise License on the completion of capital
improvements which the Patriot Board determines are too expensive or are
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotel. In that event, the Patriot Board
may elect to allow the Franchise License to lapse, which could under certain
circumstances result in Patriot incurring significant costs for terminating
such Franchise License. In any case, if a franchise or brand affiliation is
terminated, Patriot and the Lessee may seek to obtain a suitable replacement
franchise or brand affiliation, or to operate the hotel independent of a
franchise or brand affiliation. The loss of a franchise or brand affiliation
could have a material adverse effect upon the operations or the underlying
value of the hotel covered by the franchise or brand affiliation because of
the loss of associated name recognition, marketing support and centralized
reservation systems provided by the franchisor or brand owner.
LACK OF CONTROL OVER OPERATIONS OF CERTAIN HOTELS LEASED OR MANAGED BY THIRD
PARTIES
The Patriot Companies rely on the ability of Wyndham International, the
Lessees and the Operators to manage the operations of hotels that are leased
or operated by them. Under the terms of the Participating Leases, the Patriot
Companies have the authority to review annual budgets for the hotels which are
leased to the Lessees and to approve certain items. However, the Patriot
Companies are unable to directly implement strategic business decisions with
respect to the setting of room rates, repositioning of a franchise,
redevelopment of food and beverage operations and certain similar decisions
with respect to such hotels.
STOCK PRICE FLUCTUATIONS
The relative stock prices of the Paired Shares and the Interstate Shares at
the Effective Time may vary significantly from the prices as of the date of
execution of the Merger Agreement, the date hereof or the date on which
stockholders vote on the Merger Proposal due to changes in the business,
operations and prospects of
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Patriot, Wyndham International and/or Interstate, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, general
market and economic conditions and other factors such as market perception of
paired share stocks, REIT stocks, hotel stocks and hotel REIT stocks generally.
There can be no assurance that the market prices for Paired Shares and/or
Interstate Shares will not decline between the date of this Joint Proxy
Statement/Prospectus and the Effective Time. Fluctuations in the price of the
Paired Shares may have an effect on the Exchange Ratio. See "The Merger and
Subscription--Terms of the Merger and Subscription."
CONFLICTS IN CERTAIN HOTEL MARKETS
Patriot and Interstate currently own or operate certain hotels that are in
the same local market. In a number of cases, such hotels are in direct
competition for guests, with the result that the ability of Patriot and Wyndham
International to maximize results of operations in certain markets following
the Merger may be limited. Further, consummation of the Merger may result in
Patriot or Interstate being in breach of noncompetition covenants contained in
certain agreements relating to such hotels, unless consents are obtained from
the other parties to such agreements. No assurances can be given that all of
such consents can be obtained or, if they are not obtained, that the
consequences of such failure would not be material.
HORSE RACING INDUSTRY RISKS
Wyndham International's pari-mutuel wagering operations are contingent upon
the continued governmental acceptance of such operations as forms of legalized
gambling. As a form of gambling, pari-mutuel wagering is subject to extensive
licensing and regulatory control by the California Horse Racing Board (the
"CHRB") and other California authorities. These regulatory authorities have
broad powers with respect to the licensing of gaming operations, and may
revoke, suspend, condition or limit the gaming operations of Wyndham
International. The CHRB also has the discretion to limit the number of days and
dates on which Wyndham International may conduct live horse racing. No
assurance can be given as to how many, or which, horse racing days the CHRB
will allocate to Wyndham International in the future, nor can there be any
assurance that an issued license will not be modified or revoked. Any change in
the CHRB regulations or how many, or which, horse racing days are allocated to
Wyndham International could have a material adverse effect on Wyndham
International's financial condition and results of operations.
Wyndham International manages the Racecourse's horse racing operations, an
area in which Old Patriot had no experience prior to the Cal Jockey Merger.
Although Wyndham International has retained certain members of Bay Meadows'
former management and personnel to continue to manage these horse racing
operations, there can be no assurance that Wyndham International will be able
to continue to employ said management and personnel. Failure to retain such
management and personnel could have a material adverse effect on the results of
operations and financial condition of Wyndham International.
CASINO GAMING REGULATION
The ownership and operation of casinos in Puerto Rico and elsewhere is
heavily regulated. The El San Juan Hotel & Casino, the Condado Plaza Hotel &
Casino and WHGI, on behalf of the El Conquistador, were each granted a casino
franchise as an owner of the casinos that they currently operate and certain of
their employees must be licensed to work in the casinos. Each casino is
required to renew its casino franchise quarterly; and, unless a change of
ownership of a franchisee has occurred or regulators have reason to believe
that reinvestigation of the franchisee is necessary, renewal is generally
automatic. Although the Patriot Companies have no reason to believe that any of
the current casino franchises will not be renewed, there can be no assurance of
such renewal.
COMPARISON OF STOCKHOLDERS RIGHTS
The rights of Patriot stockholders currently are governed by the DGCL,
Patriot's Amended and Restated Certificate of Incorporation (the "Patriot
Charter") and Patriot's Amended and Restated Bylaws (the "Patriot
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Bylaws"), the rights of the stockholders of Wyndham International currently
are governed by the DGCL, Wyndham International's Amended and Restated
Certificate of Incorporation (the "Wyndham International Charter" and,
together with the Patriot Charter, the "Charters") and Wyndham International's
Amended and Restated Bylaws (the "Wyndham International Bylaws" and, together
with the Patriot Bylaws, the "Bylaws"), and the rights of the stockholders of
Interstate currently are governed by the PBCL, Interstate's Amended and
Restated Articles of Incorporation (the "Interstate Charter") and Interstate's
Bylaws, as amended (the "Interstate Bylaws"). At the Effective Time,
stockholders of Interstate who receive Paired Shares will become stockholders
of Patriot and Wyndham International, each of which is a Delaware corporation,
and their rights as stockholders of Patriot and Wyndham International will
thereafter be governed by the DGCL and the provisions of the Charters and the
Bylaws. In considering the recommendations of the Patriot Board, the Wyndham
International Board and the Interstate Board to approve the Merger and adopt
the Merger Agreement, stockholders of Interstate should be aware that
following the Merger, the rights of former stockholders of Interstate under
the provisions of the Charters and the Bylaws will differ in certain respects
from the existing rights of the Interstate stockholders under the Interstate
Charter and the Interstate Bylaws. See "Comparison of Stockholders Rights."
Certain provisions of the Charters and Bylaws could have a potential anti-
takeover effect with respect to Patriot and Wyndham International following
the Merger. The ownership limit provisions, the staggered board provisions,
the fact that directors are removable only for cause, the fact that the
stockholders may not call special meetings of stockholders, the vote required
for business combinations with related persons, the limitation of the power to
fill vacancies to the remaining directors, the vote required for the
stockholders to amend the bylaws, the fact that stockholders may act without a
meeting only by unanimous written consent and the presence of advance-notice
bylaw provisions with respect to stockholder proposals and director
nominations could have the effect of making it more difficult for a third
party to acquire control of Patriot or Wyndham International, including
certain acquisitions that stockholders may deem to be in their best interests.
In addition, the 8.0% ownership limit in the Charters could also have the
effect of making the acquisition of control more difficult for a third party.
See "Description of Capital Stock" and "Comparison of Stockholders Rights."
Under the terms of the Cooperation Agreement, the Patriot Companies are
obligated to cooperate to the fullest extent possible in the conduct of their
respective operations and to take all necessary action to preserve the paired
share structure and to maximize the economic and tax advantages associated
therewith. One of the primary objectives of the Cooperation Agreement is to
set forth the understanding of the Patriot Companies that Patriot shall have
the sole right and power to authorize, effect and control issuances of paired
equity (including securities convertible into paired equity) of the two
companies. The Cooperation Agreement provides for a number of corporate
governance mechanisms designed to accomplish this objective and the other
objectives set forth therein. Certain provisions of the Cooperation Agreement,
including each of the corporate governance mechanisms contained therein, and
the provisions contained in the Charters affecting certain terms of the
Cooperation Agreement, could have a potential anti-takeover effect on Patriot
and Wyndham International following the Merger by making it more difficult for
a third party to acquire control of Patriot or Wyndham International,
including certain acquisitions that stockholders may deem to be in their best
interests. See "Description of Capital Stock" and "Comparison of Stockholders
Rights."
POSSIBLE ADVERSE EFFECTS ON MARKET PRICE OF PAIRED SHARES ARISING FROM SHARES
AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that any future sales of
shares, or the availability of shares for future sale, will have on the market
prices for Paired Shares following the Merger. Sales of substantial amounts of
Paired Shares (including Paired Shares issued in connection with outstanding
stock options or the exchange or sale of OP Units of the Patriot Partnerships)
or the perception that such sales could occur, could adversely affect the
prevailing market price for Paired Shares. With the exception of the Paired
Shares issued to affiliates of Interstate in connection with the Merger, all
of the Paired Shares to be issued to holders of Interstate Common Stock in
connection with the Merger will be freely transferable. In addition, certain
outstanding options to purchase Interstate Common Stock held by senior
executives of Interstate may, at the option of such senior executives, be
converted into options to purchase Paired Shares.
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ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON PRICES FOR PAIRED
SHARES
One of the factors that may influence the prices for the Paired Shares in
public trading markets will be the annual yield from distributions by Patriot
and Wyndham International on the Paired Shares as compared to yields on
certain financial instruments. An increase in market interest rates will
result in higher yields on certain financial instruments, which could
adversely affect the market prices for the Paired Shares.
DISSENTERS' RIGHTS
Interstate stockholders have the right to dissent in respect of the Merger
and to be paid in cash the fair value of their shares. Pursuant to Subchapter
15D, any holder of Interstate Common Stock who does not vote in favor of the
adoption of the Merger Agreement and who complies with the procedures
specified in such Subchapter has the right to obtain cash payment for the fair
value of his or her shares. The parties' respective obligations to consummate
the Merger are conditioned upon the number of shares of Interstate Common
Stock as to which the holders thereof shall have exercised dissenters' rights
under Subchapter 15D ("Dissenting Shares") not exceeding certain thresholds. A
copy of Subchapter 15D of the PBCL is attached as Annex D to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference and should be
read in its entirety by Interstate stockholders. Under the DGCL, stockholders
of Patriot and Wyndham International are not entitled to dissenters' rights in
connection with the Merger. See "The Merger and Subscription--Dissenters'
Rights."
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THE COMPANIES
THE PATRIOT COMPANIES
General
Patriot is a self-administered REIT which as of January 6, 1998 owned
interests in 114 hotels (excluding one hotel closed for renovations) with an
aggregate of over 27,500 guest rooms. Patriot's hotels are diversified by
franchise or brand affiliation and serve primarily major U.S. business
centers, including Atlanta, Boston, Chicago, Cleveland, Dallas, Denver,
Houston, Miami, San Francisco and Seattle. In addition to hotels catering
primarily to business travelers, Patriot's portfolio includes world-class
resort hotels, including the Carefree Resorts and prominent hotels in major
tourist destinations. The hotels include 104 full service hotels, five resort
hotels, four limited service hotels and an executive conference center.
Additionally, the Patriot Companies lease 13 hotels from third parties, manage
57 hotels (excluding one hotel closed for renovations) for independent owners
and franchise eight hotels. All but three of the hotels are operated under
franchise or brand affiliations with nationally recognized hotel companies,
including Crowne Plaza, Radisson, Ramada, Hilton, Hyatt, Four Points by
Sheraton, Holiday Inn, Wyndham, Wyndham Garden, WestCoast, Doubletree, Embassy
Suites, Hampton Inn, Registry, Carefree, Grand Heritage, Marriott, Marriott
Courtyard, Sheraton, Grand Bay and ClubHouse. Pursuant to its alliance with
Doubletree Hotels Corporation, Patriot owns 11 of its hotels through joint
venture arrangements. Patriot holds a 90% ownership interest with regard to
five of such hotels and an 85% ownership interest with regard to the remaining
six such hotels. Pursuant to its alliance with the Snavely Group, Patriot owns
four of its hotels through limited liability companies of which Patriot holds
a 90% ownership interest. Additionally, Patriot owns a 92.5% interest with
regard to one other hotel.
Wyndham International currently leases from Patriot 78 hotels of the 114
hotels owned by Patriot. Additionally, Patriot expects that substantially all
of its future acquisitions will be leased to Wyndham International.
On July 1, 1997, Old Patriot consummated its acquisition of Cal Jockey and
Bay Meadows through the Cal Jockey Merger. As a result of the Cal Jockey
Merger, Patriot became one of two hotel REITs with a paired share ownership
structure. Upon consummation of the Cal Jockey Merger, Cal Jockey changed its
name to "Patriot American Hospitality, Inc." and Bay Meadows changed its name
to "Patriot American Hospitality Operating Company." The paired share
ownership structure permits Patriot to lease certain of its existing hotels,
as well as newly acquired hotels, to Wyndham International, thereby retaining
for the Patriot Companies' stockholders the economic benefits of both the
lease payments received by Patriot and the operating profits realized by
Wyndham International, while maintaining the tax benefits of Patriot's status
under the Code as a REIT. The paired share ownership structure also
facilitates the Patriot Companies' acquisition and development of hotel
management and franchise businesses, operations which Patriot would have
difficulty pursuing within a traditional REIT structure. Patriot conducts
substantially all of its business and operations through the Patriot
Partnership, and subsidiaries of the partnership and other entities which it
directly or indirectly controls, and Wyndham International conducts
substantially all of its business and operations through the Wyndham
International Partnership, and subsidiaries of the partnership and other
entities which it directly or indirectly controls. As of January 6, 1998,
Patriot held an approximate 88.6% limited partnership interest and the sole 1%
general partnership interest in the Patriot Partnership and Wyndham
International held an approximate 86.9% limited partnership interest and the
sole 1% general partnership interest in the Wyndham International Partnership.
On January 5, 1998, Patriot consummated the Wyndham Merger pursuant to which
Old Wyndham merged with and into Patriot with Patriot being the surviving
company. Upon consummation of the Wyndham Merger, Patriot American Hospitality
Operating Company changed its name to "Wyndham International, Inc." Pursuant
to the terms of certain agreements relating to the Wyndham Merger,
stockholders of Old Wyndham (including CF Securities, L.P., a principal
stockholder of Old Wyndham ("CF Securities")) received an aggregate of
$52.8 million in cash consideration and 6,427,217 Paired Shares. In addition,
CF Securities received 4,860,876 shares of Patriot Series A Preferred Stock.
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In addition to entering into the Wyndham Merger Agreement, during 1997 the
Patriot Companies entered into and/or completed the following acquisitions:
. Wyndham International acquired the management operations of Grand
Heritage Hotels which included third-party contracts and the Grand
Heritage proprietary name and Resorts Services, Inc., which manages the
Carefree Resorts.
. In connection with the Wyndham Merger, Patriot entered into a definitive
agreement with partnerships affiliated with members of the Trammell Crow
family providing for Patriot's acquisition of 11 full service Wyndham-
branded hotels with 3,072 rooms for an aggregate purchase price of
approximately $332 million in cash, plus up to $14 million in additional
cash consideration if two of the hotels meet certain cash flow targets.
On December 16, 1997, Patriot acquired nine of these hotels for a
purchase price of approximately $296.3 million.
. In September and October 1997, Patriot acquired ten hotels (including an
approximate 50% controlling ownership interest in the Omni Inner Harbor
Hotel) from entities affiliated with Gencom and CHCI for an aggregate
purchase price of approximately $237 million. Financing for the purchase
of the hotels consisted of cash from the Revolving Credit Facility and
the issuance of Paired Shares and paired OP Units in a private
placement. In connection with the foregoing transactions, Patriot
acquired the leasehold interests relating to eight of 25 hotels which
were previously leased by CHC Lease Partners (previously the largest
independent lessee of Patriot's hotels) for a purchase price of
approximately $53 million, and Wyndham International purchased an
approximate 50% managing and controlling ownership interest in GAH, an
affiliate of CHCI and Gencom, from affiliates of Gencom for a purchase
price of approximately $14 million. Prior to the acquisition of the
leasehold interests, the management contracts with GAH relating to the
eight hotels were terminated. These transactions were financed with
cash, the issuance of paired OP Units in the Patriot Partnerships and
the issuance of preferred OP Units in the Wyndham International
Partnership.
. On September 30, 1997, Patriot, Wyndham International and CHCI entered
into the CHCI Merger Agreement providing, subject to certain conditions
including regulatory approvals, for the merger of the hospitality-
related businesses of CHCI with and into Wyndham International with
Wyndham International being the surviving company. 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 first or second quarter of 1998, although the precise
timing is subject to certain conditions including receipt of all
necessary regulatory approvals. As a result of the CHCI Merger, Wyndham
International will acquire the remaining 50% investment interest in GAH,
the remaining 17 leasehold interests relating to hotels leased by CHC
Lease Partners and 16 of the associated management contracts related to
the Patriot hotels leased by CHC Lease Partners, three management
contracts related to Patriot hotels leased by Wyndham International, 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.
. Patriot, Wyndham International and WHG have entered into the WHG Merger
Agreement providing for the merger of a newly formed subsidiary of
Wyndham International with and into WHG with WHG being the surviving
corporation. As a result of the WHG Merger, Wyndham International will
acquire the 570-room Condado Plaza Hotel & Casino, a 50% interest in the
389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room
El Conquistador, all of which are located in Puerto Rico, as well as a
62% interest in Williams Hospitality Group, Inc., the management company
for the three hotels and the Las Casitas Village at the El Conquistador.
Under the terms of the WHG Merger Agreement, each share of WHG Common
Stock generally will be converted into the right to receive 0.784 Paired
Shares, subject to adjustment in certain circumstances as described in
the WHG Merger Agreement. In addition, each issued and outstanding share
of WHG Series B Convertible Preferred Stock will be converted into the
right to receive that number of Paired Shares that the holder of such
share of WHG Series B Convertible Preferred Stock would have the right
to receive assuming conversion of such share, together with any accrued
and unpaid dividends thereon, into shares of WHG
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Common Stock immediately prior to the effective time of the WHG Merger.
The Patriot Companies expect to close the WHG Merger in the first
quarter of 1998, but there can be no assurance that the WHG Merger will
be consummated.
. In addition to the acquisitions discussed above, during 1997 the Patriot
Companies acquired 26 hotels for an aggregate investment of
approximately $801 million. The acquisitions consisted of 22 full-
service hotels with an aggregate of 5,974 rooms and four resort
properties with an aggregate of 486 rooms.
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 Racecourse. The Racecourse also acts as an
off-track wagering facility, allowing patrons to wager on horse races at other
tracks even when live horse racing is not being conducted at the Racecourse,
by accepting simulcasts of horse races conducted throughout the United States,
Canada, Mexico, Australia and Hong Kong. In addition to live horse racing at
the Racecourse, Wyndham International simulcasts its live horse races to as
many as 31 sites in California and 450 sites in the remainder of the world.
Wyndham International faces significant competition for the sports and
entertainment dollar in the San Francisco Bay Area because of the numerous
professional and amateur sporting events and other entertainment attractions
located there. Wyndham International's revenues from its operations of the
Racecourse are subject to seasonal variations depending on the scheduling of
its live race meet.
Other Acquisitions and Agreements
Patriot has entered into agreements to purchase an aggregate 95% equity
interest in the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for an
aggregate purchase price of $97.3 million. As part of the agreements, Patriot
also was granted an option to acquire the remaining 5% equity interest in the
hotel. The Buena Vista Palace Hotel is owned by a joint venture between
Equitable Life Insurance Company, which owns a 55% interest, and Hotel Venture
Partners, Ltd., which owns a 45% interest. In August 1997, Wyndham
International purchased a participating loan related to the hotel from
National Resort Ventures, L.P. for $23.8 million. In connection with the Buena
Vista Acquisition, Patriot will purchase the participating loan from Wyndham
International and repay certain other indebtedness related to the joint
venture. The hotel will remain subject to a ground lease and a first leasehold
mortgage in the amount of $50.7 million. In addition, Patriot has entered into
an agreement to purchase the 173-room Holiday Inn Beachwood Hotel located in
Cleveland, Ohio for a purchase price of $14.5 million in cash.
The Patriot Companies believe that market conditions remain favorable for
the acquisition of additional hotels and hotel portfolios and expect that they
will continue their aggressive acquisition activities. Additionally, the
Patriot Companies intend to explore opportunities to acquire hotel management
contracts, hotel leases, hotel operators, owners of hotel franchises and
independent hotel management companies. As part of their ongoing business, the
Patriot Companies continually engage in discussions with public and private
real estate entities regarding possible portfolio or single asset
acquisitions, as well as the acquisition of hotel leasing and management
operations. No assurance can be given, however, that the Patriot Companies
will locate attractive acquisition opportunities or that they will consummate
such acquisitions.
Indebtedness
As of January 8, 1998, the Patriot Companies had total outstanding
indebtedness of approximately $1.48 billion. Substantially all of the Patriot
Companies' combined debt bears interest at variable rates, although the
Patriot Companies have entered into hedging transactions with respect to
approximately $375 million of such variable rate debt, effectively converting
the variable rate obligations to fixed rate obligations.
Patriot has entered into the Revolving Credit Facility with PaineWebber Real
Estate, Chase and certain other lenders. The Revolving Credit Facility was
increased to $900 million on January 5, 1998 in connection with the closing of
the Wyndham Merger. As of January 6, 1998, $793.4 million was outstanding
under the Revolving
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Credit Facility. The Revolving Credit Facility generally is used for the
acquisition of additional properties, businesses and other assets, for capital
expenditures and for general working capital purposes. The interest rate for
the Revolving Credit Facility ranges from LIBOR plus 1.0% to 2.0% (depending
on the Patriot Companies' leverage ratio or an investment grade rating
received from the rating agencies) or the customary alternate base rate
announced from time to time plus 0.0% to 0.5% (depending on the Patriot
Companies' leverage ratio). In addition, on December 16, 1997 in connection
with the closing of the Crow Assets Acquisition, the Patriot Companies
obtained the $350 million Term Loan from PaineWebber Real Estate and Chase.
On December 31, 1997, the Patriot Companies entered into two transactions
with affiliates of Union Bank of Switzerland ("UBS"). In one transaction, the
Patriot Companies sold 3,250,000 Paired Shares at $28.8125 per share to UBS
Limited. In the other transaction, the Patriot Companies entered into a
forward share purchase agreement with Union Bank of Switzerland, London Branch
("UBS-LB") which provides that the Company will purchase 3,250,000 Paired
Shares from UBS-LB within one year. The purchase price will be determined on
the date the Patriot Companies settle the agreement and will include a forward
accretion component, minus an adjustment to reflect distributions on the
Paired Shares during the transaction period. The Patriot Companies may
complete the settlement for cash or Paired Shares at their option. The net
proceeds were used to repay borrowings under the Revolving Credit Facility.
The Patriot Companies' principal executive offices are located at 1950
Stemmons Freeway, Suite 6001, Dallas, Texas 75207, and the telephone number at
this location is (214) 863-1000.
INTERSTATE
Interstate is the largest independent hotel management company in the United
States based on number of properties and rooms managed and total revenues
produced for owners. As of December 31, 1997, Interstate owned, managed,
leased or performed related services for 223 hotels with a total of 45,329
rooms in the United States, Canada, the Caribbean and Russia. Interstate owned
or had a controlling interest in 40 of these properties, with 11,580 rooms,
substantially all of which are geographically diverse upscale or luxury
properties. Interstate's owned hotels operate under the Embassy Suites,
Hilton, Holiday Inn, Marriott, Radisson, Sheraton and Westin brand names,
principally in major metropolitan markets such as Atlanta, Boston, Chicago,
Denver, Fort Lauderdale, Houston, Los Angeles, Miami, Philadelphia, Phoenix
and Washington, D.C. Interstate also operates in the mid-scale, upper economy
and budget segments of the lodging industry.
In June 1996, the Interstate IPO was completed. During the 18 months ending
with the execution of the Merger Agreement, Interstate completed the
acquisition of 26 full-service hotels and the acquisition of the leasing and
management businesses affiliated with Equity Inns, Inc., a publicly traded
limited-service hotel REIT, by which Interstate obtained management rights to
56 limited-service hotels. Interstate's largest stockholders are the Fine
Entities, which beneficially own 36.1% of the outstanding shares of Interstate
Common Stock, and the Blackstone Group, which beneficially owns 7.1% of the
outstanding shares of Interstate Common Stock.
Interstate's principal executive offices are located at Foster Plaza Ten,
680 Andersen Drive, Pittsburgh, Pennsylvania 15220, and its telephone number
is (412) 937-0600.
SURVIVING COMPANIES
General
Based upon the respective portfolios of the Patriot Companies and Interstate
at January 6, 1998, after giving effect to the Merger, the Other Transactions
and the acquisition of the Holiday Inn Beachwood Hotel, the Patriot Companies
will have an aggregate hotel portfolio, including owned, managed, leased,
franchised and serviced hotels and resorts, consisting of 449 hotels in
operation located throughout North America and in the Caribbean and Russia,
with approximately 103,700 rooms. Such portfolio will consist of 157 owned
hotels, 103 hotels
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leased from independent third parties and 189 managed, franchised or serviced
hotels and resorts. The Patriot Companies' aggregate portfolio following the
Merger would represent an increase in the Patriot Companies' rooms portfolio
of approximately 99,500 rooms since the Initial Offering.
Upon completion of these transactions, and particularly after the Wyndham
Merger and the Merger, the Patriot Companies will have evolved from a pure
owner of hotel properties to a fully integrated and branded hotel company
within a paired share ownership structure. As a result of the Wyndham Merger,
Patriot acquired, in addition to hotels and management rights, the rights to a
nationally recognized hotel brand and a proven hotel management organization
which it believes will substantially enhance its management capabilities. With
the Merger, Patriot will acquire, in addition to hotels and management rights,
the largest independent hotel management organization in the United States.
Following the Merger, Patriot and Wyndham International intend to continue the
process of integrating the best talents and practices of the acquired
companies into the management organizations of the Patriot Companies. Patriot
and Wyndham International believe that, as a result of these transactions, it
will have a talented and deep hotel management organization to complement
Patriot's recognized acquisition and asset management capabilities. Following
the Merger, the Patriot Companies intend to continue to pursue an aggressive
growth strategy including acquisition of lodging and leisure-related
properties and businesses, continued expansion of Wyndham's branded and
Interstate's independent, non-proprietary branded hotel management businesses
and selective development of hotel properties.
Operations of Patriot and Wyndham International Following the Merger
Pursuant to the Merger Agreement, Interstate will merge with and into
Patriot and the companies will continue their operations within the paired
share structure. Following the Merger, the 130 hotels currently in operation
that are owned or leased by Interstate will be owned or leased by Patriot or
its subsidiaries and leased or subleased by Patriot to Wyndham International.
Following the Merger, it is contemplated that all of these hotels will be
managed by corporate subsidiaries of Patriot that are controlled by Wyndham
International. Upon completion of the CHCI Merger and the WHG Merger, Wyndham
International will also continue the respective management operations of GAH,
CHCI and WHG.
In addition, pursuant to the Marriott Letter Agreement, the Patriot
Companies expect to terminate franchise agreements with respect to ten
Marriott hotels owned and operated by Interstate and convert such hotels to
the Wyndham brand over the next two years. In return, the Patriot Companies
will enter into management agreements with Marriott International with respect
to ten hotels currently owned and operated by Patriot providing for management
of such hotels by Marriott International.
Surviving Companies Indebtedness
Subsequent to the consummation of the Merger and the Other Transactions, the
Patriot Companies will have approximately $2.9 billion of pro forma combined
total indebtedness (approximately $1.2 billion attributable to the Merger), as
compared to pro forma combined total indebtedness of the Patriot Companies,
without giving effect to the Merger and the Other Transactions, of $1.7
billion. The pro forma ratio of combined debt to total market capitalization
of the Patriot Companies, assuming an aggregate indebtedness of approximately
$2.9 billion, will be approximately 41.2%. The calculation of the pro forma
ratio of combined debt to total market capitalization is based on the $27.06
closing price for the Paired Shares on the NYSE on January 6, 1998. The
Patriot Companies may issue additional equity securities in an attempt to
lower their debt to market capitalization ratio. No assurance can be given,
however, that the Patriot Companies will be able to issue any such equity
securities, or that any such issuance will be on terms favorable to the
Patriot Companies.
Liquidity and Financial Resources
In addition to the Merger, the Patriot Companies have entered into
agreements with respect to the CHCI Merger, the WHG Merger, the Buena Vista
Acquisition and the acquisition of the Holiday Inn Beachwood Hotel
(collectively, the "Pending Transactions"). The Patriot Companies estimate
that consummation of the Merger
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and the Pending Transactions will require $713.6 million in cash and the
issuance of $33.0 million in equity securities of Patriot and/or Wyndham
International. The Patriot Companies will also assume $797.7 million of
indebtedness in connection with these transactions.
The Patriot Companies are currently reviewing various alternatives with
respect to refinancing a significant portion of the indebtedness to be assumed
in the Merger in order to lengthen the average maturity of such debt, convert
certain existing floating rate debt to a fixed rate basis and convert certain
existing secured debt to an unsecured basis. The Patriot Companies have
received "highly confident" letters from both PaineWebber Real Estate and
Chase with respect to financing the Cash Consideration. With respect to the
Cash Consideration, as well as cash requirements associated with the Pending
Transactions, Patriot and Wyndham International are currently reviewing
various financing alternatives, including, without limitation, an increase in
the availability under the Revolving Credit Facility and the issuance of
public or private debt or equity securities. While the Patriot Companies
expect to be able to obtain the necessary financing for the Merger and the
Pending Transactions, no assurance can be given that such financing will be
available on terms favorable to the Patriot Companies. Neither the Merger nor
the Pending Transactions are subject to financing contingencies. See "Risk
Factors--Financing."
Executive Officers and Directors
In connection with the consummation of the Merger, the Patriot Board and the
Wyndham Board will each be expanded by one member. Milton Fine will be elected
to the Patriot Board and W. Thomas Parrington, Jr. will be elected to the
Wyndham International Board, for which he will serve as Vice Chairman.
Following such elections, the Patriot Board will consist of ten directors
(plus one existing vacancy) and the Wyndham International Board will consist
of 11 directors. Pursuant to an agreement among the parties to the Wyndham
Merger Agreement, one additional director may be added to each of the Patriot
Board and the Wyndham International Board before July 5, 1998. Such additional
directors, if any, will be nominated by the director designees of Patriot and
Old Wyndham, respectively, who were elected in connection with the Wyndham
Merger. The executive officers of Patriot and Wyndham International following
the Merger will be the current executive officers of Patriot and Wyndham
International. See "Management of Patriot and Wyndham International."
Additional Financing
Depending on market conditions and other appropriate factors, the Patriot
Companies may seek additional debt or equity financing prior to the Effective
Time.
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THE MEETINGS OF STOCKHOLDERS
PATRIOT COMPANIES' SPECIAL MEETINGS
The Patriot Companies' Special Meetings will be held at , located at
, on , 1998. At the Patriot Special Meeting, holders of shares of
the capital stock of Patriot will consider and vote upon the Merger Proposal.
The affirmative vote of the holders of a majority of the outstanding shares of
the capital stock of Patriot entitled to vote thereon is required to approve
the Merger Proposal. At the Wyndham International Special Meeting, holders of
shares of the capital stock of Wyndham International will consider and vote
upon the Merger Proposal. The affirmative vote of the holders of a majority of
the outstanding shares of the capital stock of Wyndham International entitled
to vote thereon is required to approve the Merger Proposal. The Patriot
Special Meeting will be held at a.m. local time and the Wyndham
International Special Meeting will be held at a.m. local time.
Holders of Paired Shares are entitled to one vote per share at each of the
Patriot Companies' Special Meetings. Holders of Patriot Series A Preferred
Stock are entitled to one vote per share at the Patriot Special Meeting. At
the present time, it is not anticipated that any matters other than the Merger
Proposal will be brought before the Patriot Companies' Special Meetings for
consideration and vote by holders of Paired Shares and Patriot Series A
Preferred Stock, including, without limitation, any motion to adjourn either
of such meetings. In the event of any vote to adjourn either of the Patriot
Companies' Special Meetings in order to allow Patriot or Wyndham International
to solicit votes in favor of the Merger Proposal, proxies voting AGAINST the
Merger Proposal will be voted AGAINST the motion to adjourn the Patriot
Companies' Special Meetings.
The Patriot Companies have fixed the close of business on , 1998 as the
Patriot Record Date for determining holders entitled to notice of and to vote
at the Patriot Companies' Special Meetings. Only holders of Paired Shares and
Patriot Series A Preferred Stock at the close of business on the Patriot
Record Date will be entitled to notice of and to vote at the Patriot Special
Meeting and the Wyndham International Special Meeting, respectively. As of the
Patriot Record Date, there were outstanding and entitled to vote shares of
Patriot Common Stock, shares of Wyndham International Common Stock and
shares of Patriot Series A Preferred Stock.
All shares of the capital stock of Patriot and Wyndham International,
respectively, represented by properly executed proxies will, unless such
proxies have been previously revoked, be voted in accordance with the
instructions indicated on such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH
SHARES OF THE CAPITAL STOCK OF PATRIOT AND WYNDHAM INTERNATIONAL WILL BE VOTED
IN FAVOR OF THE MERGER PROPOSAL. A stockholder who has given a proxy may
revoke it at any time prior to its exercise by giving written notice thereof
to the Secretary of Patriot or Wyndham International, as the case may be, by
signing and returning a later-dated proxy or by voting in person at the
Patriot Special Meeting or the Wyndham International Special Meeting, as the
case may be; however, mere attendance at the Patriot Special Meeting or the
Wyndham International Special Meeting will not in and of itself have the
effect of revoking the proxy.
Votes cast by proxy or in person at the Patriot Companies' Special Meetings
will be tabulated by the inspector(s) of election appointed for the respective
meetings and will determine whether or not a quorum is present. The presence
in person or by properly executed proxy of the holders of a majority of the
issued and outstanding shares of the capital stock of Patriot entitled to vote
at the Patriot Special Meeting is necessary to constitute a quorum at the
Patriot Special Meeting, and the presence in person or by properly executed
proxy of the holders of a majority of the issued and outstanding shares of the
capital stock of Wyndham International entitled to vote at the Wyndham
International Special Meeting is necessary to constitute a quorum at the
Wyndham International Special Meeting. Abstentions and broker non-votes will
be treated as shares that are present at the Patriot Companies' Special
Meetings for purposes of determining whether a quorum exists. To be approved,
the Merger Proposal must receive the affirmative vote of the holders of a
majority of the outstanding
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shares of the capital stock of Patriot entitled to vote thereon and the
affirmative vote of the holders of a majority of the outstanding shares of the
capital stock of Wyndham International entitled to vote thereon. Abstentions
and broker non-votes will have the effect of votes against the approval of the
Merger Proposal.
Each of the Patriot Companies will bear its own cost of solicitation of
proxies. Brokerage firms, fiduciaries, nominees and others will be reimbursed
for their out-of-pocket expenses in forwarding proxy materials to beneficial
owners of shares of the capital stock of Patriot and Wyndham International
held in their names. In addition to the use of the mails, proxies may be
solicited by directors, officers and regular employees of the Patriot
Companies, who will not be specifically compensated for such services, by
means of personal calls upon, or telephonic or telegraphic communications
with, stockholders or their representatives. has been engaged by the
Patriot Companies to act as proxy solicitors and to mail proxies to the
holders of the capital stock of Patriot and Wyndham International on the
Patriot Record Date, and will receive a fee in connection therewith of
approximately $ .
THE PATRIOT BOARD HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF PATRIOT VOTE FOR APPROVAL OF THE
MERGER PROPOSAL. THE WYNDHAM INTERNATIONAL BOARD HAS UNANIMOUSLY APPROVED THE
MERGER PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF WYNDHAM
INTERNATIONAL VOTE FOR APPROVAL OF THE MERGER PROPOSAL. SEE "THE MERGER AND
SUBSCRIPTION--BACKGROUND OF THE MERGER" AND "--THE PATRIOT COMPANIES' REASONS
FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE PATRIOT
COMPANIES."
INTERSTATE SPECIAL MEETING
The Interstate Special Meeting will be held at the located at ,
on , at a.m. local time. At the Interstate Special Meeting, holders
of shares of Interstate Common Stock will consider and vote upon the Merger
Proposal. The affirmative vote of the holders of a majority of the votes cast
is required to approve the Merger Proposal at the Interstate Special Meeting.
Only holders of record of Interstate Common Stock at the close of business
on the Interstate Record Date are entitled to notice of and to vote at the
Interstate Special Meeting. On the Interstate Record Date, shares of
Interstate Common Stock were issued and outstanding. A majority of the shares
of Interstate Common Stock outstanding on the Interstate Record Date must be
represented in person or by proxy at the Interstate Special Meeting in order
for a quorum to be present for purposes of voting on the Merger Agreement. The
Fine Entities, which owned beneficially 36.1% of the Interstate Common Stock
on the Interstate Record Date, have agreed to be represented in person or by
proxy at the Interstate Special Meeting. In the event that a quorum is not
present at the Interstate Special Meeting, it is expected that such meeting
will be adjourned or postponed.
Holders of record of Interstate Common Stock as of the Interstate Record
Date are each entitled to one vote per share. The adoption of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
shares of Interstate Common Stock cast at the Interstate Special Meeting. At
the present time, it is not anticipated that any other matters will be brought
before the Interstate Special Meeting for consideration and voting, including
any motion to adjourn such meeting. If any such mater is properly presented
for such consideration, the proxies will vote any shares represented by a duly
executed proxy in such manner as they see fit in their sole discretion.
On the Interstate Record Date, executive officers and directors of
Interstate and their affiliates beneficially owned and had the right to vote
or direct the vote of shares of Interstate Common Stock, which represented
approximately % of the outstanding shares of Interstate Common Stock. The
Fine Entities have agreed to vote a number of such shares equal to 19.9% of
the outstanding Interstate Common Stock in favor of the adoption of the Merger
Agreement.
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Shares represented by properly executed proxies received in time for the
Interstate Special Meeting will be voted at the meeting in the manner
specified by the holders thereof. Properly executed proxies that do not
contain voting instructions will be voted in favor of adoption of the Merger
Agreement. Shares of Interstate Common Stock represented at the Interstate
Special Meeting but not voting will be treated as present at the Interstate
Special Meeting for purposes of determining the presence or absence of a
quorum for the transaction of all business. For voting purposes at the
Interstate Special Meeting, only shares affirmatively voted in favor of
adoption of the Merger Agreement will be counted as favorable votes for such
proposal. The failure to submit a proxy (or to vote in person) or the
abstention from voting with respect to the adoption of the Merger Agreement
would have no effect on the adoption of the Merger Agreement, other than to
reduce the number of votes needed for such adoption. In addition, under the
applicable rules of the NYSE, brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote such customers' shares with respect to a proposal in
the absence of specific instructions from such customers. Accordingly, broker
non-votes will have the same effect as abstentions.
The persons named as proxies by an Interstate stockholder may propose and
vote for one or more adjournments or postponements of the Interstate Special
Meeting, including adjournments or postponements to permit further
solicitations of proxies in favor of adoption of the Merger Agreement;
however, no proxy that is voted against adoption of the Merger Agreement will
be voted in favor of any such adjournment or postponement.
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person. A stockholder may revoke a proxy at any
time prior to its exercise by filing with the Secretary of Interstate a duly
executed revocation of proxy, by submitting a duly executed proxy bearing a
later date or by appearing at the Interstate Special Meeting and voting in
person at the meeting. Attendance at the Interstate Special Meeting will not,
in and of itself, constitute revocation of a proxy.
Interstate will bear the cost of the solicitation of proxies from its
stockholders, except that Interstate and Patriot will share the cost of
printing this Joint Proxy Statement/Prospectus. The Patriot Companies will pay
the fees associated with the filing of this Joint Proxy Statement/Prospectus
with the Commission. In addition to solicitation by mail, directors, officers
and employees of Interstate may solicit proxies from Interstate's stockholders
by telephone, in person or otherwise. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of Interstate Common Stock held
of record by such persons, and Interstate will reimburse such custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
connection therewith.
THE INTERSTATE BOARD HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND RECOMMENDS THAT INTERSTATE STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND
OF THE MERGER" AND "--INTERSTATE'S REASONS FOR THE MERGER; RECOMMENDATION OF
THE INTERSTATE BOARD."
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THE MERGER AND SUBSCRIPTION
TERMS OF THE MERGER AND SUBSCRIPTION
On December 2, 1997, Interstate, Patriot and Wyndham International entered
into the Merger Agreement pursuant to which Interstate will merge with and
into Patriot, with Patriot being the surviving company. Each of the Patriot
Board, the Wyndham International Board and the Interstate Board has approved
the Merger Agreement and the transactions contemplated thereby.
Pursuant to the Merger Agreement, stockholders of Interstate will have the
right to elect to have each of their shares of Interstate Common Stock
converted into the right to receive either (i) $37.50 (subject to proration as
described below) or (ii) Paired Shares at the Exchange Ratio, subject to
adjustment under certain circumstances depending on the Average Closing Price.
After the elections are made by stockholders of Interstate, proration will be
used to ensure that 40% of the Interstate Outstanding Shares will be converted
into the right to receive Cash Consideration and the remaining 60% of the
Interstate Outstanding Shares will be converted into the right to receive
Paired Shares at the Exchange Ratio, subject to adjustment in the event of the
exercise of dissenters' rights in respect of more than 100,000 shares of
Interstate Common Stock. Consequently, the Aggregate Cash Consideration that
will be paid to Interstate stockholders in the Merger will be $531.4 million
based on the number of outstanding shares of Interstate Common Stock as of
January 6, 1998. In addition, outstanding options to acquire Interstate Common
Stock will be cashed out for an amount equal to the spread between the
exercise price of such options and $37.50, except that certain senior
executives of Interstate may choose to have their options assumed by Patriot.
The Merger Agreement contains separate provisions for Interstate stockholders
who exercise dissenters' rights which are described more fully below. See "--
Dissenters' Rights."
In the Merger, each outstanding Paired Share will remain outstanding and,
following the Merger, will automatically, without any action on the part of
the stockholders of Patriot and Wyndham International, continue to represent
one Paired Share.
The Exchange Ratio will be equal to $37.50 divided by the Average Closing
Price, subject to the following adjustments. In the event that the Average
Closing Price is less than $27.97 but greater than or equal to $26.416, the
Exchange Ratio will be equal to 1.341. In the event that the Average Closing
Price is greater than $34.186 but less than or equal to $37.294 ($38.848, if
the Merger is consummated after March 30, 1998), the Exchange Ratio will be
equal to 1.097. In the event that the Average Closing Price is greater than
$37.294 ($38.848, if the Merger is consummated after March 30, 1998), the
Exchange Ratio will be equal to $40.912 ($42.616, if the Merger is consummated
after March 30, 1998) divided by the Average Closing Price. In the event that
the Average Closing Price is less than $26.416, the Exchange Ratio will be
equal to 1.341, but Interstate will have the right to terminate the Merger
Agreement unless Patriot decides to increase the Exchange Ratio to an amount
equal to $35.424 divided by the Average Closing Price. In the event Patriot so
increases the Exchange Ratio, any prior exercise by Interstate of its right to
so terminate the Merger Agreement will be rescinded and have no effect.
Immediately prior to the Merger, Interstate, Wyndham International and
Patriot will enter into a subscription agreement (the "Merger Subscription
Agreement"), pursuant to which Interstate will contract (the "Merger
Subscription") for shares of Wyndham International Common Stock (the "Merger
Subscribed Shares") to be issued directly to Interstate stockholders in the
Merger in an amount equal to the number of shares of Patriot Common Stock that
will be issued to Interstate stockholders in the Merger. Immediately prior to
the Merger, Interstate will fund the Merger Subscription and designate the
Interstate stockholders as the recipients of the Merger Subscribed Shares, in
compliance with the Pairing Agreement, dated February 17, 1983, as amended,
between Patriot and Wyndham International (the "Pairing Agreement"). The
Merger Subscription will be funded on the basis of the fair market value of a
Paired Share multiplied by 5%, representing the agreed-upon value of the
Wyndham International Common Stock as compared to the fair market value of a
Paired Share. The result of the Merger and the Merger Subscription will be
that Interstate stockholders will have the right to receive Paired Shares at
the Exchange Ratio for each share of Interstate Common Stock held by them at
the Effective Time.
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Certain provisions (the "Excess Share Provisions") of the Charters provide
that no person or entity may own, be deemed to own by virtue of certain
attribution rules of the Code or be deemed to beneficially own pursuant to the
applicable provisions of the Exchange Act, shares of any class or series of
the outstanding capital stock of either of the Patriot Companies ("Equity
Stock") of Patriot or Wyndham International in excess of the ownership limits
provided therein. If any holder of Interstate Common Stock would receive in
the Merger and the Merger Subscription a number of Paired Shares which would
cause such holder or any other person or entity to own, or be deemed to own,
Paired Shares in excess of the applicable ownership limit, then such holder
would acquire no right or interest in such number of Paired Shares that would
cause such holder or any other person or entity to exceed the applicable
ownership limit (the "Excess Paired Shares"), and, in lieu of receiving the
Excess Paired Shares, such holder's Excess Paired Shares would be
automatically converted into an equal number of shares of Excess Stock and
transferred to a Trust for the benefit of the Beneficiary (as defined in
"Description of Capital Stock--Excess Stock" and "--Certain Provisions of the
Charters and Bylaws--Restrictions on Ownership and Transfer") effective as of
the Trading Day prior to the Effective Time in accordance with the Excess
Share Provisions. See "Description of Capital Stock--Excess Stock" and "--
Certain Provisions of the Charters and Bylaws--Restrictions on Ownership and
Transfer."
No fractional Paired Shares will be issued in connection with the Merger. In
lieu thereof, as promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (i) the number of whole Paired
Shares deposited by Patriot and Wyndham International into the Exchange Fund
(as defined in the "The Merger Agreement--Exchange of Interstate Stock
Certificates") over (ii) the aggregate number of whole Paired Shares to be
distributed to holders of Interstate Common Stock (the "Excess Shares").
Following the Effective Time, the Exchange Agent will sell the Excess Shares
on the NYSE, using all reasonable efforts to complete the sale of the Excess
Shares as promptly as, in the Exchange Agent's sole judgment, is practicable
consistent with obtaining the best execution of such sales in light of
prevailing market conditions. The proceeds of the sale of the Excess Shares,
less all commissions, transfer taxes and other out-of-pocket transaction costs
(including the expenses and compensation of the exchange agent) incurred in
connection with such sale, shall be paid, upon surrender of Interstate
Certificates to holders of Interstate Common Stock who would otherwise be
entitled to fractional Paired Shares, with each such holder being entitled to
receive an amount in cash equal to the total amount of such net proceeds
multiplied by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder is entitled (taking into
account all shares of Interstate Common Stock held at the Effective Time by
such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Interstate Common Stock are
entitled. Notwithstanding the foregoing, Patriot shall have the option (which
must be exercised prior to the Effective Time), in lieu of effecting the sale
of the Excess Shares by the Exchange Agent and making the above described
payments to holders of Interstate Common Stock, to cause to be paid to each
such holder an amount in cash determined by multiplying (a) the fractional
share interest to which such holder would otherwise be entitled (taking into
account all shares of Interstate Common Stock held at the Effective Time by
such holder) by (b) the average closing price for a Paired Share as reported
on the NYSE Composite Transactions Tape (as reported in the Wall Street
Journal, or, if not reported thereby, any other authoritative source) for the
20 consecutive Trading Days ending on the Trading Day immediately prior to the
Closing Date.
As a result of the Merger and without any action on the part of the holder
thereof, at the Effective Time, all shares of Interstate Common Stock will
cease to be outstanding, will be canceled and retired and will cease to exist.
Each holder of an Interstate Certificate will thereafter cease to have any
rights with respect to such shares of Interstate Common Stock, except the
right to receive, without interest, Paired Shares and/or Cash Consideration,
and cash in lieu of fractional Paired Shares, if any, upon the surrender of
such Interstate Certificate. Promptly after the Effective Time, the Exchange
Agent will mail or otherwise make available a Letter of Transmittal to each
holder of record of an Interstate Certificate as of the Effective Time for use
in effecting the surrender of Interstate Certificates. Upon surrender of an
Interstate Certificate for cancellation to the Exchange Agent, together with
such Letter of Transmittal duly executed and completed in accordance with the
instructions thereto, the holder of such Interstate Certificate will be
entitled to receive in exchange therefor (i) a certificate representing the
number of whole shares of Patriot Common Stock to which such holder shall be
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entitled, issued back-to-back with a certificate representing the number of
whole shares of Wyndham International Common Stock to which such holder shall
be entitled and/or (ii) cash in the amount of Cash Consideration payable to
such holder pursuant to the Merger Agreement, if any, plus an amount of cash
in lieu of fractional Paired Shares, if any, due such holder, plus the amount
of any dividends or distributions, if any, as provided in the Merger
Agreement, after giving effect to any required withholding tax, and the
Interstate Certificate so surrendered will be canceled. See "The Merger
Agreement--Exchange of Interstate Stock Certificates."
BACKGROUND OF THE MERGER
From time to time prior to and following the Interstate IPO, Interstate's
management considered a variety of strategic alternatives, including possible
acquisition and business combination transactions. In connection therewith,
Interstate engaged in preliminary discussions regarding a number of these
alternatives with representatives of other lodging and real estate related
companies and financial investors, including Old Patriot in the second quarter
of 1996. Such alternatives involved a broad range of possible transactions,
including entity acquisitions, business combinations and recapitalizations.
However, except as disclosed in reports filed by Interstate with the
Commission, these discussions did not give rise to any agreements providing
for any material transaction.
On October 31, 1996 Old Patriot entered into a binding acquisition agreement
pursuant to which Old Patriot agreed to acquire Cal Jockey and Bay Meadows in
the Cal Jockey Merger and thereby assume a paired share ownership structure.
Following the execution of the Cal Jockey acquisition agreement, Old Patriot
began exploring strategic opportunities to acquire hotel operators and owners
of hotel brands to further develop the Patriot Companies as a fully integrated
owner and operator of hotels. In late 1996, a representative of Interstate
contacted Old Patriot regarding a possible business combination between Old
Patriot and Interstate, and the parties commenced preliminary negotiations. In
the course of discussions during December 1996 and January 1997 among the
managements of Old Patriot and Interstate, as well as Old Patriot's and
Interstate's financial and legal advisors, several structures for a
transaction between Old Patriot and Interstate were explored, none of which
was mutually satisfactory. As a result, the parties terminated these
discussions. At that time, Old Patriot had commenced preliminary discussions
with Old Wyndham regarding a possible business combination. Thereafter, Old
Patriot successfully completed its negotiations with Old Wyndham and on April
14, 1997 the parties executed the Wyndham Merger Agreement.
At its regular meeting in October 1997, the Interstate Board considered
several strategic alternatives available to Interstate. Among them were a
possible business combination with another lodging industry entity (the
"Merger Alternative") and a recapitalization transaction in which Interstate
stockholders would receive equity securities in an entity that owned
Interstate's assets but would be a real estate investment trust for federal
income tax purposes, with Interstate's hotel management and related businesses
owned by a separate C corporation (the "Clipped Share Alternative"). It was
the consensus of the Interstate Board that, while Interstate's near- and
intermediate-term prospects were good, management should continue to review
these alternatives in light of, among other factors, the generally higher
stock market multiples at which the equity securities of paired share, clipped
share and certain other entities were trading in the public securities
markets.
In pursuing the Merger Alternative, Interstate's management, with the
assistance of Merrill Lynch, developed a list of ten other entities, including
the Patriot Companies, which were believed to be capable of and potentially
interested in pursuing merger discussions with Interstate. Interstate's
management then began to contact these entities and provide them with
nonpublic information regarding Interstate for the purpose of their evaluation
of a possible transaction with Interstate.
In pursuing the Clipped Share Alternative, Interstate's management, with the
assistance of Merrill Lynch, considered a number of possible recapitalization
alternatives. In connection with one such alternative, representatives of
Interstate engaged in discussions with a substantial merchant banking firm
regarding a possible transaction in which, among other things, the Fine
Entities would sell a substantial portion of their Interstate
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Common Stock to the merchant banking firm at $34.00 per share, Interstate
would be recapitalized into a clipped share structure and the merchant banking
firm would obtain substantial representation on, but not control of, the
Interstate Board.
In pursuit of the Merger Alternative, on October 20, 1997 a representative
of Interstate telephoned a representative of Patriot and expressed the
interest of Interstate's management in pursuing a possible transaction with
the Patriot Companies. Interstate's representative requested that the Patriot
Companies' management respond to Interstate with a proposal by the following
Friday, October 31, 1997. Following this discussion, the Patriot Companies
retained PaineWebber as their financial advisor.
Substantially simultaneously with the discussions with the Patriot
Companies, representatives of Interstate conducted discussions with three
other lodging or real estate industry entities or groups that were believed to
have the financial capacity to pursue, and the potential interest in pursuing,
a possible business combination transaction with Interstate. Of these entities
or groups, one was a substantial real estate company not then operating in the
lodging industry, which initially indicated a price of $37.00 per share of
Interstate Common Stock, one commenced a due diligence review and one
indicated a price at a level which was below the $37.00 price level indicated
by the first company.
Throughout the week of October 20, 1997, Patriot's management, PaineWebber
and Patriot's legal advisors conducted an analysis of Interstate and began
developing a preliminary term sheet for a proposed transaction. A significant
portion of this analysis focused on the financial and legal considerations
which would be involved in converting certain of Interstate's branded hotels
to the Wyndham brand, in particular, those hotels currently under franchise
arrangements with Marriott International.
On October 28, 1997, representatives of the parties and their respective
legal and financial advisors met to discuss Patriot's preliminary term sheet,
which did not include any financial terms for a proposed transaction. The
parties continued the discussions at a meeting on October 30, 1997, after
which Interstate reiterated its request for a proposal from Patriot by the
next day, October 31, 1997. Patriot's management reviewed its analyses and
concluded that the potential financial and legal consequences of attempting
quickly to convert a substantial number of Interstate's branded hotels to the
Wyndham brand were too significant to merit submitting a proposal to
Interstate at that time. On October 31, 1997, a representative of Patriot
contacted representatives of Merrill Lynch to inform them that Patriot was not
inclined at that time to proceed with the transaction.
Over the weekend of November 1, 1997, representatives of Interstate
contacted representatives of PaineWebber to discuss Patriot's concerns over
the issue of converting Interstate's branded hotels to the Wyndham brand. The
Interstate representatives expressed their view that, despite the potential
costs associated with converting Interstate hotels to the Wyndham brand, the
acquisition of Interstate might still represent an attractive opportunity for
Patriot.
After further analysis, Patriot's management prepared during the week of
November 3, 1997 a detailed proposal for converting certain of the Marriott
hotels owned by Interstate to the Wyndham brand. A representative of Patriot
discussed the concerns of Patriot's management with a representative of
Interstate and proposed that Patriot representatives arrange a meeting with
representatives of Marriott International to discuss Patriot's proposal.
Subject to the outcome of the planned discussions with Marriott
International regarding conversion of Interstate hotels to the Wyndham brand,
on November 5, 1997, Patriot made a proposal to Interstate with respect to
basic transaction terms which was subsequently revised on November 8, 1997 (as
so revised, the "Initial Proposal"). The Initial Proposal provided for a
merger of Interstate with and into Patriot in which the stockholders of
Interstate would receive $35.00 in cash or Paired Shares, together, in either
case, with a paired right to receive two years following the Merger additional
Paired Shares (which had an initial value of $2.50 at the time of the Merger)
or the greater of $2.50 or the then cash value of such additional Paired
Shares (the "Paired Rights"). Pursuant to the Initial Proposal, cash elections
could be made by Interstate stockholders with
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respect to up to 30% of the Interstate Shares, and proration would be used to
ensure that the final percentages of cash and Paired Share consideration paid
would be 30% and 70%, respectively. On November 8, 1997, representatives of
Patriot also proposed to W. Thomas Parrington Jr., President and Chief
Executive Officer of Interstate, that he join the Patriot Companies in order
to manage the Patriot Companies' non-proprietary hotel management operations
out of a new division of Wyndham International to be based in Pittsburgh,
which division would retain the Interstate name. Patriot's representatives
also discussed with J. William Richardson, Chief Financial Officer and
Executive Vice President of Interstate, the possibility of Mr. Richardson
joining the Patriot Companies.
On November 10, 1997, the Interstate Board held a special meeting to review
the status of ongoing discussions in respect of the Clipped Share Alternative
and the Merger Alternative. At that meeting, Interstate's management, with the
assistance of Merrill Lynch and Interstate's legal advisors, briefed the
Interstate Board about such discussions, including a review of the Initial
Proposal as well as ongoing discussions with other third parties regarding the
Merger Alternative and the Clipped Share Alternative. In addition,
Interstate's legal advisors reviewed the legal considerations relating to
possible transactions and representatives of Interstate's management and
Merrill Lynch discussed certain strategic and financial considerations
relevant to these matters. Following the meeting, representatives of
Interstate informed representatives of Patriot that, based upon the Initial
Proposal, Interstate was willing to commence negotiation of definitive
documentation for a possible transaction, but indicated that Interstate
reserved the right to negotiate with other parties. During the week of
November 10, Patriot's and Interstate's financial and legal advisors met
continually to negotiate such documentation. However, during this period,
representatives of Interstate also continued discussions with other parties
regarding possible transactions.
On Sunday, November 16, 1997, William W. Evans III, then Office of the
Chairman of Patriot, and Anne L. Raymond, then Chief Financial Officer of Old
Wyndham, met with representatives of Marriott International in Washington,
D.C. to discuss Patriot's proposal for converting certain of Interstate's
Marriott International hotels to the Wyndham brand. At that meeting, Mr. Evans
informed Marriott International's representatives of Patriot's desire to enter
into a non-binding letter agreement with respect to the proposal in order to
provide Patriot with sufficient comfort on the issue to proceed with its
acquisition of Interstate. Marriott International's representatives indicated
their willingness to consider such an agreement. On November 17, 1997, Paul A.
Nussbaum, Chairman and Chief Executive Officer of Patriot, joined Ms. Raymond
in Washington, D.C. and came to an agreement in principle with senior
management of Marriott International as to the terms of the proposed Marriott
Letter Agreement.
On November 19, 1997, the Boards of the Patriot Companies held a telephonic
meeting to receive a report on the status of the negotiations with Interstate
and Marriott International and to discuss the proposed terms of the
transaction. Messrs. Nussbaum and Evans briefed the directors on the key
issues under discussion and the relative positions of the parties with respect
to such issues. PaineWebber presented its preliminary financial analysis of
the transactions contemplated by the proposed Merger. The Boards of the
Patriot Companies took no action at this meeting.
The Old Wyndham Board met on November 20, 1997 for a regularly scheduled
board meeting. Among the items discussed at that meeting was the proposed
Merger. The Wyndham Merger Agreement generally provided that any significant
transaction involving the Patriot Companies or Old Wyndham be approved by an
interim transactions committee consisting of two representatives of each of
Patriot and Old Wyndham. The Old Wyndham representatives on the interim
transactions committee determined that, in view of the significance of the
Merger, it would be appropriate to seek approval of the Old Wyndham Board
before approving the Merger as members of the interim transactions committee.
At the November 20, 1997 meeting of the Old Wyndham Board, members of Old
Wyndham management reported to the Old Wyndham Board concerning the results of
the due diligence efforts, the proposed terms and preliminary financial
analysis of the proposed Merger and the strategic advantages and disadvantages
of an acquisition of Interstate by Patriot. The Old Wyndham Board also
reviewed with its legal advisors the potential timing and other effects of the
Merger on the Wyndham Merger.
The Old Wyndham Board met again on November 23, 1997 and received an update
from Old Wyndham management representatives on the status of negotiations
between Patriot and Interstate. After additional
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discussions concerning the benefits and other effects of the proposed
acquisition of Interstate by Patriot and the potential timing implications of
the Merger on the Wyndham Merger, the Old Wyndham Board decided to request
that the Patriot Companies agree to changes to the Wyndham Merger Agreement,
including an extension of the date after which either party had the right to
terminate the Wyndham Merger Agreement, payments in respect of dividends on
Paired Shares missed by Old Wyndham stockholders as a result of delay in the
Wyndham Merger, the waiver by Patriot of certain closing conditions to the
Wyndham Merger and revisions in the calculation of the Wyndham Merger
Consideration to protect, in part, against the possibility of potential
downward movements in the market price of Paired Shares.
On November 23 and 24, 1997, representatives of Patriot and Old Wyndham met
with representatives of Marriott International to negotiate the final terms of
the Marriott Letter Agreement. Also on November 24, the Old Wyndham Board met
to receive a report on the Marriott International discussions and the status
of the ongoing negotiations between Patriot and Interstate. The Old Wyndham
Board also received a report on Patriot's initial response to Old Wyndham's
request for modifications to the Wyndham Merger Agreement.
On November 25, 1997, the Boards of the Patriot Companies held a telephonic
meeting to receive a further report on the status of the negotiations with
Interstate and Marriott International and to discuss developments in the
proposed terms of the transaction. Messrs. Nussbaum and Evans briefed the
respective Boards of Directors on the status of discussions and the respective
parties' positions with respect to the principal outstanding issues.
PaineWebber presented its financial analysis of the proposed Merger and the
transactions contemplated thereby, including the proposed conversion of hotels
to the Wyndham brand contemplated by Patriot's discussions with Marriott
International, and delivered its opinion to the Boards of the Patriot
Companies to the effect that, as of the date of such opinion and based on the
transactions then contemplated, including the proposed exchange ratio, the
proposed merger consideration was fair, from a financial point of view, to the
holders of Paired Shares.
On November 26, 1997, representatives of the principal parties to the
proposed transaction convened by telephone conference call, including Mr.
Nussbaum, Milton Fine, Chairman of Interstate, and other representatives of
management of Patriot and Interstate, as well as each of their respective
financial and legal advisors. The purpose of the call was to attempt to
resolve several issues which had remained open throughout the negotiation of
the transaction, including the final structure of the merger consideration,
the scope of Interstate's no-shop covenant and right to terminate the Merger
Agreement in the event of certain competing proposals and the amount and
payment terms of each party's break-up fee. Although not all of the issues
were resolved at this time, the parties subsequently determined to alter the
form of the merger consideration to eliminate the Paired Rights and increase
the initial payment to Interstate's stockholders by $2.50 to $37.50 in cash or
Paired Shares. The final percentages of cash and Paired Share consideration to
be paid were also modified to be 40% and 60%, respectively.
Following the November 26th meeting, representatives of Old Wyndham and
Patriot continued to negotiate the terms of the modifications to the Wyndham
Merger Agreement. It was also determined that certain modifications would be
required to the documents relating to the Crow Assets Acquisition in order to
facilitate the Merger. Representatives of the Crow Family Entities were
contacted who agreed to such modifications in exchange for Patriot's agreement
to increase the consideration payable in the Crow Assets Acquisition if the
Wyndham Merger was not consummated prior to March 31, 1998.
The party that had initially indicated a desire to pursue a possible merger
transaction at a price of $37.00 per Interstate Share withdrew its proposal
without assigning a reason therefore at approximately the time of the November
25th meeting. During this period, Interstate continued to furnish nonpublic
information to, and engage in preliminary discussions with, another
substantial lodging industry company. However, in light of, among other
factors, the advanced status of Interstate's negotiations with the Patriot
Companies, rumors that had surfaced regarding possible merger negotiations
involving Interstate and an indication from the other substantial lodging
industry company to which Interstate furnished nonpublic information and with
which Interstate had
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conducted preliminary discussions that it would not be able to submit a firm
merger proposal without substantial additional due diligence reviews,
Interstate's management focused its efforts in the last week of November 1997
on Patriot's Initial Proposal, while continuing to explore the Clipped Share
Alternative.
On the morning of December 1, 1997, the Boards of the Patriot Companies held
a telephonic meeting to consider the revised terms of the Merger, the proposed
amendments to the Wyndham Merger Agreement and the modifications to the terms
of the Crow Assets Acquisition. Patriot's management and legal advisors
briefed the directors regarding the negotiations which resulted in the revised
terms of the Merger and the proposed modifications to the terms of the Wyndham
transactions. Representatives of PaineWebber discussed the financial aspects
of the revised terms of the Merger and confirmed that the revisions to the
merger consideration, including the elimination of the Paired Rights, a
corresponding increase in the cash consideration and the exchange ratio and
the modification of the final percentages of cash and Paired Share
consideration to be paid to 40% and 60%, respectively, did not alter
PaineWebber's previously delivered opinion that the consideration to be paid
to Interstate stockholders was fair, from a financial point of view, to the
holders of Paired Shares. Thereafter, the Boards of the Patriot Companies
unanimously approved each of the proposals.
A special meeting of the Interstate Board was held in the evening of
December 1, 1997, at which the possible transaction with the Patriot Companies
was reviewed with the Interstate Board by Interstate's senior management with
the assistance of Merrill Lynch, Blackstone and Interstate's legal advisors.
The presentations and discussions at the meeting were wide-ranging and
detailed and included, among other things, (i) a presentation by management
regarding events since the November 10, 1997 meeting of the Interstate Board,
including discussions regarding the Clipped Share Alternative, discussions
with lodging and real estate related companies other than the Patriot
Companies and the negotiations of the terms of definitive documentation with
the Patriot Companies, (ii) a description by Interstate's legal advisors of
the material terms of the Merger Agreement and related documents, including
the Shareholders Agreement, (iii) a presentation by Interstate's legal
advisors regarding the duties of the directors, (iv) presentations by Merrill
Lynch and Blackstone regarding the fairness of the possible transaction with
the Patriot Companies from a financial point of view, and (v) a presentation
by Interstate's legal advisors regarding the provisions of the documentation
in respect of the Merger and other matters in which management, the Fine
Entities or the Blackstone Group would have interests different from or in
addition to the interests of Interstate's stockholders generally. Thereafter,
Merrill Lynch orally advised the Interstate Board, which advice was
subsequently confirmed in writing as of December 2, 1997, of Merrill Lynch's
opinion that, as of December 2, 1997, the Merger Consideration was fair from a
financial point of view to Interstate's stockholders. Thereafter, the
Interstate Board, by unanimous vote of the directors present (one director
being absent), approved the Merger Agreement and related documents.
Final versions of the Merger Agreement and other transaction documents were
completed during the evening of December 1 and early morning of December 2.
The documents were executed the morning of December 2 and the Merger was
publicly announced that day.
THE PATRIOT COMPANIES' REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS
OF DIRECTORS OF THE PATRIOT COMPANIES
The Patriot Board unanimously approved the Merger Agreement and the
transactions contemplated thereby at a meeting of the Patriot Board on
December 1, 1997. The Wyndham International Board unanimously approved the
Merger Agreement and the transactions contemplated thereby at a meeting of the
Wyndham International Board on December 1, 1997. EACH OF THE PATRIOT BOARD AND
THE WYNDHAM INTERNATIONAL BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF PATRIOT AND WYNDHAM INTERNATIONAL AND THEIR RESPECTIVE
STOCKHOLDERS. EACH OF THE PATRIOT BOARD AND THE WYNDHAM INTERNATIONAL BOARD
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF PATRIOT
AND WYNDHAM INTERNATIONAL, RESPECTIVELY, VOTE "FOR" THE MERGER PROPOSAL. In
reaching this determination, the Patriot Board consulted with Patriot
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management and the Wyndham International Board consulted with Wyndham
International management. Each of the Patriot Companies' Boards also consulted
with the financial advisors, legal counsel and accountants of the Patriot
Companies, and considered a number of factors. The material factors considered
by each of the Patriot Board and the Wyndham International Board in reaching
the foregoing conclusions are described below.
In making their determinations with respect to the Merger Agreement and the
transactions contemplated thereby, the Patriot Board and the Wyndham
International Board considered the following factors which they deemed to be
favorable with respect to the adoption of the Merger Agreement and the
transactions contemplated thereby:
(i) Expansion of Hotel Management Business and Ability to Take Full
Advantage of Experienced Management Teams. Interstate is the nation's
largest independent hotel management company. The Boards of the Patriot
Companies believe that the acquisition of Interstate's management business
will greatly expand the Patriot Companies' hotel management business and
allow the Patriot Companies to take full advantage of the hotel management
expertise of the Old Wyndham and Gencom management teams and the senior
executives of Interstate who will join the Patriot Companies. The Boards of
the Patriot Companies also believed that Interstate's hotel management
operations will provide the Patriot Companies with future hotel acquisition
opportunities in a market for hotel acquisitions which is becoming
increasingly competitive.
(ii) Opportunity to Further Utilize Advantages of Paired Share
Structure. The Boards of the Patriot Companies believe that the Merger will
allow the Patriot Companies to take further advantage of their unique
paired share ownership structure. Interstate will be merged into Patriot
while Interstate's non-real estate assets will be transferred to
subsidiaries of Patriot which will be controlled by Wyndham International.
Wyndham International will contract with these subsidiaries to provide
hotel management and other related services.
(iii) High-Quality Portfolio of Owned Hotels; Rebranding
Opportunities. In the Merger, Patriot will acquire Interstate's portfolio
of 40 owned hotels, aggregating 11,580 rooms. These hotels consist
principally of full-service hotels in major U.S. markets. The Patriot
Companies believe that opportunities exist to convert a significant number
of Interstate's 40 owned hotels to the Wyndham brand, including the ten
Marriott hotels the Patriot Companies expect to rebrand pursuant to the
Marriott Letter Agreement. Although this rebranding will require, in some
instances, the consent of certain third parties and the payment of
franchise termination penalties and certain other fees and payments, the
Patriot Companies believe rebranding will reduce franchise fees and
increase the cash flow potential of the rebranded properties and will
extend the Wyndham brand into several new markets, thereby increasing the
brand awareness, marketing power and value of the Wyndham brand.
(iv) Potential Effect on FFO and FFO Multiple. The Patriot Board and the
Wyndham International Board reviewed information relating to the financial
performance, business operations and prospects of the Patriot Companies and
Interstate and current industry, economic and market conditions. The
Patriot Board and the Wyndham International Board viewed as favorable the
analysis of the management of the Patriot Companies which indicated that
the Merger would be accretive to the Patriot Companies' FFO in 1998 and
future periods. The Patriot Board and the Wyndham International Board also
believe the Merger may have a favorable effect over time on the FFO
multiple at which Paired Shares are traded due to the quality of the assets
being acquired and the significant enhancement to the Patriot Companies'
hotel management business resulting from the Merger.
(v) Increased Financial Strength. The Patriot Board and the Wyndham
International Board believe that following the Merger the Patriot Companies
will enjoy increased market capitalization, increased liquidity and greater
financial strength.
(vi) Opinion of PaineWebber. The opinion, analyses and presentations of
PaineWebber, financial advisor to the Patriot Companies, described below
under "--Opinion of Financial Advisor to the Patriot Companies," including
PaineWebber's opinion to the effect that, as of the date of such opinion,
and subject
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to the considerations set forth in such opinion, the Merger Consideration
was fair from a financial point of view to the stockholders of Patriot and
Wyndham International. The Patriot Board and the Wyndham International
Board viewed PaineWebber's opinion as favorable to its determination
because PaineWebber is an internationally recognized investment banking
firm with experience in the valuation of businesses and their securities in
connection with mergers and acquisitions and in providing advisory services
and raising capital for companies in the real estate industry.
In making their determinations with respect to the Merger Agreement and the
transactions contemplated thereby, the Patriot Board and the Wyndham
International Board also considered the following factors which they
considered to be negative in their deliberations regarding the Merger
Agreement and the transactions contemplated thereby:
(i) Complex Transaction Structure. In order to make the Merger
substantially tax-free to holders of Interstate Common Stock who receive
Paired Shares in the Merger, the Merger has been structured in a relatively
complex manner (although the structure is similar to that used by the
Patriot Companies to effectuate the Wyndham Merger).
(ii) Transaction Costs; Management Time. There will be significant
transaction costs involved with consummating the Merger and substantial
management time and effort will be required to effectuate the Merger and
successfully integrate the businesses of Patriot, Wyndham International and
Interstate.
(iii) Dilution to Earnings. The dilution to net income per share and FFO
per share on a pro forma combined historical basis for the Patriot
Companies following the Merger.
(iv) Risks and Expense Associated with Rebranding. The conversion of a
significant number of Interstate's 40 owned hotels to the Wyndham brand
will require, in some instances, the consent of third parties and the
payment of franchise termination penalties and certain other fees and
payments and may subject the Patriot Companies to certain litigation risks.
Additionally, while management believes that the re-branding of certain
Interstate owned hotels is strategically advantageous to Patriot, re-
branding may result in reduction in occupancy, ADR and REVPAR at the
affected properties during the process of conversion and potentially
thereafter. Although the Patriot Board and the Wyndham International Board
believe that the Marriott Letter Agreement will facilitate the conversion
of a number of Interstate owned hotels to the Wyndham brand, the Marriott
Letter Agreement is non-binding and thus does not provide assurance that
such conversions will occur.
(vi) Pricing for a Corporate Acquisition. Interstate represents a
substantial corporate acquisition and, as such, pricing for the acquisition
was greater than for a more traditional acquisition of an individual hotel
or portfolio of hotels.
(vii) Certain Other Matters. The Patriot Board and the Wyndham
International Board also considered several other matters, including, among
other things: (a) the increase in the Patriot Companies' pro forma combined
indebtedness following the Merger and the corresponding increase in the
Patriot Companies' ratio of debt to total market capitalization; (b)
potential effects of substantial goodwill generated by the Merger on the
calculation of FFO; (c) the benefits to be received in connection with the
Merger by certain affiliates of Interstate; and (d) the risk that the
anticipated benefits of the Merger might not be fully realized.
In the opinion of the Patriot Board and the Wyndham International Board, the
factors listed immediately above represent the material potential risks and
adverse consequences to the existing stockholders of the Patriot Companies
which could occur as a result of the Merger. In considering the Merger, the
Patriot Board and the Wyndham International Board considered the impact of
these risks and consequences on the existing holders of Paired Shares. In the
opinion of the Patriot Board and the Wyndham International Board, however,
these potential risks and consequences were outweighed by the potential
positive factors considered by the Patriot Board and the Wyndham International
Board described above. Accordingly, the Patriot Board and the Wyndham
International Board voted unanimously to approve the Merger Agreement and the
transactions contemplated thereby.
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In view of the wide variety of factors considered by the Patriot Board and
the Wyndham International Board, the respective Boards did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in making their respective
determinations.
In the event the Merger is not consummated for any reason, Patriot will
continue to pursue its business objectives of (i) maximizing FFO and cash
available for distribution to holders of Patriot Common Stock; (ii) increasing
distributions per share of Patriot Common Stock; (iii) increasing the value of
its properties by continuing its growth through the active acquisition and
development of new hotels and other properties; and (iv) holding its
properties for long-term investment. In addition, Patriot may seek other
business combination opportunities and additional debt or equity financing.
In the event the Merger is not consummated for any reason, Wyndham
International will continue to pursue its business objectives principally of
leasing and managing hotels and other properties and of seeking opportunities
to acquire hotel operators, owners of hotel franchises or brands and
independent hotel management companies. In addition, Wyndham International may
seek other business combination opportunities and additional debt or equity
financing.
OPINION OF FINANCIAL ADVISOR TO THE PATRIOT COMPANIES
The Patriot Companies retained PaineWebber to act as their financial advisor
in connection with a possible business combination with Interstate. In such
capacity, PaineWebber participated in discussions and negotiations among the
Patriot Companies and Interstate and rendered financial advice to the Patriot
Companies, including rendering an opinion as to whether the Merger
Consideration was fair, from a financial point of view, to the holders of
Paired Shares.
The Patriot Board and the Wyndham International Board and the management of
the Patriot Companies were familiar with certain individuals at PaineWebber
because those individuals assisted Old Patriot with its Initial Offering and
its follow-on offering in 1996, arranged for Old Patriot's secured line of
credit and served as financial advisor to Old Patriot in connection with the
Cal Jockey Merger and to Patriot in connection with the Wyndham Merger. Based
upon these relationships, the Patriot Board and the Wyndham International
Board retained PaineWebber to act as their financial advisor. The Patriot
Board and the Wyndham International Board also based their decision to retain
PaineWebber upon PaineWebber's prominence as an investment banking and
financial advisory firm with experience in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, distributions of securities, private placements and valuations
for corporate purposes, especially with respect to REITs and other real estate
companies.
On November 25, 1997, PaineWebber delivered an oral opinion to the Patriot
Board and the Wyndham International Board to the effect that, as of the date
of such opinion, based on PaineWebber's review and subject to certain
assumptions and limitations described therein, the proposed consideration to
be paid to Interstate stockholders was fair, from a financial point of view,
to the holders of Paired Shares. PaineWebber subsequently confirmed its oral
opinion in a written opinion dated December 2, 1997 (the "PaineWebber
Opinion") to the Patriot Board and the Wyndham International Board to the
effect that, as of the date of such opinion, based on PaineWebber's review and
subject to the considerations and limitations described therein, the Merger
Consideration was fair, from a financial point of view, to the holders of
Paired Shares. The PaineWebber Opinion does not constitute a recommendation to
any holder of Paired Shares as to how any such holder should vote on the
Merger Proposal or any other proposal. Additionally, the PaineWebber Opinion
does not address the business decisions of the Patriot Board or the Wyndham
International Board to engage in the transactions contemplated by the Merger
Agreement or any transactions or business strategies discussed by the Boards
of the Patriot Companies as alternatives to the transactions contemplated by
the Merger Agreement.
A COPY OF THE PAINEWEBBER OPINION DATED DECEMBER 2, 1997, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE
OF THE REVIEW UNDERTAKEN BY PAINEWEBBER, IS ATTACHED HERETO AS
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ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE
PAINEWEBBER OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION. HOLDERS OF PAIRED SHARES ARE URGED TO READ
IN ITS ENTIRETY THE PAINEWEBBER OPINION. THE PAINEWEBBER OPINION IS ADDRESSED
TO THE BOARDS OF DIRECTORS OF THE PATRIOT COMPANIES AND ADDRESSES ONLY THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE MERGER CONSIDERATION AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF PAIRED SHARES AS TO HOW SUCH
HOLDER SHOULD VOTE AT THE PATRIOT SPECIAL MEETING OR THE WYNDHAM INTERNATIONAL
SPECIAL MEETING.
In connection with rendering its opinion, PaineWebber, among other things:
(i) reviewed Old Patriot's Annual Report, Forms 10-K and related financial
information for the fiscal years ended December 31, 1995 and December 31, 1996
and the Patriot Companies' Form l0-Q and the related unaudited financial
information for the quarterly period ended September 30, 1997; (ii) reviewed
the joint proxy statement and prospectus on Form S-4 dated May 30, 1997
regarding the merger of Old Patriot with and into Cal Jockey; (iii) reviewed
the joint proxy statement and prospectus on Form S-4 dated November 10, 1997
regarding the Wyndham Merger and the transactions contemplated thereby; (iv)
reviewed Old Wyndham's Registration Statements related to the concurrent
initial public offering of Old Wyndham Common Stock and Old Wyndham Senior
Subordinated Notes in May 1996, Form 10-K and the related financial
information for the fiscal year ended December 31, 1996 and Form l0-Q and the
related unaudited financial information for the quarterly period ended
September 30, 1997; (v) reviewed Interstate's Registration Statement dated
June 19, 1996 related to the initial public offering of Interstate Common
Stock, Form 10-K and the related financial information for the fiscal year
ended December 31, 1996, and Form l0-Q and the related unaudited financial
information for the quarterly period ended September 30, 1997; (vi) reviewed
certain information, including financial forecasts, relating to the business,
earnings, cash flow, assets and prospects of the Patriot Companies and
Interstate, furnished to PaineWebber by the Patriot Companies and Interstate,
respectively, with certain information and forecasts supplied by the Patriot
Companies having assumed completion of the Wyndham Merger and related
transactions, the Crow Assets Acquisition and certain other acquisitions;
(vii) conducted discussions with members of senior management of the Patriot
Companies and Interstate, concerning their respective businesses and
prospects; (viii) compared the results of operations of Interstate with those
of certain companies which PaineWebber deemed to be reasonably similar to
Interstate; (ix) compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the actual or proposed financial
terms of certain other mergers and acquisitions which PaineWebber deemed to be
relevant; (x) considered the pro forma effect of the Merger on the Patriot
Companies' funds from operations and certain other financial measures, taking
into account the Wyndham Merger and related transactions, the Crow Assets
Acquisition and certain other acquisitions; (xi) reviewed the financial terms
of the Merger Agreement; (xii) reviewed the historical market prices of Old
Patriot Common Stock, the Paired Shares and Interstate Common Stock and
compared them to each other and to certain indices PaineWebber deemed
relevant; and (xiii) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters
as PaineWebber deemed necessary.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was either publicly available or
supplied, communicated or otherwise made available to it by or on behalf of
the Patriot Companies, Old Wyndham and Interstate, and PaineWebber did not
assume any responsibility to independently verify such information or
undertake an independent appraisal of the assets of the Patriot Companies, Old
Wyndham or Interstate. With respect to the financial forecasts examined by it,
PaineWebber assumed that they were reasonably prepared on bases reflecting the
best currently available estimates and good faith judgments of the respective
managements of the Patriot Companies and Interstate as to the future
performance of the Patriot Companies and Interstate, respectively, and their
respective assets, including with respect to the Patriot Companies, assets to
be acquired in the Wyndham Merger, the Crow Assets Acquisition and certain
other acquisitions. At the Patriot Companies' direction, PaineWebber assumed
that the Wyndham Merger would be consummated in accordance with its terms
prior to the effectiveness of the Merger,
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that Patriot is not subject to Section 269B(a)(3) of the Code, that Patriot
will qualify to be treated as a "real estate investment trust" within the
meaning of the Code before and after giving effect to the Merger, that the
representations and warranties of each of the parties to the Merger Agreement
were true and correct as of the date of the Merger Agreement or as of such
other date or dates specified therein and will be true and correct at the
closing of the Merger to the extent required to be true and correct on such
date under the terms of the Merger Agreement, in each case subject to such
qualifications as may be specified therein, and that the Merger will be
treated as a tax-free reorganization for federal income tax purposes.
PaineWebber further assumed that the Merger will be consummated in accordance
with the terms described in the Merger Agreement. With the Patriot Companies'
consent, PaineWebber's analyses used in preparing the PaineWebber Opinion
assumed the conversion or exchange for Paired Shares of all equity securities
convertible or exchangeable for Paired Shares, including OP Units, but
excluding outstanding stock options. PaineWebber assumed, with the Patriot
Companies' consent, that all material assets and liabilities (contingent or
otherwise, known or unknown) of the Patriot Companies, Old Wyndham and
Interstate are as set forth in their respective consolidated financial
statements. The PaineWebber Opinion is based upon regulatory, economic,
monetary and market conditions existing on the date thereof. Furthermore,
PaineWebber expressed no opinion as to the price or trading range at which
Paired Shares will trade in the future.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances, and
therefore, such opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of the analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber Opinion. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither the Patriot Companies nor
PaineWebber assumes responsibility for the accuracy of such analyses or
estimates.
The following paragraphs summarize the significant quantitative and
qualitative analyses performed by PaineWebber in arriving at the PaineWebber
Opinion.
Discounted Cash Flow Valuation
PaineWebber analyzed Interstate based on a discounted cash flow analysis
utilizing projections of unleveraged free cash flow prepared by the management
of Interstate for the years 1998 through 2002, inclusive. PaineWebber utilized
the projections based on two scenarios, one assuming growth solely from assets
in place (the "No External Growth Scenario") and one assuming external growth
through the acquisition of additional properties (the "External Growth
Scenario"). PaineWebber determined a range of terminal enterprise values for
Interstate by applying a range of multiples of 9.0x to 11.0x to Interstate's
projected earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") for 2002. PaineWebber then derived a range of values
for Interstate Common Stock by (i) combining the present value of unleveraged
free cash flow and the present value of terminal enterprise value, in each
case assuming discount rates of 13.0% to 16.0%, (ii) subtracting net debt and
minority interests and (iii) dividing by the number of shares of Interstate
Common Stock outstanding. The discounted cash flow valuation utilizing the No
External Growth Scenario produced a range of values for Interstate Common
Stock of $28.55 to $44.55. The discounted cash flow valuation utilizing the
External Growth Scenario produced a range of values of Interstate Common Stock
of $28.61 to $47.68. PaineWebber noted that the equity value implied by the
Merger Consideration of $37.50 per share of Interstate Common Stock was within
the range of implied Interstate Common Stock values produced by the discounted
cash flow valuation.
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Selected Comparative Public Companies Analysis
Using publicly available information, PaineWebber compared projected
financial, operating and stock market performance data of Interstate to the
corresponding data of certain publicly traded companies that PaineWebber
considered comparative (the "Comparative Companies"). The Comparative
Companies consisted of Bristol Hotel Company, Doubletree Corporation, Capstar
Hotel Company, Marriott International, Inc., Promus Hotel Corporation and Host
Marriott Corporation.
PaineWebber derived ranges of values for Interstate Common Stock by applying
the projected earnings per share ("EPS") of Interstate for the year ending
December 31, 1998 to the corresponding range of EPS multiples for the
Comparative Companies. The EPS projections for Interstate were provided by
Interstate management, and included external growth assumptions. The EPS
estimates for the Comparative Companies were based on average research analyst
earnings estimates for such period as reported by First Call. In calculating
the EPS multiples for the selected period, the November 18, 1997 closing stock
trading prices of the Comparative Companies were used. PaineWebber observed
that the EPS multiples for the Comparative Companies for the year ending
December 31, 1998 ranged from 20.7x to 23.5x. Based on Interstate's projected
EPS and the range of EPS multiples for the Comparative Companies for the year
ending December 31, 1998, this method produced a range of values for
Interstate Common Stock of $35.24 to $39.99.
PaineWebber also derived ranges of values for Interstate Common Stock based
on Interstate's projected EBITDA for the year ending December 31, 1998 and a
range of EBITDA multiples for the Comparative Companies. The projected EBITDA
for Interstate was supplied by Interstate's management and included external
growth assumptions. The EBITDA estimates for the year ending December 31, 1998
for the Comparative Companies were based on the recent publicly available
analyst research reports as of November 18, 1997. In calculating the EBITDA
multiples for the selected period, the November 18, 1997 closing stock trading
prices of the Comparative Companies were used. PaineWebber observed that the
EBITDA multiples for the Comparative Companies ranged from 7.9x to 11.3x.
Based on Interstate's projected EBITDA for the year ending December 31, 1998
and the range of EBITDA multiples for the Comparative Companies, this method
produced a range of values for Interstate Common Stock of $25.26 to $46.71.
PaineWebber noted that the equity value implied by the Merger Consideration
of $37.50 per share of Interstate Common Stock was within the range of implied
Interstate Common Stock values produced by the selected comparative public
companies analysis.
Pro Forma Merger Analysis
PaineWebber performed an analysis of the effect of the Merger on the Patriot
Companies' pro forma FFO per Paired Share for 1998, 1999 and 2000, based on
projections and other information provided by the managements of the Patriot
Companies and Interstate and assuming a closing date for the Merger of April
1, 1998. PaineWebber combined the projected results of the Patriot Companies
(which assumed completion of the Wyndham Merger) with the projected results of
Interstate to arrive at projected pro forma FFO for the Patriot Companies
following the Merger (the "Combined Companies"). At the Patriot Companies'
direction, PaineWebber assumed (a) certain expense and synergy savings
resulting from the Merger, (b) termination of certain franchise agreements
between Interstate and Marriott International (relating to hotels owned by
Interstate) following the Merger, and the conversion of such hotels to the
Wyndham brand, resulting in certain assumed royalty fee savings and conversion
costs for the Combined Companies, (c) transfer of certain management
agreements (relating to hotels owned by Interstate) to Marriott International
following the Merger, resulting in certain additional management fees to be
paid by the Combined Companies and (d) the refinancing of Interstate's
outstanding indebtedness. At the Patriot Companies' direction, PaineWebber
assumed certain transaction costs associated with the Merger, including
employee termination costs and certain costs associated with the cash
settlement of outstanding Interstate stock options. At the Patriot Companies'
direction, PaineWebber assumed that the amortization of acquired intangibles
will be added back to net income for the purpose of calculating
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FFO and assumed that the Combined Companies would complete an equity offering
generating net proceeds of approximately $200 million following completion of
the Merger, with the proceeds utilized to reduce outstanding indebtedness.
With respect to the pro forma merger analysis, PaineWebber considered three
alternative scenarios with respect to Interstate's third-party hotel
management business, including a discount of 0%, 15% and 30% of management fee
revenues from this business for periods following the Merger.
PaineWebber divided the resulting pro forma FFO for the Combined Companies
by the weighted average number of Paired Shares expected to be outstanding
upon consummation of the Merger. PaineWebber then compared the resulting pro
forma FFO per Paired Share for each year to the projected stand-alone FFO per
Paired Share of the Patriot Companies, based on projections supplied by the
Patriot Companies. This analysis indicated that the pro forma impact of the
Merger was accretive to FFO per Paired Share in 1998, 1999 and 2000 in all
scenarios utilized. While PaineWebber noted that the Merger would also
increase the Combined Companies' ratio of debt-to-total market capitalization
(notwithstanding the impact of the assumed equity offering), PaineWebber did
not view this increase to be sufficiently significant so as to impact the
usefulness of the pro forma merger analysis.
Selected Transactions Analysis
PaineWebber reviewed the financial terms, to the extent publicly available,
of five announced or completed mergers involving lodging companies (the
"PaineWebber Selected Transactions"). The PaineWebber Selected Transactions
included (acquiror/target): (i) Starwood Lodging Trust/Westin Hotels Limited
Partnership; (ii) Starwood Lodging Trust/ITT Corporation; (iii) Marriott
International, Inc./Renaissance Hotel Group N.V.; (iv) FelCor Suite Hotels,
Inc./Crown Sterling Suites; and (v) Doubletree Corporation/Red Lion Hotels,
Inc. PaineWebber derived ranges of values for Interstate Common Stock based on
Interstate's pro forma EBITDA for the twelve months ended September 30, 1997,
as furnished by Interstate's management, and the range of implied EBITDA
multiples for each of the PaineWebber Selected Transactions, based upon latest
available trailing twelve months financial data at the time of the merger
announcement and closing stock prices for acquiring companies one week prior
to the merger announcement. PaineWebber noted that implied EBITDA multiples
for the PaineWebber Selected Transactions ranged from 11.2x to 15.8x. Applying
these multiples to Interstate's pro forma EBITDA, PaineWebber calculated a
range of values for Interstate Common Stock of $30.50 to $52.81. PaineWebber
noted that the equity value implied by the Merger Consideration of $37.50 per
share of Interstate Common Stock was within the range of implied values
produced by the selected transactions analysis.
Contribution Analysis
PaineWebber reviewed the financial contribution of the Patriot Companies and
Interstate to the Combined Companies on a projected pro forma basis for 1998
and 1999, assuming prior completion of the Wyndham Merger. PaineWebber noted
that, on a pro forma basis, the Patriot Companies will constitute
approximately 71.4% of the enterprise value of the Combined Companies upon
completion of the Merger. Using projected results supplied by management of
the Patriot Companies and Interstate for the years ending December 31, 1998
and December 31, 1999, and without attributing potential expense and synergy
savings from the Merger or assuming external growth or any potential brand
conversions or transfers of management for Interstate-owned hotels,
PaineWebber calculated that the Patriot Companies would contribute
approximately 68.1% of pro forma EBITDA for the Combined Companies in 1998 (on
a full year basis) and approximately 67.7% of pro forma EBITDA for the
Combined Companies in 1999. In each case, PaineWebber noted that the Patriot
Companies will constitute a greater percentage of the enterprise value of the
Combined Companies than would be implied by the pro forma contribution of
EBITDA of the Patriot Companies to the Combined Companies.
Pursuant to an engagement letter dated November 13, 1997, PaineWebber will
receive a fee of $750,000 for delivery of the PaineWebber Opinion
("PaineWebber Opinion Fee") from the Patriot Companies. In addition,
PaineWebber will receive a financial advisory fee of $8.55 million upon
consummation of the Merger
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from the Patriot Companies, against which the PaineWebber Opinion Fee will be
credited. PaineWebber will also be reimbursed by the Patriot Companies for its
reasonable out-of-pocket expenses, up to a maximum of $25,000 unless
previously approved by the Patriot Companies. The Patriot Companies have
agreed to indemnify PaineWebber, its affiliates and their respective
directors, officers, employees, agents and controlling persons against certain
liabilities, including liabilities under federal securities laws.
PaineWebber has provided financial advisory and investment banking services
(including acting as an underwriter) to Old Patriot and the Patriot Companies,
has acted as a lender to Old Patriot, and has acted and continues to act as a
lender to the Patriot Companies and certain of its affiliates or related
entities. PaineWebber may provide financial advisory and investment banking
services to, may act as an underwriter or placement agent for, and may act as
a lender to, the Patriot Companies in the future. In the ordinary course of
its business, PaineWebber trades the equity and debt securities of the Patriot
Companies and Interstate for its own account and the account of its customers
and, accordingly, may at any time hold long or short positions in such
securities. In addition to its regular trading activities, PaineWebber
currently owns approximately 167,000 Paired Shares which it purchased from the
Patriot Companies on November 13, 1997. An affiliate of PaineWebber recently
acquired certain land in San Mateo, California from Patriot and is currently
leasing such land back to a subsidiary of Patriot.
INTERSTATE'S REASONS FOR THE MERGER; RECOMMENDATION OF THE INTERSTATE BOARD
On December 1, 1997, the Interstate Board determined by vote of all
directors present (one director being absent) that the Merger is in the best
interests of Interstate and Interstate stockholders and resolved to recommend
that Interstate stockholders vote for adoption of the Merger Agreement. The
decision of the Interstate Board to approve the Merger Agreement and recommend
the adoption thereof by Interstate stockholders was based upon various
factors, including, in addition to the factors relevant to Interstate referred
to in "--Background of the Merger," the following:
(i) Interstate's prospects for future growth as an independent company.
In this regard, it was the consensus of the Interstate Board that, while
Interstate had, since the Interstate IPO, completed the acquisition of 26
full-service hotels and the acquisition of the leasing and management
businesses affiliated with Equity Inns, Inc., a publicly traded limited
service hotel REIT, by which Interstate obtained management rights to 56
limited-service hotels, Interstate's growth prospects would be
substantially enhanced by either a business combination transaction such as
the Merger, in which Interstate would become part of a larger, more diverse
lodging industry entity or an entity with a more efficient capital
structure, or the Clipped Share Alternative or another recapitalization
transaction by which Interstate could adopt a capital structure which would
have assigned to it a higher trading multiple in the public securities
markets.
(ii) The belief of Interstate's senior management that Interstate's C
corporation structure was disadvantageous compared to a paired share
capital structure and that Interstate's assets, if held in a paired share
structure, could achieve a higher valuation in the public securities
markets than they would in Interstate's existing structure; and, further,
the belief of Interstate's senior management that lodging industry
companies were trading in the public securities markets at favorable levels
relative to historical prices.
(iii) The belief of Interstate's senior management that the Merger was
preferable to Interstate's principal strategic alternatives, which were
continuing as an independent entity, the Clipped Share Alternative and the
possibility of continuing to pursue merger discussions with entities other
than the Patriot Companies. In this regard, the Merger was believed by
Interstate's senior management to be superior to the Clipped Share
Alternative proposed by the merchant banking firm because, among other
things, the price indicated by such firm was lower than the price indicated
by Patriot and such firm did not propose to make its purchase offer
available to all Interstate stockholders. In addition, Interstate's senior
management believed, in light of the process undertaken by Interstate's
management with the assistance of Merrill Lynch as described in "--
Background of the Merger," that continued pursuit of a third-party
alternative to the Merger might result in the termination of discussions
with the Patriot Companies.
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(iv) The business, results of operations, financial position, prospects
and personnel of Interstate and the Patriot Companies and the potential
strategic fit among these companies, including the expectation that the
Patriot Companies would reflag certain hotels operated by Interstate under
Marriott and other flags to the Wyndham brand and transfer to Marriott
International management rights in respect of certain hotels then under
Interstate management, as well as the possibility that the paired share
structure utilized by the Patriot Companies would be subject to adverse
legislative or administrative actions (see "Risk Factors--REIT Tax Risks--
Dependence on Qualification as a REIT").
(v) The Exchange Ratio and related terms of the Merger Agreement,
including the possibility that, as a result of changes in the trading price
of Paired Shares, the aggregate market value of shares of Interstate Common
Stock converted into Paired Shares as of the Effective Time would be lower
than the $37.50 cash price per Interstate Outstanding Share provided for in
the Merger Agreement (see "The Merger and Subscription--Terms of the Merger
and Subscription"), the historical trading prices for Interstate Common
Stock and Paired Shares since the respective initial public offerings of
Interstate and Old Patriot (see "Summary--Comparative Market Data") and the
course of the negotiations with the Patriot Companies relating to the terms
of the Merger (see "--Background of the Merger").
(vi) The other terms of the Merger Agreement, including the terms
relating to the relationship between the Fine Entities and the Patriot
Companies following the Merger, the composition of the Patriot Board and
the Wyndham International Board and the terms of the Shareholders Agreement
and the other matters described in "--Interests of Certain Officers,
Directors and Stockholders of Interstate," including the interests of
Interstate Board members in such matters.
(vii) The no-shop and related terms of the Merger Agreement (see "The
Merger Agreement--Certain Covenants--Acquisition Proposals and Related
Matters"), as well as the terms of the Merger Agreement which, subject to
certain restrictions, would permit Interstate to terminate the Merger
Agreement upon payment of a $50 million termination fee if a superior
proposal were made to Interstate prior to the vote by Interstate
stockholders on the Merger (see "The Merger Agreement--Termination" and "--
Fees and Expenses--Break-up Fees--Interstate").
(viii) The expectations that the Merger would be accomplished on a tax-
free basis to Interstate and the expected treatment for federal income tax
purposes of the conversion in the Merger of Interstate Outstanding Shares
into Paired Shares (see "Certain Federal Income Tax Considerations--Tax
Consequences of the Merger").
(ix) The opinion of Merrill Lynch described below that, as of December 2,
1997, the Merger Consideration was fair from a financial point of view to
Interstate stockholders (see "--Opinion of Financial Advisor to
Interstate").
(x) The willingness of the Fine Entities to pursue the Merger and their
agreement to cause a number of shares of Interstate Common Stock owned by
them, equal to 19.9% of the Interstate Outstanding Shares, to be voted in
favor of adoption of the Merger Agreement (see "Certain Related
Agreements--Shareholders Agreement").
The foregoing discussion of the factors considered and given weight by the
Interstate Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Merger, the
Interstate Board did not find it practicable to and did not attempt to rank or
assign relative weights to the foregoing factors. In addition, individual
members of the Interstate Board may have given different weights to different
factors. However, Interstate believes that, in general, the foregoing are the
material factors considered by the Interstate Board in its analysis of the
Merger.
OPINION OF FINANCIAL ADVISOR TO INTERSTATE
On October 23, 1997, Interstate retained Merrill Lynch and Blackstone, an
entity affiliated with the Blackstone Group, to act as financial advisors in
connection with the evaluation of various strategic alternatives available to
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Interstate. On December 1, 1997, Merrill Lynch delivered its opinion to the
Interstate Board, which opinion was subsequently confirmed in a written
opinion, dated December 2, 1997 (the "Merrill Lynch Opinion"), to the effect
that, as of such dates and based upon the assumptions made, matters considered
and limits of review, as set forth in such opinion, the proposed Merger
Consideration was fair to the holders of Interstate Common Stock from a
financial point of view.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED HERETO AS ANNEX C AND IS
INCORPORATED BY REFERENCE HEREIN. THE DESCRIPTION OF THE WRITTEN OPINION SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
WRITTEN OPINION. STOCKHOLDERS OF INTERSTATE ARE URGED TO READ SUCH OPINION IN
ITS ENTIRETY. THE MERRILL LYNCH OPINION IS ADDRESSED TO THE INTERSTATE BOARD
AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE PROPOSED
MERGER CONSIDERATION TO BE PAID BY PATRIOT AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY INTERSTATE STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE OR OTHERWISE ACT IN RESPECT OF THE MERGER. THE MERGER CONSIDERATION WAS
DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN INTERSTATE AND PATRIOT AND WAS
APPROVED BY THE INTERSTATE BOARD.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch, among other things: (i) reviewed Interstate's initial public offering
Prospectus, dated June 19, 1996, Interstate's follow-on offering Prospectus,
dated December 10, 1996, Interstate's Annual Report to Stockholders and
Interstate's Annual Report on Form 10-K and related financial information for
the fiscal year ended December 31, 1996 and Interstate's Quarterly Reports on
Form 10-Q and the related unaudited financial information for the quarterly
periods ended March 31, 1997, June 30, 1997 and September 30, 1997; (ii)
reviewed Old Patriot's initial public offering Prospectus, dated September 27,
1995, Old Patriot's Annual Report to Stockholders and Old Patriot's Annual
Report on Form 10-K and related financial information for the fiscal year ended
December 31, 1996 and Patriot's Quarterly Reports on Form 10-Q and the related
unaudited financial information for the quarterly periods ended March 31, 1997,
June 30, 1997 and September 30, 1997 and Patriot's Current Reports on Form 8-K,
dated July 22, 1997 and September 30, 1997; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of Interstate and the Patriot Companies,
including the Wyndham Merger; (iv) conducted discussions with members of senior
management of Interstate and the Patriot Companies concerning their respective
businesses and prospects before and after giving effect to the Merger and the
Wyndham Merger; (v) reviewed the historical market prices, valuation multiples
and trading activity for Interstate Common Stock and Paired Shares and compared
them with those of certain publicly traded companies which Merrill Lynch deemed
to be reasonably similar to Interstate and the Patriot Companies, respectively;
(vi) performed a discounted cash flow analysis based upon information provided
by both Interstate and the Patriot Companies; (vii) performed a pre-tax asset
sale analysis based upon information provided by Interstate; (viii) reviewed
the results of operations of Interstate and the Patriot Companies and compared
them with those of certain publicly traded companies which Merrill Lynch deemed
to be relevant; (ix) compared the proposed financial terms of the Merger with
the financial terms of certain other transactions which Merrill Lynch deemed to
be relevant; (x) reviewed the potential pro forma impact of the Merger and the
Wyndham Merger on the combined entity's pro forma operating results and
financial condition, as well as its pro forma combined capitalization and FFO;
(xi) participated in certain discussions and negotiations among representatives
of Interstate and the Patriot Companies and their financial and legal advisors;
(xii) reviewed a draft of the Merger Agreement, dated December 1, 1997,
substantially in the form entered into; and (xiii) reviewed such other
financial studies and analyses took into account such other matters as Merrill
Lynch deemed necessary, including Merrill Lynch's assessment of general
economic, market and monetary conditions.
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<PAGE>
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on,
with Interstate's consent, the accuracy and completeness in all material
respects of all information supplied or otherwise made available to Merrill
Lynch or discussed with or reviewed by or for Merrill Lynch by Interstate and
the Patriot Companies, or otherwise publicly available, and did not
independently verify such information or undertake an independent evaluation
or appraisal of any of the assets or liabilities of Interstate or the Patriot
Companies. In addition, Merrill Lynch did not assume any obligation to
conduct, nor has it conducted, any physical inspection of the properties or
facilities of Interstate or the Patriot Companies. With respect to the
financial forecast information furnished to or discussed with Merrill Lynch by
Interstate and the Patriot Companies, Merrill Lynch assumed that they have
been reasonably prepared and reflected the best currently available estimates
and judgment of Interstate's or the Patriot Companies's management as to the
expected future financial performance of Interstate or the Patriot Companies,
as the case may be. Merrill Lynch further assumed, at Interstate's direction,
that the Merger will qualify as a tax-free reorganization for U.S. federal
income tax purposes. Merrill Lynch also assumed that the Merger Agreement
would be in the form of the last draft reviewed by Merrill Lynch.
The matters considered by Merrill Lynch in arriving at the Merrill Lynch
Opinion are necessarily based on numerous macroeconomic, market, operating,
financial and other conditions and assumptions with respect to industry
performance, general business and economic conditions and other matters as
they existed and could be evaluated on, and on the information made available
to Merrill Lynch, as of the date of such opinion. Many of such factors are
beyond the control of Interstate and the Patriot Companies, and involve the
application of complex methodologies and educated judgment. Any estimates
contained in Merrill Lynch's analyses are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than as set forth therein. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future and such estimates are inherently subject
to uncertainty. The Merrill Lynch Opinion does not present a discussion of the
relative merits of the Merger as compared with any other business plan or
opportunity that might be presented to Interstate, including alternative
business combinations with third parties, or the effect of any other
arrangement in which Interstate might engage. Merrill Lynch assumed that in
the course of obtaining the necessary regulatory or other consents and
approvals (contractual or otherwise) for the Merger, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits
of the Merger.
At the meeting of the Interstate Board held on December 1, 1997, Merrill
Lynch presented certain financial analyses accompanied by written materials in
connection with the delivery of its fairness opinion. The following is a
summary of the material financial and comparative analyses performed by
Merrill Lynch in arriving at the Merrill Lynch opinion.
Historical Trading Performance and Current Capitalization Analysis. Merrill
Lynch reviewed certain trading information for each of Interstate and Patriot
and, on the basis thereof, calculated their respective trading multiples based
on closing stock prices of $30.38 for Interstate as of November 11, 1997, and
$31.25 for the Paired Shares as of November 28, 1997. Merrill Lynch then
calculated Interstate's Enterprise Value (defined as the product of the number
of shares outstanding and market price, plus total financial debt, plus
minority interest less cash and marketable securities as of the latest
available twelve months plus preferred equity at liquidation value) as
multiples of estimated and projected EBITDA (earnings before interest, taxes,
depreciation and amortization) (based on recent research reports) and share
price as multiples of estimated and projected EPS (earnings per share) (based
on First Call consensus estimates). For Interstate, Enterprise Value as
multiples of 1997 estimated EBITDA and 1998 projected EBITDA were 10.5x and
8.6x, respectively, and share price as multiples of 1997 estimated EPS and
1998 projected EPS were 24.9x and 20.9x, respectively. Merrill Lynch then
calculated Patriot's share price as multiples of estimated and projected FFO
per share (funds from operations) (based on First Call consensus estimates)
and AFFO per share (adjusted funds from operations which is FFO less recurring
capital expenditures) (based on estimates from Merrill Lynch Research). For
Patriot, share price as multiples of 1997 estimated FFO per share and 1998
projected FFO per share were 17.3x and 12.3x, respectively, and share price as
multiples of 1997 estimated AFFO per share and 1998 projected AFFO per share
were 21.9x and 15.1x, respectively.
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Merrill Lynch also reviewed the stock price and trading volume history for
Interstate and Patriot for the period November 12, 1996 through November 11,
1997 and compared such information to performance of the Standard & Poor's 500
Index.
Selected Comparable Publicly Traded Company Analysis. Using publicly
available information and estimates of future financial results published by
First Call and taken from recent research reports, Merrill Lynch compared
certain financial and operating information and ratios and projected financial
performance for both Interstate (based on estimates provided by Interstate)
and the Patriot Companies (based on estimates provided by the Patriot
Companies) with the corresponding financial and operating information and
projected financial performance for a group of publicly traded companies, with
respect to Interstate, engaged primarily in the lodging industry, and with
respect to the Patriot Companies, REITs having a paired share or paper-clip
structure, which Merrill Lynch deemed to be reasonably comparable to
Interstate and Patriot, respectively, for the purpose of its analysis. The
publicly traded lodging companies chosen by Merrill Lynch as reasonably
similar to Interstate included: John Q. Hammons Hotels, Inc., Host Marriott
Corporation, Marriott International, Inc., Capstar Hotel Company, Promus Hotel
Corporation, Bristol Hotel Company, Servico, Inc., Prime Hospitality
Corporation, La Quinta Inns, Inc. and Red Roof Inns, Inc. (collectively, the
"Interstate Comparable Companies"). The publicly traded paired share/paper-
clip REITs chosen by Merrill Lynch as reasonably comparable to the Patriot
Companies included: Crescent Real Estate Equities, Meditrust, First Union
Realty and Starwood Lodging Corporation (the "The Patriot Companies Comparable
Companies," and together with the Interstate Comparable Companies, the
"Comparable Companies").
Merrill Lynch's comparisons resulted in the following relevant ranges for
the Interstate Comparable Companies (excluding Interstate) as of November 28,
1997 and for Interstate as of November 11, 1997: a range of five-year
compounded annual growth rates of 13.0% to 25.0%, with a mean of 21.6% and
median of 23.5% (with Interstate at 24.0%); a range of Enterprise Value as a
multiple of estimated 1997 EBITDA of 7.1x to 15.1x, with a mean of 10.3x and
median of 10.1x; a range of Enterprise Value as a multiple of projected 1998
EBITDA of 5.7x to 11.1x, with a mean of 8.1x and median of 7.9x; a range of
share price as a multiple of estimated 1997 EPS of 12.9x to 29.5x, with a mean
of 23.4x and median of 24.5x; and a range of share price as a multiple of
projected 1998 EPS of 11.3x to 24.1x, with a mean of 19.0x and median of
19.9x. Certain EPS multiples, which Merrill Lynch did not deem meaningful
because they reflected valuations that were determined to be inapplicable,
were excluded from the Interstate Comparable Companies analysis due to, in one
instance, a one-time extraordinary event, and in the other instance, the
presence of significantly higher depreciation and certain other non-cash
charges in such company's financials as compared to Interstate and the other
Interstate Comparable Companies. Merrill Lynch also observed that the implied
value per share (assuming 36.969 million fully diluted shares outstanding and
$786.2 million of Net Debt (defined as total financial debt plus minority
interest less cash, marketable securities and option proceeds estimated at
December 31, 1997)) for Interstate Common Stock ranged from $20.72 to $39.91
based on Enterprise Value as multiples of 1997 estimated EBITDA and 1998
projected EBITDA, and share price as multiples of 1997 estimated EPS and 1998
projected EPS.
Merrill Lynch's comparisons resulted in the following relevant ranges for
the Patriot Comparable Companies (excluding the Patriot Companies) and for the
Patriot Companies, each as of November 28, 1997: a range of five-year
compounded annual growth rates of 12.7% to 18.0%, with a mean of 11.4% and
median of 13.9% (with the Patriot Companies at 17.0%); a range of share price
as a multiple of estimated 1997 FFO per share of 15.1x to 20.6x, with a mean
of 17.8x and median of 17.8x; a range of share price as a multiple of
projected 1998 FFO per share of 11.0x to 15.5x, with a mean of 13.9x and
median of 14.5x; a range of share price as a multiple of estimated 1997 AFFO
per share of 25.5x to 25.7x, with a mean of 25.6x and median of 25.6x; and a
range of share price as a multiple of projected 1998 AFFO per share of 13.8x
to 18.7x, with a mean of 16.3x and median of 16.3x. Merrill Lynch observed
that the implied value per share for Paired Shares, on a standalone basis,
ranged from $32.15 to $36.90 based on share price as multiples of 1997
estimated FFO per share and AFFO per share and 1998 projected FFO per share
and AFFO per share. Merrill Lynch also observed that the implied value per
share for Paired Shares, on a combined basis with Interstate, ranged from
$32.15 to $40.24 based on share price as multiples of 1997 estimated FFO per
share and AFFO per share and 1998 projected FFO per share and AFFO per share.
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<PAGE>
None of the companies utilized in the above analysis for comparative purposes
is, of course, identical to Interstate or the Patriot Companies. Accordingly, a
complete analysis of the results of the foregoing calculations cannot be
limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the Comparable Companies and other
factors that could affect the public trading value of the Comparable Companies
as well as that of Interstate or the Patriot Companies. In addition, Enterprise
Value as multiples of 1997 estimated EBITDA and 1998 projected EBITDA, share
price as multiples of estimated 1997 EPS and projected 1998 EPS, share price as
multiples of estimated 1997 FFO per share and projected 1998 FFO per share and
share price as multiples of estimated 1997 AFFO per share and projected 1998
AFFO per share for the Comparable Companies are based on projections prepared
by research analysts using only publicly available information. Accordingly,
such estimates may or may not prove to be accurate.
Selected Comparable Transaction Analysis. Merrill Lynch reviewed certain
publicly available information regarding certain selected mergers and business
combinations in the lodging sector (collectively, the "Comparable
Transactions"). The Comparable Transactions, in reverse chronological order of
public announcement, include, among others, the following: the acquisition of
CHCI by Patriot; the acquisition of Westin Hotels & Resorts by Starwood Lodging
Trust; the acquisition of Kahler Realty by Sunstone Hotel Investors, Inc.; the
acquisition of Wyndham Hotels by Patriot; the acquisition of HEI Hotels by
Starwood Lodging Trust; the acquisition of Holiday Inns, Inc. by Bristol Hotel
Company; and the acquisition of Red Lion Hotels, Inc. by Doubletree Hotel
Company. This analysis was only applied in relation to Interstate.
Merrill Lynch then compared certain financial ratios for the Comparable
Transactions to those of the Merger. Merrill Lynch compared the prices paid in
the Comparable Transactions in terms of, among other things, the Transaction
Value (defined as offer value (defined as offer price per share multiplied by
the number of shares and in-the-money options outstanding) plus preferred
equity at liquidation value and Net Debt) as multiples of last twelve months
("LTM") EBITDA, Forward Year EBITDA (based on annual estimates from pre-
transaction research reports), LTM EBIT (earnings before interest and taxes)
and LTM Sales. An analysis of the multiples for the Comparable Transactions
produced the following results: (i) Transaction Value as a multiple of LTM
EBITDA yielded a range of 7.4x to 17.4x, with a mean of 11.6 and median of
11.0x; (ii) Transaction Value as a multiple of Forward Year EBITDA yielded a
range of 6.5x to 12.6x, with a mean of 9.7 and median of 9.6x; (iii)
Transaction Value as a multiple of LTM EBIT yielded a range of 12.3x to 23.2x,
with a mean of 16.3 and median of 14.9x; and (iv) Transaction Value as a
multiple of LTM Sales yielded a range of 1.2x to 4.4x, with a mean of 2.6 and
median of 2.2x. Merrill Lynch observed that the implied values per share for
Interstate Common Stock (assuming 36.969 million fully diluted shares
outstanding and $786.2 million of Net Debt) ranged from $3.76 to $43.44 based
on Transaction Value as multiples of each of LTM EBITDA, Forward Year EBITDA,
LTM EBIT and LTM Sales.
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash flow
analyses (i.e., an analysis of the present value of the projected unlevered
free cash flows (earnings before interest and income taxes ("EBIT"), tax
effected, plus depreciation and amortization plus deferred taxes minus capital
expenditures minus (plus) increases (decreases) in working capital) for the
periods and using the discount rates indicated) of Interstate based upon
forecasts prepared by Interstate's management. Utilizing these forecasts,
Merrill Lynch calculated a range of equity per share values for Interstate's
existing business based upon the sum of the discounted net present value of
Interstate's five-year stream of projected unlevered free cash flows as of
December 31, 1997 plus the discounted net present value of the terminal value
based on a range of multiples of its projected calendar year 2003 EBITDA less
Net Debt from Interstate's existing business. In performing this analysis,
Merrill Lynch utilized discount rates reflecting a weighted average cost of
capital ranging from 11.0% to 12.0% and terminal value multiples of calendar
year 2003 EBITDA ranging from 7.0x to 8.0x. Based on this analysis, Merrill
Lynch calculated a range of equity per share values from Interstate's existing
business of Interstate Common Stock of $27.26 to $34.74.
Merrill Lynch also calculated, based upon forecasts prepared by Interstate's
management, a range of equity per share values for Interstate's acquisition
business based upon the sum of the discounted net present value of
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Interstate's five-year stream of projected unlevered free cash flows as of
December 31, 1997 plus the discounted net present value of the terminal value
based on a range of multiples of its projected calendar year 2003 EBITDA less
Net Debt for Interstate's acquisition business. In performing this analysis,
Merrill Lynch utilized discount rates reflecting a weighted average cost of
capital ranging from 14.0% to 15.0% and terminal value multiples of calendar
year 2003 EBITDA ranging from 8.0x to 9.0x. Based on this analysis, Merrill
Lynch calculated a range of equity values per share of Interstate Common Stock
from Interstate's acquisition business of $2.30 to $4.01, and when combined
with Interstate's existing business equity valuation, a total equity value
range for Interstate Common Stock of $29.55 to $38.75 per share.
Further, Merrill Lynch performed discounted cash flow analyses of the Patriot
Companies on both a standalone basis and on a combined basis with Interstate,
based upon forecasts prepared by the Patriot Companies' and Interstate's
management. Utilizing these forecasts, Merrill Lynch calculated a range of
equity values per share based upon the sum of the discounted net present value
of Patriot's five-year stream of projected AFFO per share as of December 31,
1997 plus the present value of the terminal value based on a range of multiples
of its projected calendar year 2002 FFO per share. In performing this analysis,
Merrill Lynch utilized discount rates reflecting a cost of equity ranging from
20.0% to 21.0% and terminal value multiples of calendar year 2002 FFO ranging
from 22.0x to 26.0x. Based on this analysis, Merrill Lynch calculated a range
of equity per share values of Patriot Common Shares, on a standalone basis, of
$32.52 to $38.55, and on a combined basis with Interstate of $41.85 to $49.81.
Pre-Tax Asset Sale Valuation Analysis. Merrill Lynch performed a pre-tax
asset sale analysis for Interstate based on a pre-tax owned real estate sale
valuation and a pre-tax asset sale valuation of Interstate's management
company. The real estate valuation utilized projections prepared by
Interstate's management for 1998. The range of values utilized a capitalization
rate method on 1998 projected net cash flows and a range of capitalization
rates of 9.0% to 10.0%. These calculations indicated a per share equity
valuation range for Interstate's owned real estate assets of approximately
$15.55 to $19.44. The management company valuation utilized projections
prepared by Interstate's management for 1998. The range of values utilized an
EBITDA multiple method based on 1998 projected management company EBITDA using
a range of multiples of 7.0x to 10.0x. These calculations indicated a per share
equity valuation range for Interstate's management company of approximately
$9.48 to $13.55, and when combined with the owned real estate valuation, a
total equity value range for Interstate Common Stock of $25.03 to $32.99 per
share.
Pro Forma Combination Analysis. Merrill Lynch analyzed the pro forma effects
resulting from the Merger, including the potential impact on the Patriot
Companies' projected stand alone FFO per share and the anticipated accretion
(i.e., the incremental increase) to the Patriot Companies' FFO per share
resulting from the Merger. Merrill Lynch observed that, after giving effect to
the Merger, the Merger would be accretive to the Patriot Companies' projected
FFO per share in each of the years 1998 through 2002, inclusive.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion or of its
presentation to the Interstate Board. The preparation of financial analyses and
fairness opinions is a complex process and is not necessarily susceptible to
partial analysis or summary description. Merrill Lynch believes that its
analyses (and the summary set forth above) must be considered as a whole, and
that selecting portions of such analyses and of the factors considered by it,
without considering all such analyses and factors, could create an incomplete
and misleading view of the processes underlying the analyses conducted by
Merrill Lynch and set forth in its opinion. Merrill Lynch has not made any
attempt to assign specific weights to particular analyses in preparing its
opinion. In performing its analyses, Merrill Lynch made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the Patriot Companies',
Interstate's and Merrill Lynch's control. Any estimates contained in Merrill
Lynch's analyses are not necessarily indicative of actual past or future
results or values, which may be significantly more or less favorable than such
estimates. Estimated values of companies do not purport to be appraisals and do
not necessarily reflect the prices at which businesses or companies may be sold
in the future. Because such estimates are inherently subject to uncertainty,
none of
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Merrill Lynch, Interstate, the Patriot Companies or any other person assumes
responsibility in the event that actual results of operations are different
from the results assumed in such estimates. Merrill Lynch did not express any
opinion as to the prices at which Paired Shares will trade following the
announcement or consummation of the Merger, which, Merrill Lynch noted, might
vary depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the prices of securities. The opinion of Merrill Lynch did
not address the relative merits of the Merger and alternative business
combinations with third parties.
The Interstate Board selected Merrill Lynch to render a fairness opinion
because Merrill Lynch is an internationally recognized investment banking firm
with substantial experience in transactions similar to the Merger and because
it is familiar with Interstate and its business. Merrill Lynch has from time to
time rendered investment banking, financial advisory and other services to
Interstate and the Patriot Companies for which it has received customary
compensation. Merrill Lynch is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, secondary distributions of listed
and unlisted securities and private placements.
Pursuant to a letter agreement dated October 23, 1997, Interstate has agreed
to pay Merrill Lynch a transaction fee equal to 0.50% of the aggregate purchase
price paid by the Patriot Companies upon consummation of the Merger. Merrill
Lynch is obligated pursuant to such letter agreement to pay 25% of such fee to
Blackstone, which firm has acted as co-advisor to Interstate with respect to
the Merger. The fees paid or payable to Merrill Lynch are not contingent upon
the contents of the opinion delivered. In addition, Interstate has agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses, subject to
certain limitations, and to indemnify Merrill Lynch and certain related persons
against certain liabilities arising out of or in conjunction with its rendering
of services under its engagement, including certain liabilities under the
federal securities laws.
In the ordinary course of its business, Merrill Lynch may actively trade in
the securities of Interstate and Patriot for its own account and the accounts
of its customers and, accordingly, may at any time hold a long or short
position in such securities.
INTERESTS OF CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS OF INTERSTATE
In considering the recommendation of the Interstate Board to adopt the Merger
Agreement, Interstate stockholders should be aware that certain officers,
directors and stockholders of Interstate have interests in or as a result of
the Merger that are different from, or in addition to, the interests of
Interstate stockholders generally. Those interests are described below.
Severance Arrangements. Each executive officer of Interstate is a party to a
change-in-control agreement that provides that if the executive's employment is
terminated following a change-in-control, such executive will be entitled to a
severance payment equal to three times the highest salary and bonus that the
executive received during any of the three years preceding the year in which
the change-in-control occurred, reduced dollar-for- dollar for salary and bonus
payments made by the surviving company during any period of continued
employment following the change-in-control and increased to compensate the
executive for any excise tax payable by the surviving company pursuant to
Section 280G of the Code. The Merger will constitute a "change-in-control"
under these agreements. Patriot agreed in the Merger Agreement to make the
payments required under the change-in-control agreements to Messrs. Parrington
and Richardson at the Effective Time notwithstanding their expected continued
employment with Wyndham International following the Merger. The following table
sets forth the names and positions of each executive officer of Interstate and
the estimated amount each such executive would receive under his change-in-
control agreement before giving effect to any Section 280G gross-up payments
and assuming that none of the executives (other than Messrs. Parrington and
Richardson) continues his employment following the Merger with the Patriot
Companies as successor to Interstate.
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<TABLE>
<CAPTION>
ESTIMATED PRE-TAX
NAME AND POSITION AMOUNT RECEIVABLE*
----------------- ------------------
<S> <C>
Milton Fine........................................................ $1,449,401
Chairman of the Board
W. Thomas Parrington, Jr. ......................................... 2,192,285
President and Chief Executive Officer
J. William Richardson.............................................. 1,528,251
Executive Vice President and Chief Financial Officer
Robert L. Froman................................................... 1,321,351
Executive Vice President, Development
Thomas D. Reese.................................................... 1,285,963
Executive Vice President, Operations
Marvin I. Droz..................................................... 1,280,732
Senior Vice President and General Counsel
</TABLE>
- --------
* The indicated amounts were paid in 1997 to Messrs. Fine, Parrington,
Richardson and Droz (together with Mr. Froman, the "Named Executives") for
Interstate's tax-planning purposes. Those Named Executives have agreed to
repay the net after-tax amounts of such payments to Interstate if the Merger
does not occur and such amounts are not otherwise payable to them under
their change-in-control agreements, and Patriot has agreed, in certain
circumstances, to indemnify Interstate for certain lost tax benefits
resulting therefrom.
In addition, the Merger Agreement provides that, prior to the Effective Time,
the change-in-control and employment agreements to which Interstate and certain
of its executives, including the Named Executives, are parties will be amended
to reduce the term of the non-competition covenants applicable to those
executives following the Merger to a period of 60 or 90 days to one year,
depending on, among other things, the executive's willingness to provide
consulting services to Patriot for not less than 60 days following the
termination of his employment.
Employment Agreements. Pursuant to the Merger Agreement, Patriot agreed to
cause Wyndham International to enter into employment agreements with each of
Messrs. Parrington and Richardson to be effective as of the Effective Time.
Each employment agreement will provide for a term of three years, subject to
certain termination rights of the employees for good reason and of Wyndham
International for cause. Under the agreements, each of Messrs. Parrington and
Richardson will receive a base annual salary equal to his base salary under his
existing employment agreement with Interstate, subject to annual increases of
not less than 5% on January 1 of each year. Each such executive will also be
eligible to receive cash incentive compensation in amounts not greater than
200% and 150% of the annual base salary of Messrs. Parrington and Richardson,
respectively, to be determined pursuant to the executive's existing employment
agreements with Interstate and Interstate's management bonus plan.
Forgiveness of Loans. Pursuant to the Merger Agreement, loans of $2.0 million
and $1.0 million made by Interstate to Messrs. Parrington and Richardson,
respectively, will be forgiven over time at the rate of 10% of the principal
amount outstanding, plus accrued interest, each year, with the balance to be
forgiven upon termination of the executive's employment agreement with Wyndham
International. Loans made by Interstate to other executive officers, including
Messrs. Droz and Froman, aggregating less than $200,000, also will be forgiven
at the Effective Time.
Treatment of Interstate Equity Incentive Awards. Interstate has granted (i)
pursuant to its Equity Incentive Plan and Stock Option Plan for Non-Employee
Directors, options ("Interstate Stock Options") to purchase an aggregate of
1,580,672 shares of Interstate Common Stock, including Interstate Stock Options
granted to Interstate's directors and executive officers (collectively,
"Interstate Senior Management") to purchase an aggregate of 808,750 shares of
Interstate Common Stock with exercise prices ranging between $21.00 to $27.50,
and (ii) pursuant to its Equity Incentive Plan, an aggregate of 48,811 shares
of restricted Interstate Common Stock, which are subject to certain risks of
forfeiture pursuant to the Equity Incentive Plan ("Restricted
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Shares"), including an aggregate of 10,000 Restricted Shares awarded to
Interstate Senior Management. Pursuant to the Merger Agreement, all such
Interstate Stock Options and Restricted Shares, whether or not then exercisable
or vested, will become fully exercisable and vested. In addition, each employee
of Interstate who is a Vice President or more senior executive may elect to
have his or her Interstate Stock Options assumed by the Patriot Companies
("Assumed Options") or converted effective as of the Effective Time into the
right to receive cash equal to (a) the number of shares of Interstate Common
Stock underlying such Interstate Stock Option multiplied by (b) the difference
between $37.50 minus the exercise price of such Interstate Stock Option (the
"Exercise Spread"). All other outstanding Interstate Stock Options will be
converted effective as of the Effective Time into the right to receive the
Exercise Spread, payable in cash. The Assumed Options will continue to have,
and be subject to, the same terms and conditions as set forth in the stock
option plans and agreements as in effect immediately prior to the Effective
Time pursuant to which the Interstate Stock Options were granted, provided that
(1) each Assumed Option will be exercisable for that number of whole Paired
Shares equal to the product of the number of shares of Interstate Common Stock
covered by such Interstate Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded to the nearest whole number of
Paired Shares and (2) the exercise price per Paired Share under such Assumed
Option will be equal to the exercise price per share of Interstate Common Stock
under the existing Interstate Stock Option divided by the Exchange Ratio and
rounded to the nearest cent. See "The Merger Agreement--Stock Options and
Equity Incentives." The following table sets forth the value of Restricted
Shares and the Exercise Spread for Interstate Stock Options, based on the $
closing price for Paired Shares on the NYSE on held by Interstate Senior
Management.
<TABLE>
<CAPTION>
OPTION
RESTRICTED EXERCISE
NAME SHARES SPREAD
---- ---------- ----------
<S> <C> <C>
Milton Fine........................................ $2,912,500
W. Thomas Parrington, Jr. ......................... 3,800,000
J. William Richardson.............................. 1,921,875
Robert L. Froman................................... 1,343,250
Thomas D. Reese.................................... 806,250
Marvin I. Droz..................................... 1,218,750
R. Michael McCullough.............................. 136,850
Steven J. Smith.................................... 136,850
</TABLE>
Financial Advisory Services. In connection with its consideration of the
Merger Alternative and the Clipped Share Alternative, Interstate retained
Blackstone to act as financial advisor to Interstate. Blackstone is affiliated
with the Blackstone Group, which beneficially owned 7.1% of the Interstate
Outstanding Shares as of January 6, 1998 and, pursuant to a shareholders
agreement among Interstate, certain of the Fine Entities and the Blackstone
Group have a right to representation on the Interstate Board. For service as
financial advisor, Blackstone will be entitled to 25% of the compensation
otherwise payable by Interstate to Merrill Lynch as described in "--Opinion of
Financial Advisor to Interstate," reimbursement of its reasonable out-of-pocket
costs incurred in connection with its engagement and indemnity against any
liabilities arising therefrom, including liabilities under the federal
securities laws. Based upon the closing price for Paired Shares on the NYSE on
, 1998, the financial advisory fee due to Blackstone if the Merger is
completed would be $ million.
Continuing Directors. In connection with the Merger Agreement, Wyndham
International agreed to take such actions as may be required so that Mr.
Parrington will be elected as of the Effective Time as a member of the Wyndham
International Board. In addition, pursuant to the Shareholders Agreement,
effective as of the Effective Time, the Fine Entities will be entitled to
designate one director to the Patriot Board. The Fine Entities will have the
right to continue to designate a nominee to the Patriot Board until the earlier
of (i) the later of (a) the first date on which the Fine Entities own fewer
than 3% of the then-outstanding Paired Shares and (b) the second anniversary of
the Effective Time and (ii) the first date on which the Fine Entities own fewer
than 50% of the Paired Shares that they receive in the Merger. See "Certain
Related Agreements--Shareholders Agreement."
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Indemnification. The Merger Agreement includes customary covenants under
which the Patriot Companies have agreed to honor existing indemnification
rights of Interstate directors, officers and employees and, subject to certain
limitations, to continue liability insurance for the benefit of such persons.
In connection with the Merger Agreement, the existing indemnification agreement
between Interstate and Milton Fine was amended to provide that Interstate will
indemnify, defend and hold harmless Mr. Fine against all liabilities and
expenses (including attorneys' fees and expenses) in connection with any actual
or threatened proceeding or investigation (each, a "Claim") to the extent that
any such Claim arises out of the Merger Agreement, the Shareholders Agreement
or any of the transactions contemplated thereby. See "The Merger Agreement--
Indemnification."
Office Space; Hotel Accommodations. Pursuant to the Shareholders Agreement,
Patriot agreed to provide office space in Pittsburgh, Pennsylvania, rent free,
to Milton Fine for three years following the Effective Time. In addition,
Patriot agreed to permit Mr. Fine to stay in first-class accommodations in
hotels currently operated by Interstate, rent free, for up to 30 days each year
for five years following the Effective Time. See "Certain Related Agreements--
Shareholders Agreement."
Registration Rights Agreement. In connection with the Merger Agreement, the
Patriot Companies entered into the Registration Rights Agreement, which will
become effective at the Effective Time, with the Fine Entities and the
Blackstone Group (collectively, the "Registration Rights Holders"). Pursuant to
the Registration Rights Agreement, the Patriot Companies agreed, subject to
certain limitations and under certain conditions, to provide the Registration
Rights Holders certain customary demand and "piggyback" registration rights.
The Patriot Companies have registered the Paired Shares issuable to the
Registration Rights Holders in the Merger pursuant to this Joint Proxy
Statement/Prospectus.
ACCOUNTING TREATMENT
Patriot will account for the Merger as a purchase. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. The fair market value of the consideration (cash, stock and
any other consideration) given by the acquiring company (here, Patriot) is used
as the valuation basis for the combination. The assets and liabilities of the
acquired company (here, Interstate) are revalued to their respective fair
market values at the combination date. The financial statements of the
acquiring company reflect the combined operations from the date of combination.
REGULATORY APPROVAL
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), and the rules promulgated thereunder by the U.S. Federal Trade
Commission (the "FTC"), certain acquisitions of assets or voting securities may
not be consummated without notification being given and certain information
being furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division"), and until specified waiting period
requirements have been terminated or have expired. Each of Wyndham
International and Interstate has filed notification and report forms under the
HSR Act with the FTC and the Antitrust Division. The waiting period will expire
at 11:59 p.m. on the 30th calendar day following the filing of such
notification and report forms unless the waiting period is terminated early, as
requested by the parties, or unless the FTC or the Antitrust Division requests
additional information from the parties. At any time before or after
consummation of the Merger and the transactions related thereto, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the Merger and the transactions related thereto or seeking
divestiture of substantial assets of Wyndham International or Interstate. At
any time before or after the Effective Time, any state could take such action
under its own antitrust laws as it deems necessary or desirable. Such action
could include seeking to enjoin the consummation of the Merger and the
transactions related thereto or seeking divestiture of substantial assets of
Wyndham International or Interstate. Private parties may also seek to take
legal action under antitrust laws under certain circumstances.
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CERTAIN RESALE RESTRICTIONS
All Paired Shares received by Interstate stockholders in the Merger will be
freely transferable, except that Paired Shares received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
Interstate at the time of the Interstate Special Meeting may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 promulgated under the Securities Act in
the case of such persons who become affiliates of Patriot or Wyndham
International) or as otherwise permitted under the Securities Act. Persons who
may be deemed to be affiliates of Interstate, Patriot or Wyndham International
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party. The
Merger Agreement requires Interstate to exercise all reasonable efforts to
cause each of its affiliates to execute a written agreement to the effect that
such person will not offer to sell, transfer or otherwise dispose of any of the
Paired Shares issued to such person in or pursuant to the Merger except (i)
pursuant to an effective registration statement under the Securities Act, (ii)
by a sale made in conformity with Rule 145 under the Securities Act, or (iii)
in a transaction which, in the opinion of counsel reasonably satisfactory to
Patriot and Wyndham International or as described in a "no-action" or
interpretive letter from the staff of the Commission, is not required to be
registered under the Securities Act.
Certain of the Paired Shares issued to affiliates of Interstate in connection
with the Merger will be subject to the Registration Rights Agreement entitling
the holders of such shares to certain "shelf," "demand" and "piggyback"
registration rights. To satisfy certain of their obligations under such
agreement, the Patriot Companies have registered for sale to the public in the
Registration Statement relating to this Joint Proxy Statement/Prospectus the
Paired Shares to be received by certain of such affiliates pursuant to the
Merger Agreement. See "Risk Factors--Possible Adverse Effects on Market Price
of Paired Shares Arising from Shares Available for Future Sale" and "--
Interests of Certain Officers, Directors and Stockholders of Interstate--
Registration Rights Agreement."
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot and Interstate to consummate
the Merger that the Paired Shares issuable in the Merger be approved for
listing on the NYSE, subject to official notice of issuance. See "The Merger
Agreement--Conditions to the Merger."
DISSENTERS' RIGHTS
Pursuant to the Merger Agreement and the PBCL, holders of Interstate Common
Stock will have dissenters' rights in connection with the Merger under
Subchapter 15D, a copy of which is attached as Appendix D to this Joint Proxy
Statement/Prospectus, and may object to the Merger Agreement and demand in
writing that Patriot (as the surviving corporation in the Merger) pay them the
fair value of their Interstate Common Stock.
Failure by any dissenting stockholder to comply with any procedure required
by Subchapter 15D may cause a termination of such stockholder's dissenters'
rights. Patriot will not give any notice of the following requirements other
than as described in this Joint Proxy Statement/Prospectus and as required by
the PBCL. Subchapter 15D states that the right to exercise dissenters' rights
under Subchapter 15D is the sole remedy of a holder of Interstate Common Stock
with respect to the Merger, absent a showing of fraud or fundamental unfairness
in connection with the Merger.
A holder of record of Interstate Common Stock may assert dissenters' rights
as to less than all of the shares of Interstate Common Stock registered in such
holder's name only if the holder dissents with respect to all of the Interstate
Common Stock beneficially owned by any one person and discloses the name and
address of the person or persons on whose behalf the holder dissents. In that
event, the holder's rights will be determined as if the shares as to which the
holder has dissented and the other shares were registered in the names of
different holders. A beneficial owner of shares of Interstate Common Stock who
is not also the record holder of such shares may
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assert dissenters' rights with respect to shares held on such owner's behalf
and will be treated as a dissenting stockholder under the terms of Subchapter
15D if the beneficial owner submits to Patriot, not later than the time of
filing the Notice of Intention to Dissent (as defined below), a written consent
of the record holder. Such beneficial owner may not dissent with respect to
less than all shares of Interstate Common Stock beneficially owned by such
beneficial owner.
Holders of Interstate Common Stock (or beneficial owners thereof as described
above) who follow the procedures of Subchapter 15D outlined below will be
entitled to receive from Patriot the fair value of their shares of Interstate
Common Stock immediately before the Effective Time, taking into account all
relevant factors but excluding any appreciation or depreciation in anticipation
of the completion of the Merger. Holders of Interstate Common Stock (or
beneficial owners thereof) who elect to exercise their dissenters' rights must
comply with all of the following procedures to preserve those rights.
Holders of Interstate Common Stock (or beneficial owners thereof) who wish to
exercise dissenters' rights must file a written notice of intention to demand
the fair value of their shares of Interstate Common Stock if the Merger is
completed (the "Notice of Intention to Dissent"). Such dissenters must file the
Notice of Intention to Dissent with the Secretary of Interstate prior to the
vote by Interstate stockholders on the Merger Agreement, may not make any
change in their beneficial ownership of Interstate Common Stock from the date
of filing until the Effective Time, and may not vote their Interstate Common
Stock for the adoption of the Merger Agreement. The Notice of Intention to
Dissent must be in addition to and separate from any proxy or vote against the
Merger Agreement.
If the Merger Agreement is adopted by the required vote at the Interstate
Special Meeting, Patriot will mail a notice (the "Notice of Approval"),
together with a copy of Subchapter 15D, to all dissenters who filed a Notice of
Intention to Dissent prior to the vote on the Merger Agreement and who did not
vote for adoption of the Merger Agreement. Patriot expects to mail the Notice
of Approval promptly after completion of the Merger. The Notice of Approval
will state where and when (the "Demand Deadline") a demand for payment must be
sent and Interstate Certificates deposited in order to obtain payment. Patriot
will also supply a form for demanding payment (the "Demand Form"), which will
include a request for certification of the date on which the holder, or the
person on whose behalf the holder dissents, acquired beneficial ownership of
the shares of Interstate Common Stock. Dissenters must ensure that the Demand
Form and their Interstate Certificates are received by Patriot on or before the
Demand Deadline. In the event that the Merger has not been consummated within
60 days after the Demand Deadline, the Interstate Certificates will be returned
to the dissenters. All mailings to Patriot are at the risk of the dissenters.
Patriot recommends that the Notice of Intention to Dissent, the Demand Form and
the holder's Interstate Certificates be sent by certified mail.
Any holder (or beneficial owner) of Interstate Common Stock who fails to file
a Notice of Intention to Dissent, fails to complete and return the Demand Form,
fails to deposit share certificates with Patriot, each within the time periods
provided above, or votes in favor of the Merger Proposal, will lose his or her
dissenters' rights under Subchapter 15D. A dissenter will retain all rights of
a stockholder, or beneficial owner, as the case may be, until those rights are
modified by completion of the Merger.
Upon timely receipt of the completed Demand Form, Patriot will be required by
the PBCL, assuming the Merger has been consummated, either to remit to
dissenters who have returned the Notice of Intention to Dissent and the
completed Demand Form and have deposited their certificates, the amount Patriot
estimates to be the fair value for their shares or to give written notice that
no such remittance will be made. Patriot does not intend to make payment of any
part of the amounts payable to dissenters until the fair value of the
Interstate Common Stock has been finally determined. The remittance or notice
will be accompanied by:
(i) the closing balance sheet and statement of income of Interstate for
the fiscal year ended December 31, 1997, together with the latest available
interim financial statements;
(ii) a statement of Patriot's estimate of the fair value of the
Interstate Common Stock ("Patriot's Estimate"); and
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(iii) a notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Subchapter 15D.
If Patriot does not remit the amount of its estimate of fair value of the
Interstate Common Stock, it may return any Interstate Certificates that have
been deposited and may make a notation on any such certificates that a demand
for payment in accordance with Subchapter 15D has been made. If shares carrying
such notation are thereafter transferred, each new certificate issued therefor
may bear a similar notation, together with the name of the original dissenting
holder or owner of such shares. A transferee of such shares will not acquire by
such transfer any rights in Patriot other than those which the original
dissenter had after making demand for payment of their fair value.
After Patriot gives notice of Patriot's Estimate, if the dissenter believes
that Patriot's Estimate is less than the fair value of the shares, within 30
days of the mailing of Patriot's Estimate by Patriot, the dissenter may send to
Patriot the dissenter's own estimate (the "Holder's Estimate") of the fair
value of the shares as contemplated by PBCL Subsection 1578, which will be
deemed a demand for payment of the amount of the Holder's Estimate.
If, within 60 days after the latest of (i) the Closing Date, (ii) the timely
receipt by Patriot of a properly completed Demand Form, or (iii) the timely
receipt by Patriot of a Holder's Estimate, whichever is later, any demands for
payment remain unsettled, Patriot may file in the Court of Common Pleas of
Montgomery County, Pennsylvania an application for relief requesting that the
fair value of the Interstate Common Stock be determined by the court. There is
no assurance that Patriot will file such an application. All dissenters,
wherever residing, whose demands have not been settled will be made parties to
any such appraisal proceeding. The court may appoint an appraiser to receive
evidence and recommend a decision on the issue of fair value. Each dissenter
whose claim has not previously been settled will be made a party will be
entitled to recover the amount by which the fair value of the dissenter's
Interstate Common Stock is found to exceed the amount, if any, previously
remitted, plus interest. Interest will be payable from the Closing Date until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by Patriot on its principal credit facility. If Patriot
fails to file an application for relief, any dissenter who has made a demand
and who has not already settled the dissenter's claim against Patriot may do so
in the name of Patriot at any time within 30 days after the expiration of the
60-day period. If a dissenter does not file an application within the 30-day
period, each dissenter entitled to file an application will be paid Patriot's
Estimate and no more, and may bring an action to recover any amount thereof not
previously remitted.
The costs and expenses of such court proceedings, including the reasonable
compensation and expenses of the appraiser appointed by the court, will be
determined by the court and assessed against Patriot, except that any part of
the costs and expenses may be apportioned and assessed as the court deems
appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment the court finds to be dilatory or in
bad faith. Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against Patriot, and in
favor of any or all dissenters, if Patriot fails to comply substantially with
the requirements of Subchapter 15D. Such fees and expenses may be assessed
against either Patriot or a dissenter, if the court finds that the party
against whom the fees and expenses are assessed acted in bad faith or in a
dilatory manner. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated
and should not be assessed against Patriot, it may award such counsel
reasonable fees to be paid out of the amounts awarded to the dissenters who
were benefitted.
Under the PBCL, a stockholder of Patriot has no right to obtain, in the
absence of fraud or fundamental unfairness, an injunction against the Merger,
nor any right to valuation and payment of the fair value of the holder's shares
because of the merger, except to the extent provided by the dissenters' rights
provisions of Subchapter 15D. The PBCL also provides that absent fraud or
fundamental unfairness, the rights and remedies provided by Subchapter 15D are
exclusive.
The foregoing description of the rights of dissenters under Subchapter 15D
should be read in conjunction with Appendix D to this Joint Proxy
Statement/Prospectus, and is qualified in its entirety by the provisions of
Subchapter 15D.
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THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides for a number of transactions between and among
Patriot, Wyndham International and Interstate, including the Merger of
Interstate with and into Patriot and the Merger Subscription for the Merger
Subscribed Shares pursuant to the Merger Subscription Agreement. Set forth
below is a summary of the material terms of the Merger Agreement. The
discussion and description of the material terms of the Merger Agreement in
this Joint Proxy Statement/Prospectus are subject to and qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached to
this Joint Proxy Statement/Prospectus as Annex A and which is incorporated
herein by reference.
THE MERGER AND SUBSCRIPTION
Pursuant to the Merger Agreement, at the Effective Time of the Merger,
Interstate will be merged with and into Patriot, with Patriot being the
surviving company in the Merger. Pursuant to the Merger Agreement and subject
to proration as described below, stockholders of Interstate will have the
right to elect to have their shares of Interstate Common Stock converted into
the right to receive either (i) the Cash Consideration, or (ii) Paired Shares
at the Exchange Ratio. After the elections are made by stockholders of
Interstate, proration will be used to ensure that 40% of the Interstate
Outstanding Shares will be converted into the right to receive Cash
Consideration and the remaining 60% of the Interstate Outstanding Shares will
be converted into the right to receive Paired Shares at the Exchange Ratio,
subject to adjustments in the event of the exercise of dissenters' rights in
respect of more than 100,000 shares of Interstate Common Stock. Consequently,
the Aggregate Cash Consideration that will be paid to Interstate stockholders
participating in the Merger will be $531.4 million based on the number of
outstanding shares of Interstate Common Stock as of January 6, 1998. In
addition, outstanding options to acquire Interstate Common Stock will be
cashed out for an amount equal to the spread between the exercise price of
such options and $37.50, except that certain senior executives of Interstate
may choose to have their options assumed by Patriot. The Merger Agreement
contains separate provisions for Interstate stockholders who exercise
dissenters' rights which are described in "The Merger and Subscription--
Dissenters' Rights."
The Exchange Ratio will be equal to $37.50 divided by the Average Closing
Price, subject to the following adjustments. In the event that the Average
Closing Price is less than $27.97 but greater than or equal to $26.416, the
Exchange Ratio will be equal to 1.341. In the event that the Average Closing
Price is greater than $34.186 but less than or equal to $37.294 ($38.848, if
the Merger is consummated after March 30, 1998), the Exchange Ratio will be
equal to 1.097. In the event that the Average Closing Price is greater than
$37.294 ($38.848, if the Merger is consummated after March 30, 1998), the
Exchange Ratio will be equal to $40.912 ($42.616, if the Merger is consummated
after March 30, 1998) divided by the Average Closing Price. In the event that
the Average Closing Price is less than $26.416, the Exchange Ratio will be
equal to 1.341, but Interstate will have the right to terminate the Merger
Agreement unless Patriot decides to increase the Exchange Ratio to an amount
equal to $35.424 divided by the Average Closing Price. In the event Patriot so
increases the Exchange Ratio, any prior exercise by Interstate of its right to
so terminate the Merger Agreement will be rescinded and have no effect.
As required by the terms of the Merger Agreement, Patriot, Interstate and
Wyndham International will, immediately prior to the Closing, enter into the
Merger Subscription Agreement pursuant to which Interstate has agreed to pay
for, and Wyndham International will issue directly to the stockholders of
Interstate as part of the consideration to be paid to such stockholders in the
Merger, the Merger Subscribed Shares. The Merger Subscribed Shares will be
issued to Interstate stockholders in accordance with the terms of the Merger
and will be paired with the Patriot Common Stock, and Interstate will not at
any time become a stockholder of Wyndham International.
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EFFECTIVE TIME OF THE MERGER
In accordance with the DGCL and the PBCL, the Effective Time of the Merger
will occur upon the acceptance for recording of the Certificate of Merger by
the Delaware Secretary of State and the Articles of Merger by the Pennsylvania
Department of State, unless the parties agree to a later Effective Time and so
specify in the Certificate of Merger and Articles of Merger. Subject to the
fulfillment or waiver of the other conditions to the obligations of Patriot
and Interstate to consummate the Merger, it is currently expected that the
Merger will be consummated as soon as practicable following the approval by
the stockholders of Patriot, Wyndham International and Interstate of the
Merger Proposal at their respective stockholders' meetings.
CHARTERS AND BYLAWS
The charter and bylaws of Patriot as amended and in effect immediately prior
to the Merger will be the charter and bylaws of the surviving corporation in
the Merger. The charter and bylaws of Wyndham International as amended and in
effect immediately prior to the Merger will continue as its charter and bylaws
following the Merger.
BOARD OF DIRECTORS, COMMITTEES AND OFFICERS
Upon consummation of the Merger, the Patriot Board and the Wyndham
International Board will each be expanded by one member. Milton Fine will be
elected to the Patriot Board and W. Thomas Parrington, Jr. will be elected to
the Wyndham International Board, for which he will serve as Vice Chairman.
Following such elections, the Patriot Board will consist of ten directors
(plus one existing vacancy) and the Wyndham International Board will consist
of 11 directors. Pursuant to agreements among the parties to the Wyndham
Merger Agreement, one additional director may be added to each of the Patriot
Board and the Wyndham International Board before July 5, 1998. The executive
officers of Patriot and Wyndham International following the Merger will be the
current executive officers of Patriot and Wyndham International, respectively.
CASH ELECTION PROCEDURE
The Form of Election is being mailed to holders of record of Interstate
Common Stock together with this Joint Proxy Statement/Prospectus. For a Cash
Election to be effective, holders of Interstate Common Stock must properly
complete a Form of Election, and such Form of Election, together with
Interstate Certificates representing all shares as to which a Cash Election
has been made, duly endorsed in blank or otherwise acceptable for transfer on
the books of Interstate (or an appropriate guarantee of delivery as set forth
in such Form of Election), must be received by the Exchange Agent at the
address listed on the Form of Election and not withdrawn, by 5:00 p.m., New
York City time, on the last Trading Day preceding the date of the Interstate
Special Meeting.
A Cash Election may be revoked by the stockholder who submitted it to the
Exchange Agent only by written notice received by the Exchange Agent prior to
5:00 p.m., New York City time, on the last business day preceding the date of
the Interstate Special Meeting. In addition, all Cash Elections will
automatically be revoked if the Exchange Agent is notified by Patriot and
Interstate that the Merger has been abandoned. If a Cash Election is revoked,
the Interstate Certificate or Interstate Certificates (or guarantees of
delivery, as appropriate) to which such Form of Election relates will be
promptly returned to the stockholder who submitted it or them to the Exchange
Agent.
The determination of the Exchange Agent will be binding as to whether or not
a Cash Election has been properly made or revoked. If the Exchange Agent
determines that any Cash Election was not properly made with respect to shares
of Interstate Common Stock, such shares shall be treated as shares that were
not subject to a Cash Election at the Effective Time, and such shares will be
exchanged in the Merger for Paired Shares at the Exchange Ratio.
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EXCHANGE OF INTERSTATE STOCK CERTIFICATES
As of the Effective Time, (i) Patriot will deposit, or will cause to be
deposited, with the Exchange Agent selected by Patriot on or prior to the
Effective Time, for the benefit of the holders of shares of Interstate Common
Stock, for exchange in accordance with the Merger Agreement, (x) a certificate
representing the shares of Patriot Common Stock to be issued pursuant to the
terms of the Merger Agreement, and (y) cash in an aggregate amount sufficient
to pay the aggregate Cash Consideration payable to holders of Interstate
Common Stock who have made a Cash Election pursuant to the Merger Agreement
and, simultaneously, (ii) Wyndham will deposit, or will cause to be deposited,
with the Exchange Agent, for the benefit of the holders of shares of
Interstate Common Stock, a certificate representing the Merger Subscribed
Shares to be paired with the shares of Patriot Common Stock and to be issued
to the Interstate stockholders pursuant to the Merger Subscription (such
certificates for shares of Patriot Common Stock and certificates for Merger
Subscribed Shares, any dividends or distributions with respect thereto with a
record date after the Effective Time, any Excess Shares and any cash to be
paid in lieu of fractional Paired Shares (as described more fully below) and
Cash Consideration (collectively, the "Exchange Fund").
Promptly after the Effective Time, the Exchange Agent will mail or otherwise
make available to each holder of record of an Interstate Certificate (i) a
Letter of Transmittal which will specify that delivery will be effected, and
risk of loss and title to the Interstate Certificates will pass, only upon
delivery of the Interstate Certificates to the Exchange Agent and (ii)
instructions for use in effecting the surrender of the Interstate Certificates
in exchange for the Merger Consideration. Upon surrender to the Exchange Agent
of an Interstate Certificate for cancellation, together with such Letter of
Transmittal duly executed and completed in accordance with the instructions
thereto, the holder of such Interstate Certificate will be entitled to receive
in exchange therefor (x) a certificate representing the number of whole Paired
Shares to which such holder will be entitled, and/or (y) cash in the amount
payable to such holder pursuant to the Merger Agreement, if any, including
cash in lieu of fractional Paired Shares, if any, due such holder plus the
amount of any dividends or distributions, if any, pursuant to the terms of the
Merger Agreement (and as more fully described below), after giving effect to
any required withholding tax. The Interstate Certificate so surrendered will
be canceled. UNLESS INTERSTATE STOCKHOLDERS ARE MAKING CASH ELECTIONS AS
DISCUSSED ABOVE, THEY SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
A LETTER OF TRANSMITTAL.
Patriot and Wyndham International stockholders will, as a result of the
Merger, continue to own and hold their shares of capital stock of Patriot and
Wyndham International, respectively. PATRIOT AND WYNDHAM INTERNATIONAL
STOCKHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES.
No dividends or other distributions on Paired Shares into which any shares
of Interstate Common Stock are exchangeable as a result of the Merger and no
cash payment in lieu of fractional shares will be paid until the Interstate
Certificate or Interstate Certificates entitling the holder thereof to such
Paired Shares and/or cash payment are surrendered for exchange as provided in
the Merger Agreement. Any such dividend or distribution amounts with a record
date after the Effective Time, and any cash amounts payable in lieu of
fractional shares, will be deposited with the Exchange Agent to be held in the
Exchange Fund until the surrender of such Interstate Certificate. Following
surrender of any such Interstate Certificate, the holder thereof will be
entitled to receive in addition to the Paired Shares issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such Paired Shares and not paid to such
holder and the amount of any cash payable in lieu of fractional Paired Shares
to which such holder is entitled pursuant to the Merger Agreement and (ii) at
the appropriate payment date, the amount of any dividends or other
distributions with a record date after the Effective Time but prior to the
surrender of such Interstate Certificate and a payment date subsequent to such
surrender payable with respect to such Paired Shares.
No fractional Paired Shares will be issued in connection with the Merger.
See "The Merger and Subscription--Terms of the Merger and Subscription" for a
description of the treatment of fractional Paired Shares under the Merger
Agreement.
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Any portion of the Exchange Fund that remains undistributed to the former
stockholders of Interstate six months after the Effective Time will be
delivered upon demand to Patriot and Wyndham International, in accordance with
Patriot's instructions. Any former stockholders of Interstate who have not
complied with the exchange procedures described above may thereafter look only
to Patriot for payment of their claim for Merger Consideration, any cash in
lieu of fractional Paired Shares and any dividends or distributions with
respect to Paired Shares. None of Patriot, Interstate or the Exchange Agent
will be liable to any person for any Paired Shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar laws. If any Interstate Certificate has not been surrendered prior to
one year after the Effective Time (or immediately prior to such earlier date
on which any Merger Consideration, any cash in lieu of fractional Paired
Shares or any dividends or distributions payable to the holder of such
Interstate Certificate would otherwise escheat to or become the property of
any governmental entity), any Merger Consideration, cash, dividends or
distributions payable with respect thereto will become the property of
Patriot, free and clear of all claims or interest of any person previously
entitled thereto.
No interest will be paid or accrued on cash in lieu of fractional Paired
Shares, if any, or on any dividend or distribution, if any, payable to holders
of Interstate Certificates.
In the event any Interstate Certificate has been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Interstate Certificate to be lost, stolen or destroyed and, if required by
Patriot, the posting by such person of a bond in such reasonable amount as
Patriot may direct as indemnity against any claim that may be made against it
with respect to such Interstate Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Interstate Certificate the Merger
Consideration (plus, to the extent applicable, dividends and distributions
payable, if any) that would otherwise be payable in respect of such Interstate
Certificate pursuant to the Merger Agreement.
STOCK OPTIONS AND EQUITY INCENTIVES
At the Effective Time, each outstanding Interstate Stock Option, each
outstanding Interstate stock appreciation right, deferred share, performance
share or performance unit and each outstanding Restricted Share, whether or
not then exercisable or vested, will become fully exercisable and vested. With
the exception of Interstate Stock Options held by certain senior executives of
Interstate (as more fully described below), each outstanding Interstate Stock
Option will be cashed out immediately prior to the Effective Time and
Interstate will pay the holder thereof an amount equal to (i) the number of
shares of Interstate Common Stock underlying such Interstate Stock Option
multiplied by (ii) the sum of $37.50 minus the exercise price of such
Interstate Stock Option.
Each holder of Interstate Stock Options who is a vice president or more
senior executive may elect to have the Interstate Stock Options held by him or
her assumed by Patriot at the Effective Time, subject to the terms of the
Merger Agreement, instead of cashed out. The Assumed Options will continue to
have, and be subject to, the same terms and conditions as set forth in the
stock option plans and agreements (as in effect immediately prior to the
Effective Time) pursuant to which the Assumed Options were issued, except that
each Assumed Option will be fully vested and exercisable and provided that (i)
all references to Interstate will be deemed to be references to Patriot, and
all references to Interstate Common Stock will be deemed to be references to
Paired Shares, (ii) each Assumed Option will be exercisable for that number of
whole Paired Shares equal to the product of the number of shares of Interstate
Common Stock covered by such Assumed Option immediately prior to the Effective
Time multiplied by the Exchange Ratio and rounded to the nearest whole number
of Paired Shares and (iii) the exercise price per Paired Share under such
Assumed Option will be equal to the exercise price per share of Interstate
Common Stock under the Assumed Option immediately prior to the Effective Time
divided by the Exchange Ratio and rounded to the nearest cent. Patriot will
(A) reserve for issuance or hold the number of Paired Shares that will become
issuable upon the exercise of such Assumed Options pursuant to the terms of
the Merger Agreement and (B) promptly after the Effective Time issue to each
holder of an Assumed Option a document evidencing the assumption by Patriot of
Interstate's obligations with respect thereto.
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At and after the Effective Time, each outstanding option to purchase Paired
Shares that is outstanding immediately prior to the Effective Time will remain
outstanding and shall continue to represent the right to purchase the same
number of Paired Shares.
CONDITIONS TO THE MERGER
The obligations of each of Patriot and Interstate to effect the Merger and
the transactions contemplated by the Merger Agreement are subject to the
satisfaction or waiver of certain conditions on or prior to the Closing Date,
including that: (i) approval of the Merger Proposal by the requisite vote of
stockholders of Patriot, Wyndham International and Interstate, as applicable,
shall have been obtained; (ii) no judgment, order, decree, statute, law,
ordinance, rule or regulation enacted, entered, promulgated, enforced or
issued by any court of competent jurisdiction or other governmental entity or
other legal restraint or prohibition preventing the consummation of the Merger
shall be in effect; (iii) any waiting period applicable to the Merger under
the HSR Act shall have expired or been terminated; (iv) the Registration
Statement shall have been declared effective by the Commission under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (v) Goodwin, Procter & Hoar llp, counsel to the Patriot
Companies, or Jones, Day, Reavis & Pogue, counsel to Interstate, shall have
delivered to Patriot and Interstate an unqualified opinion, dated as of the
Closing Date, to the effect that, based upon customary representations,
assumptions and conditions, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and that Patriot and Interstate will each be a party to such reorganization
within the meaning of Section 368(b) of the Code; (vi) the Paired Shares
issuable to Interstate stockholders pursuant to the Merger Agreement and under
the Interstate stock option and equity incentive plans (the "Interstate Stock
Plans") shall have been approved for listing on the NYSE, subject to official
notice of issuance; and (vii) there shall not have been any federal
legislative or regulatory change that would cause Patriot to cease to qualify
as a REIT for federal income tax purposes.
The obligations of Patriot and Wyndham International to effect the Merger
are further subject to the satisfaction or waiver of certain other conditions
at or prior to the Closing Date, including that: (i) the representations and
warranties of Interstate contained in the Merger Agreement that are qualified
as to materiality shall be true and correct as of the Closing Date as though
made on and as of the Closing Date and the representations and warranties of
Interstate that are not so qualified shall be true and correct in all material
respects as of the Closing Date as though made on and as of the Closing Date;
(ii) Interstate shall have performed in all material respects all obligations
required to be performed by Interstate under the Merger Agreement at or prior
to the Closing Date; (iii) there shall not have occurred any event which,
individually or when considered with any such other event, could reasonably be
expected to result in a material adverse effect on Interstate; (iv) Patriot
shall have received from each "affiliate" of Interstate an executed copy of an
agreement acknowledging certain matters with respect to restrictions on the
resale of the Paired Shares received by such affiliate in the Merger;
(v) there shall be no more than 1,600,000 Dissenting Shares in the aggregate;
(vi) Interstate shall have received to Patriot's reasonable satisfaction the
consents to the Merger and certain related matters of Credit Lyonnais and
Promus Hotels, Inc.; and (vii) Coopers & Lybrand L.L.P. or Ernst & Young LLP
shall have (a) delivered to Patriot, at or prior to the Closing, a statement
of accumulated and current earnings and profits of Interstate (as determined
for federal income tax purposes) as of a then-recent date and (b) confirmed to
Patriot that Patriot will be entitled to rely on such statement for purposes
of preparing and filing its federal, state, local and foreign tax returns,
determining the amount of dividends to be paid to stockholders and paying any
taxes owed by Patriot.
The obligation of Interstate to effect the Merger is further subject to the
satisfaction or waiver of certain other conditions on or prior to the Closing
Date, including that: (i) the representations and warranties of Patriot and
Wyndham International contained in the Merger Agreement that are qualified as
to materiality shall be true and correct as of the Closing Date as though made
on and as of the Closing Date and the representations and warranties of
Patriot and Wyndham that are not so qualified shall be true and correct in all
material respects as of the Closing Date as though made on and as of the
Closing Date; (ii) Patriot and Wyndham International shall have performed in
all material respects all obligations required to be performed by them under
the Merger
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Agreement at or prior to the Closing Date; (iii) there shall have not occurred
any event which, individually or when considered with any such other event,
could reasonably be expected to result in a material adverse effect on the
Patriot Companies; and (iv) the aggregate number of Dissenting Shares shall
not exceed 3,542,131 Dissenting Shares (the "Maximum Dissenting Shares"),
provided that Interstate may not rely on the failure of such condition to be
satisfied if, prior to the Closing, Patriot agrees that the number of
Dissenting Shares in excess of the Maximum Dissenting Shares will not be
subtracted from the number of shares entitled to receive Cash Consideration
pursuant to a Form of Election.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties made by
Interstate to Patriot and Wyndham relating to, among other things: (i) the due
organization, corporate powers, authority and standing of Interstate and its
significant subsidiaries and similar corporate matters; (ii) the ownership of
Interstate's significant subsidiaries; (iii) the capital structure of
Interstate; (iv) the authorization, execution, delivery and enforceability of
the Merger Agreement; (v) the lack of conflicts under charters, bylaws and
contracts, violations of any instruments and required consents or approvals;
(vi) certain documents filed by Interstate with the Commission and the
accuracy and completeness of the information contained therein; (vii) the
accuracy and completeness of certain information supplied by Interstate;
(viii) the conduct of business in the ordinary course and the absence of
certain changes or material adverse effects; (ix) litigation; (x) the vote of
Interstate stockholders required to approve the Merger Proposal; (xi) the
applicability of certain state takeover statutes; (xii) broker's and finder's
fees with respect to the Merger; (xiii) the receipt of a fairness opinion;
(xiv) beneficial ownership of Paired Shares by Interstate, its subsidiaries
and its directors and executive officers; (xv) compliance with law and receipt
of required permits; (xvi) tax matters; (xvii) employee benefit plan matters;
(xviii) properties; (xix) the ownership by Interstate and its subsidiaries of
interests or investments in certain entities; and (xx) related party
transactions.
The Merger Agreement also contains various representations and warranties
made by the Patriot Companies to Interstate relating to, among other things:
(i) the due organization, corporate powers, authority and standing of the
Patriot Companies and their respective significant subsidiaries and similar
corporate matters; (ii) the significant subsidiaries of the Patriot Companies;
(iii) the capital structure of the Patriot Companies; (iv) the authorization,
execution, delivery and enforceability of the Merger Agreement; (v) the lack
of conflicts under charters, bylaws and contracts, violations of any
instruments and required consents or approvals; (vi) certain documents filed
by the Patriot Companies with the Commission and the accuracy and completeness
of the information contained therein; (vii) the accuracy and completeness of
certain information supplied by the Patriot Companies; (viii) the conduct of
business in the ordinary course and the absence of certain changes or material
adverse effects; (ix) litigation; (x) the vote of Patriot and Wyndham
International stockholders required to approve the Merger Proposal; (xi)
broker's and finder's fees with respect to the Merger; (xii) the receipt of a
fairness opinion; (xiii) beneficial ownership of Interstate Common Stock by
the Patriot Companies and their respective affiliates and the lack of certain
agreements or understandings relating to the acquisition, holding, voting of
disposing of Interstate Common Stock; (xiv) tax matters; (xv) the
authorization and enforceability of the Pairing Agreement and the effect of
certain Code provisions on the Patriot Companies' relationship pursuant to the
Pairing Agreement; (xvi) approval of the Merger Agreement by the interim
transactions committee created pursuant to the Wyndham Merger Agreement;
(xvii) the post-Merger transfers of certain assets; and (xviii) the absence of
an intention on the part of the Patriot Companies to effect transfers after
the Effective Time of assets that, in general, would be inconsistent with the
Merger being treated as a tax-free reorganization for federal income tax
purposes.
CERTAIN COVENANTS
Acquisition Proposals and Related Matters. Interstate represented that it
had, as of the date of the Merger Agreement, terminated any discussions or
negotiations relating to, or that may reasonably be expected to lead to, any
Acquisition Proposal (as defined below). Until the termination of the Merger
Agreement, Interstate will not and will not permit any of its subsidiaries,
officers, directors, employees, advisors or representatives directly or
indirectly to (i) solicit, initiate or encourage the submission of any
Acquisition Proposal, or (ii) participate in any substantive discussions or
negotiations regarding, or furnish to any person any information with respect
to, or
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take any other action for the purpose of facilitating the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal. Notwithstanding the foregoing, prior to the Interstate
Special Meeting Interstate may, in response to an Acquisition Proposal not
solicited by any person in breach of the Merger Agreement, if the Interstate
Board determines (after consultation with Interstate's financial advisors)
that the failure to take such action would result in a breach of the
Interstate Board's fiduciary duties under applicable law, (A) furnish
information with respect to Interstate and its subsidiaries to any person
pursuant to a customary confidentiality agreement (as determined by Interstate
after consultation with its outside counsel) and (B) participate in
discussions or negotiations regarding such unsolicited Acquisition Proposal.
The term "Acquisition Proposal" means any inquiry, proposal or offer from
any person, other than a proposal or offer by Patriot or Wyndham
International, relating to a merger, consolidation, business combination or
other similar transaction involving Interstate or any of its significant
subsidiaries or any proposal or offer (including without limitation any
proposal or offer to stockholders of Interstate), other than a proposal or
offer by Patriot or Wyndham International, to acquire in any manner, directly
or indirectly, more than a 10% equity interest in any voting securities of
Interstate or a substantial portion of the assets of Interstate and its
subsidiaries, taken as a whole.
Pursuant to the Merger Agreement, neither the Interstate Board nor any
committee thereof may (i) withdraw or modify, or propose publicly to withdraw
or modify, in a manner adverse to Patriot or Wyndham International, the
approval or recommendation by the Interstate Board or such committee of the
Merger or the Merger Agreement, (ii) approve or recommend, or propose publicly
to approve or recommend, any Acquisition Proposal, or (iii) authorize or
otherwise cause Interstate to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Acquisition Proposal (each, an "Acquisition Agreement"). Notwithstanding the
foregoing, in response to an Acquisition Proposal not solicited by any person
in breach of the Merger Agreement, if the Interstate Board determines (after
consultation with Interstate's financial advisors) that (a) such unsolicited
Acquisition Proposal is reasonably likely to be, involve or result in an
Acquisition Proposal that is reasonably capable of being completed on the
terms proposed and would, if consummated, result in a transaction more
favorable to Interstate's stockholders than the Merger, and (b) the failure to
take such action would result in a breach of the Interstate Board's fiduciary
duties under applicable law, the Interstate Board may withdraw or modify its
approval or recommendation of the Merger or the Merger Agreement, approve or
recommend such other Acquisition Proposal, authorize or otherwise cause
Interstate to enter into an Acquisition Agreement or terminate the Merger
Agreement.
Interstate is permitted under the Merger Agreement to take and disclose to
its stockholders a position contemplated by Rule 14e-2(a) under the Exchange
Act and to make any disclosure to Interstate's stockholders if the Interstate
Board determines that such disclosure is necessary in order to comply with the
Interstate Board's fiduciary duties under applicable law, provided that each
of Interstate, the Interstate Board and any committee thereof may only
withdraw or modify, or propose publicly to withdraw or modify, its position
with respect to the Merger or the Merger Agreement or approve or recommend, or
propose publicly to approve or recommend, an Acquisition Proposal in
accordance with the preceding paragraph.
Interstate also agreed to advise Patriot orally and in writing, as promptly
as practicable, of (i) any Acquisition Proposal or any inquiry with respect to
or which could reasonably be expected to lead to any Acquisition Proposal,
including without limitation any request for information, (ii) the material
terms and conditions of such Acquisition Proposal or inquiry and (iii) the
identity of the person making such Acquisition Proposal or inquiry, and to
keep Patriot fully informed of the status of any such Acquisition Proposal or
inquiry.
Conduct of Business--Interstate. Except as otherwise permitted by the Merger
Agreement, Interstate has agreed that it will, and that it will cause its
significant subsidiaries to, carry on their respective businesses in all
material respects in the ordinary course in substantially the same manner as
previously conducted and in compliance in all material respects with all
applicable laws and that it will use all reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers and other key
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employees and preserve their relationships with others having business dealings
with them to the end that their goodwill and ongoing businesses will be
unimpaired at the Effective Time.
Except as permitted by the Merger Agreement, Interstate agreed that it will
not, and that it will not permit any of its subsidiaries to: (i) with certain
exceptions, (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (B) split, combine or
reclassify any of its capital stock or issue capital stock in any similar
transactions, or (C) purchase, redeem or otherwise acquire any shares of
Interstate capital stock or the capital stock of any of Interstate's
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; (ii) other than pursuant to
outstanding equity incentive awards, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities; (iii) amend its
charter, bylaws or other comparable organizational documents; (iv) with certain
exceptions, acquire in any manner any entity or the assets thereof in a
transaction involving a purchase price that, when taken together with the
purchase price of other similar transactions taking place after December 2,
1997 and on or before February 28, 1998 (if such transaction takes place on or
before February 28, 1998) or after February 28, 1998 and before the Effective
Time (if such transaction takes place during such period), would exceed $50
million; (v) with certain exceptions, sell, lease, license, mortgage, or
otherwise encumber or subject to any lien, security interest or similar
encumbrance or otherwise dispose of any of its properties or assets; (vi) with
certain exceptions including the incurrence of up to $100 million of
subordinated indebtedness for purposes permitted by the Merger Agreement, incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights
to acquire any debt securities of Interstate or any of its subsidiaries,
guarantee any debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing or make any loans, advances or capital contributions to, or
investments in, other persons; (vii) with certain exceptions including
expenditures contemplated by Interstate's existing capital budgets, make or
agree to make any capital expenditures; (viii) make any change to its
accounting methods, principles or practices, except as may be required by
generally accepted accounting principles; (ix) except as required by law or
contemplated by the Merger Agreement, enter into, adopt or amend in any
material respect or terminate any Interstate employee benefit plan or any
similar plan or agreement involving Interstate or any of its subsidiaries and
any of their directors, officers or employees, or materially change any
assumptions used to calculate any funding obligations with respect to any
Interstate pension plans, or change the manner in which contributions to any
Interstate pension plans are made or the basis on which such contributions are
determined; (x) except as otherwise contemplated by the Merger Agreement,
increase the compensation of any director, officer or employee of Interstate or
any of its subsidiaries earning more than $50,000 per annum or enter into or
amend any employment agreement with any such person, or pay any benefit or
amount not required by a plan or arrangement as in effect on the date of the
Merger Agreement to any such person; (xi) settle any stockholder derivative or
class action claims arising out of or in connection with any of the
transactions contemplated by the Merger Agreement; (xii) modify or amend any
agreement with any franchisor with respect to any real property assets owned or
leased by Interstate or any of its subsidiaries in any respect which is
material with respect to any one or more hotel assets, or extend the term
thereof, or modify or amend, without the prior consent of Patriot (which
consent will not be unreasonably withheld or delayed), any agreements under
which Interstate or any of its subsidiaries provides hotel management services;
(xiii) without the prior consent of Patriot (which consent will not be
unreasonably withheld or delayed), enter into any agreement with any franchisor
with respect to any real property assets owned or leased by Interstate or any
of its subsidiaries or any agreement under which Interstate or any of its
subsidiaries would provide hotel management services; or (xiv) authorize, or
commit or agree to take, any of the foregoing actions.
Conduct of Business--The Patriot Companies. Except as otherwise permitted by
the Merger Agreement, the Patriot Companies agreed that they will, and that
they will cause their respective significant subsidiaries to, carry on their
respective businesses in all material respects in the usual, regular and
ordinary course in substantially the same manner as previously conducted and in
compliance in all material respects with all
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applicable laws and that they will use all reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and other key employees and preserve their relationships
with others having business dealings with them to the end that their goodwill
and ongoing businesses will be unimpaired at the Effective Time.
Except as permitted by the Merger Agreement, the Patriot Companies agreed
that they will not, and that they will not permit any of their respective
subsidiaries to: (i) with certain exceptions, (A) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of their
capital stock, (B) split, combine or reclassify any of their capital stock or
issue capital stock in any similar transactions, or (C) purchase or offer to
purchase any capital stock of either of the Patriot Companies; (ii) incur or
guarantee any indebtedness, issue or sell any debt securities or warrants or
other rights to acquire any debt securities or enter into any arrangement
having the economic effect of any of the foregoing such that the consolidated
indebtedness of the Patriot Companies would exceed an amount equal to 50% of
the combined market capitalization of the Patriot Companies; (iii) directly or
indirectly through a subsidiary enter into any agreement, or participate in
active negotiations with any third party, relating to any tender or exchange
offer, merger, consolidation, sale of all or substantially all of the capital
stock or assets of Patriot or Wyndham International or other form of business
transaction the reasonably foreseeable effect of which would be (Y) to delay
the Effective Time beyond May 31, 1998 or to prevent the Effective Time from
occurring, or (Z) result in the Merger not being treated as a tax-free
reorganization for federal income tax purposes; (iv) take any action or fail to
take any action which could reasonably be expected to terminate Patriot's
status as a REIT; or (v) authorize, or commit or agree to take, any of the
foregoing actions.
Other Actions. Except as required by law, neither Interstate, on the one
hand, nor Patriot or Wyndham International, on the other hand, will, nor will
they permit any of their respective subsidiaries to, voluntarily take any
action that could reasonably be expected to result in (i) any of the
representations and warranties of such party set forth in the Merger Agreement
becoming untrue in any material respect or (ii) any of the conditions to the
Merger not being satisfied.
Advice of Changes. Interstate and Patriot agreed to promptly advise the other
party orally and in writing of (i) any representation or warranty made by it
or, in the case of Patriot, Wyndham International in the Merger Agreement
becoming untrue or inaccurate in any material respect, (ii) the failure by it
or, in the case of Patriot, Wyndham International to comply in any material
respect with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under the Merger Agreement, or
(iii) any change or event having, or which, insofar as can reasonably be
foreseen, could reasonably be expected to have, a material adverse effect on
such party or on the truth of their respective representations and warranties
or the ability of the conditions to the Merger to be satisfied.
Interstate's Accumulated and Current Earnings and Profits. At the Closing,
Interstate will deliver to Patriot (i) a statement of Interstate's E&P as of a
date not more than 30 days prior to the Closing Date, together with evidence of
such E&P from Coopers & Lybrand L.L.P. in a form reasonably satisfactory to
Patriot, and (ii) a statement of estimated E&P as of the Closing Date.
Interstate further agreed that, prior to the Closing Date, it will cooperate in
Patriot's efforts to obtain from Coopers & Lybrand L.L.P. such firm's
computation, or confirmation of Interstate's computation, of E&P at the
Effective Time.
Filings; Cooperation. Subject to the terms of the Merger Agreement,
Interstate, Patriot and Wyndham International each agreed to: (i) prepare this
Joint Proxy Statement/Prospectus, to call and hold a special stockholders'
meeting for the purpose of obtaining the adoption of the Merger Agreement by
such party's respective stockholders, and to have the Form S-4 declared
effective by the Commission, in each case as soon as practicable; (ii) afford
the other parties and their respective representatives reasonable access prior
to the Effective Time, on a confidential basis, to their respective properties,
books, contracts, commitments, personnel
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and records; (iii) make and supplement such filings, if any, as may be
required by the HSR Act with respect to the Merger; (iv) use all reasonable
efforts to take all actions, and do, and assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate the
Merger and the other transactions contemplated by the Merger Agreement in the
most expeditious manner practicable; (v) consult with each other before
issuing, and provide each other the opportunity to review, comment upon and
concur with, any press release or other public statements with respect to the
Merger Agreement; (vi) give the other parties the reasonable opportunity to
participate in the defense of any stockholder litigation, relating to the
Merger Agreement; and (vii) use reasonable efforts to cause the Merger to
qualify as a reorganization under the provisions of Section 368 of the Code.
Certain Other Covenants of Interstate. Interstate has further agreed,
subject to the terms and conditions of the Merger Agreement: (i) to deliver to
Patriot, prior to the Closing Date, a letter identifying all "affiliates" of
Interstate for the purposes of Rule 145 under the Securities Act and to use
all reasonable efforts to cause each such affiliate to deliver to Patriot on
or prior to the Closing Date an agreement acknowledging certain matters with
respect to restrictions on the resale of the Paired Shares received by such
affiliate in the Merger; (ii) to cooperate with Patriot to determine whether
the issuance of Paired Shares in the Merger will violate the Excess Share
Provisions (see "Description of Capital Stock--Excess Stock"); and (iii) to
cause Interstate's Employee Stock Purchase Plan to be terminated on or prior
to the Closing Date.
Certain Other Covenants of the Patriot Companies. The Patriot Companies have
further agreed, subject to the terms and conditions of the Merger Agreement:
(i) assuming the Effective Time occurs, to treat service with Interstate, with
certain exceptions, as service with the Patriot Companies for purposes of (A)
determining eligibility to participate, vesting and entitlement to benefits
under each Patriot or Wyndham International employee benefit plan, and (B)
satisfying any waiting periods, evidence of insurability requirements or the
application of any preexisting condition limitations under any such plan and,
further, to give credit under any such plan in which such employee is eligible
to participate for amounts paid under a corresponding Interstate benefit plan
during the same period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in accordance with
the terms and conditions of such Patriot or Wyndham International plan; (ii)
to honor, following the Effective Time, in accordance with their terms, all
employment, severance and other compensation agreements and arrangements of
Interstate; (iii) to effect certain registration rights pursuant to the
Registration Rights Agreement; and (iv) to use all reasonable efforts to cause
the Paired Shares to be issued in the Merger and under the Interstate Stock
Plans to be approved prior to the Effective Time for listing on the NYSE,
subject to official notice of issuance.
Interim Transactions Committee. In accordance with the Merger Agreement,
Patriot and Interstate have constituted and established an Interim
Transactions Committee which will evaluate and consider proposed transactions
by Interstate or any of its subsidiaries prior to the Effective Time. The
Interim Transactions Committee consists of Paul A. Nussbaum and James D.
Carreker (each designated by Patriot), and W. Thomas Parrington, Jr. and J.
William Richardson (each designated by Interstate), and acts only by the vote
of at least three of the four members thereof. The Interim Transactions
Committee will be abolished at the Effective Time.
INDEMNIFICATION
All rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time existing in favor of the
current or former directors or officers of Interstate or its subsidiaries as
provided in their respective certificates of incorporation or bylaws (or
comparable organizational documents) and existing indemnity contracts will be
assumed by Patriot and Patriot will be directly responsible for such
indemnification as of the Effective Time, with such rights to indemnification
continuing in full force and effect in accordance with their respective terms
for a period of not less than six years from the Effective Time.
In addition, directors and officers of Interstate who become or remain
directors or officers of Patriot, Wyndham International or any of their
respective subsidiaries after the Effective Time will be entitled to the same
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indemnity rights and protections (including those provided by directors' and
officers' liability insurance) as are afforded to directors and officers of
Patriot, Wyndham International or such subsidiary, as the case may be.
Patriot additionally agreed to maintain in effect for not less than six years
after the Effective Time one or more policies of directors' and officers'
liability insurance that provide coverage for the current directors and
officers of Interstate that is substantially similar to that provided by the
policies maintained by or on behalf of Interstate and its subsidiaries as of
December 2, 1997 with respect to matters existing or occurring at or prior to
the Effective Time, provided that if the aggregate annual premiums for such
insurance at any time during such period exceed 150% of the per annum rate of
premium paid by Interstate and its subsidiaries for such insurance as of
December 2, 1997, then Patriot will provide the maximum coverage that will then
be available at an annual premium equal to 150% of such rate.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Proposal by the
stockholders of Interstate, Patriot and/or Wyndham International, in a number
of circumstances including by: (i) mutual written consent of Patriot and
Interstate; (ii) either Patriot or Interstate, if the Merger shall not have
been consummated on or before May 31, 1998, provided that this right to
terminate will not be available to any party whose failure to perform any of
its obligations under the Merger Agreement resulted in the failure of the
Merger to be consummated by May 31, 1998; (iii) either Patriot or Interstate,
if the Merger Proposal shall not have been approved by the stockholders of
Patriot, Wyndham International or Interstate at the applicable stockholders
meeting; (iv) either Patriot or Interstate, if any competent court or other
governmental entity shall have issued or enacted any judgment, order, decree,
statute, law, ordinance, rule or regulation or other legal restraint or
prohibition (each, a "Restraint") or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the Merger
or any of the transactions contemplated by the Merger Agreement and such
Restraint or other action shall have become final and nonappealable; (v) by
Patriot, if the Interstate Board or any committee thereof shall have (a)
withdrawn, modified or amended in a manner adverse to Patriot its approval or
recommendation of the Merger or the Merger Agreement, (b) failed to include
such recommendation in this Joint Proxy Statement/Prospectus, (c) approved or
recommended, or proposed publicly to approve or recommend, any Acquisition
Proposal other than the Merger, (d) caused Interstate to enter into an
Acquisition Agreement, or (e) resolved to take any of the foregoing actions;
(vi) Interstate, if either the Patriot Board or the Wyndham International Board
or any committee of either such Board shall have (A) withdrawn, modified or
amended in a manner adverse to Interstate its approval or recommendation of the
Merger or the Merger Agreement, (B) failed to include such recommendation in
this Joint Proxy Statement/Prospectus, or (C) resolved to take any of the
foregoing actions; (vii) Interstate, if Patriot or Wyndham International shall
have breached or failed to perform in any material respect any of their
representations, warranties and covenants required to be performed by them
under the Merger Agreement and such breach or failure to perform cannot be or
has not been cured within 30 days after the giving of written notice to Patriot
and Wyndham International of such breach (provided that Interstate is not then
in material breach of any representation, warranty, covenant or other agreement
contained in the Merger Agreement that cannot be or has not been cured within
30 days after giving notice to Interstate of such breach); (viii) Interstate,
in response to an unsolicited Acquisition Proposal, if the Interstate Board
determines (after consultation with its financial advisors) that (A) such
unsolicited Acquisition Proposal is reasonably likely to be, involve or result
in an Acquisition Proposal that is reasonably capable of being completed on the
terms proposed and would, if consummated, result in a transaction more
favorable to Interstate's stockholders than the Merger and (B) the failure to
take such action would result in a breach of the fiduciary duties of
Interstate's Board under applicable law, provided that Interstate has, prior to
and as a condition to the effectiveness of such termination, deposited $50
million with an escrow agent as described under "--Fees and Expenses"; (ix)
Interstate, if the Patriot Average Closing Price is less than $26.416 (as
equitably adjusted pursuant to the Merger Agreement), provided that any prior
exercise by Interstate of such right to terminate the Merger Agreement will be
rescinded and have no effect if Patriot determines to increase the Exchange
Ratio to an amount equal to $35.424 divided by the Average Closing Price; and
(x) by Patriot, if Interstate shall have breached or failed to perform in any
material
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respect any of its representations, warranties or covenants required to be
performed by it under the Merger Agreement and such breach or failure to
perform cannot be or has not been cured within 30 days after the giving of
written notice of Interstate of such breach (provided that neither Patriot nor
Wyndham International is then in material breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement that
cannot be or has not been cured within 30 days after giving notice to Patriot
of such breach).
FEES AND EXPENSES
General. Except as otherwise described herein, all fees and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such fees and
expenses (whether or not the Merger is consummated), except that each of
Patriot and Interstate will pay one-half of the costs and expenses incurred in
connection with the filing, printing and mailing of this Joint Proxy
Statement/Prospectus (excluding Commission filing fees).
Break-up Fees--Interstate. In the event that the Merger Agreement is
terminated by Interstate, in response to an unsolicited Acquisition Proposal,
after determining (in consultation with Interstate's financial advisors) that
(i) such unsolicited Acquisition Proposal is reasonably likely to be, involve
or result in an Acquisition Proposal that is reasonably capable of being
completed on the terms proposed and would, if consummated, result in a
transaction more favorable to Interstate's stockholders than the Merger and
(ii) the failure to so terminate the Merger Agreement would result in a breach
of the Interstate Board's fiduciary duties under applicable law, Interstate
will deposit $50 million with an escrow agent for the benefit of Patriot to be
distributed as described below.
In the event that (i) an Acquisition Proposal is made public, or any person
publicly announces an intention (whether or not conditional) to make an
Acquisition Proposal, and thereafter (A) the Merger Agreement is terminated by
either Patriot or Interstate due either to the Merger not having been
consummated on or prior to May 31, 1998 or the fact that Interstate
stockholders shall have failed to approve the Merger Proposal at the
Interstate Special Meeting, and (B) within 12 months after such termination of
the Merger Agreement Interstate enters into an Acquisition Agreement or an
Alternative Transaction (as defined in the Merger Agreement) or (ii) the
Merger Agreement is terminated by Patriot after the Interstate Board or any
committee thereof has (A) withdrawn, modified or amended in a manner adverse
to Patriot its approval or recommendation of the Merger or the Merger
Agreement, (B) failed to include such recommendation in this Joint Proxy
Statement/Prospectus, (C) approved or recommended, or proposed publicly to
approve or recommend, any Acquisition Proposal other than the Merger, (D)
caused Interstate to enter into an Acquisition Agreement, or (E) resolved to
take any of the foregoing actions, Interstate will deposit $50 million with an
escrow agent for the benefit of Patriot to be distributed as described below.
The proceeds of the amounts deposited with the escrow agent will be
distributed to Patriot to the maximum extent possible without jeopardizing
Patriot's REIT status under the Code. Amounts initially withheld from
distribution to Patriot will be distributed to Patriot at the earliest
possible time that such distributions may be made without jeopardizing
Patriot's REIT status under the Code. Any amounts remaining in the escrow fund
after 15 years will be released by the escrow agent to Interstate.
Break-up Fees--Patriot. In the event that the Merger Agreement is terminated
by Interstate after the Patriot Board or the Wyndham International Board or
any committee of either of them has (i) withdrawn, modified or amended in a
manner adverse to Interstate its approval or recommendation of the Merger or
the Merger Agreement, (ii) failed to include such recommendation in this Joint
Proxy Statement/Prospectus, or (iii) resolved to take any of the foregoing
actions, Patriot will pay Interstate a fee equal to $50 million. In the event
that the Merger Agreement is terminated by Interstate or Patriot after the
requisite stockholder approval has not been obtained at the Interstate Special
Meeting, the Patriot Special Meeting and/or the Wyndham International Special
Meeting, then Patriot will pay Interstate an amount in cash equal to the
documented out-of-pocket fees
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and expenses actually incurred by Interstate prior to such termination in
connection with the Merger Agreement and the transactions contemplated thereby
up to a maximum of $9 million, provided that no such payment will be made in
the case of a termination by Patriot or Interstate if Interstate is in
material breach of the Merger Agreement at the time of such termination (which
breach has continued for more than 30 days after notice or cannot reasonably
be expected to be cured within such period (unless such breach was caused by
or resulted from a breach of the Merger Agreement by Patriot or Wyndham
International)).
AMENDMENTS
The parties may amend the Merger Agreement in writing at any time before or
after approval of the Merger Proposal by the stockholders of Patriot, Wyndham
International or Interstate, but after any such stockholder approval, no
amendment may be made which by law requires the further approval of
stockholders without obtaining such further approval.
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CERTAIN RELATED AGREEMENTS
SHAREHOLDERS AGREEMENT
Pursuant to the Shareholders Agreement, Milton Fine and each of the Fine
Entities have appointed Patriot their proxy to vote the shares of Interstate
Common Stock owned by them with respect to certain matters relating to the
Merger, up to an aggregate maximum of 19.9% of the total outstanding shares of
Interstate Common Stock. As of January 6, 1998, Milton Fine and the Fine
Entities owned an aggregate of 12,771,530 Interstate Shares and the proxy
given to Patriot applied to 7,049,834 of such shares. The term of the proxy
lasts from December 2, 1997 to the earlier of the termination of the Merger
Agreement and the Effective Time.
The proxy described above grants Patriot the right to vote Interstate Shares
to which it applies (i) in favor of the Merger Agreement and the transactions
contemplated by the Merger Agreement; (ii) against any Acquisition Proposal;
(iii) against any proposal for any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of Interstate under the Merger Agreement or which is reasonably
likely to result in any of the conditions of Interstate's obligations under
the Merger Agreement not being fulfilled; (iv) against any change in the
directors of Interstate, any change in Interstate's present capitalization,
any amendment to the Interstate Charter or the Interstate Bylaws, and/or any
other material change in Interstate's corporate structure or business; (v)
against any other action which could reasonably be expected to impede,
interfere with, delay, postpone or materially adversely affect the
transactions contemplated by the Merger Agreement or the likelihood of such
transactions being consummated; and (vi) in favor of any other matter
necessary for consummation of the transactions contemplated by the Merger
Agreement. The proxy also grants Patriot the right to execute any documents
necessary or appropriate to effectuate the purposes of the proxy.
Pursuant to the Shareholders Agreement, Milton Fine and the Fine Entities
have also agreed, with respect to any Interstate Shares not voted pursuant to
the proxy (including any Interstate Shares owned by Milton Fine and the Fine
Entities beneficially but not of record), to vote such shares, up to a
maximum, when aggregated with all Interstate Shares voted pursuant to the
proxy, of 19.9% of the total outstanding shares of Interstate Common Stock, in
the same manner as set forth above.
Under the Shareholders Agreement, during the proxy term Milton Fine and each
of the Fine Entities are prohibited from (i) selling, transferring, assigning
or otherwise disposing of any of their Interstate Shares; (ii) depositing any
of their Interstate Shares into a voting trust or entering into any voting
agreement or arrangement with respect to their shares of Interstate Common
Stock; (iii) entering into any contract, option or other legally binding
undertaking providing for any transaction described in (i) and (ii) above; and
(iv) taking any action that would make any representation or warranty of
Milton Fine and the Fine Entities contained in the Shareholders Agreement
untrue or incorrect or have the effect of preventing or disabling Milton Fine
and the Fine Entities from performing any of their obligations under the
Shareholders Agreement. Prior to the mailing of this Joint Proxy
Statement/Prospectus to holders of Interstate Common Stock, Milton Fine and
the Fine Entities may sell, pursuant to Rule 144 under the Securities Act, or
contribute to certain tax-exempt charitable institutions, up to an aggregate
of 360,000 Interstate Shares. In addition, if the Merger is consummated,
Milton Fine and each of the Fine Entities are prohibited for 90 days from
selling, transferring, assigning, pledging or otherwise disposing of any of
the Paired Shares received by them pursuant to the Merger Agreement.
The Shareholders Agreement also contains certain other provisions, including
(i) the agreement of Milton Fine and the Fine Entities (a) to elect to receive
Cash Consideration in the Merger with respect to all Interstate Shares owned
by them, (b) not to exercise dissenters' rights with respect to the Merger,
and (c) until the date (the "Board Representation Date") that is the earlier
of (1) the later of (A) the first date on which Milton Fine and the Fine
Entities own fewer than 3% of the then-outstanding Paired Shares and (B) the
second anniversary of the Effective Time and (2) the first date on which
Milton Fine and the Fine Entities own fewer than 50% of the Paired Shares
received by them in the Merger, to vote or cause to be voted all Paired Shares
owned of record by them in favor of the nominees of Patriot or Wyndham
International or the Patriot Board or the Wyndham
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International Board for directors at each meeting of stockholders of Patriot or
Wyndham International, as the case may be; (ii) the agreement of Milton Fine to
cause or use reasonable efforts to cause, at the request of Patriot or Wyndham
International, the extension of certain management contracts for hotels in
which Mr. Fine has a direct or indirect equity interest and to which Interstate
or one of its affiliates is a party; and (iii) the agreement of Patriot to (a)
cause the election of a designee of Milton Fine and the Fine Entities as a
director of Patriot until the Board Representation Date, (b) provide or cause
to be provided to Milton Fine, for three years, office space in Pittsburgh,
Pennsylvania to use rent free, and (c) permit Milton Fine to stay in first-
class accommodations in one or more of Interstate's current hotels rent free,
for an aggregate of 30 days each year for five years. See "The Merger and
Subscription--Interests of Certain Officers, Directors and Stockholders of
Interstate."
NONDISSENT AGREEMENTS
Certain significant stockholders and members of Interstate's senior
management owning an aggregate of 17,228,585 Interstate Shares agreed not to
exercise dissenters' rights with respect to the Merger.
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OWNERSHIP OF INTERSTATE COMMON STOCK PRIOR TO THE MERGER
The following table sets forth certain information regarding the beneficial
ownership of Interstate Common Stock as of January 6, 1998 by (i) each person
known by Interstate to own beneficially more than 5% of the Interstate Common
Stock, (ii) each director and Named Executive of Interstate, and (iii) all
directors and executive officers of Interstate as a group. Unless indicated
otherwise, the address for each of the persons named in the table is Foster
Plaza Ten, 680 Andersen Drive, Pittsburgh, Pennsylvania 15220. For purposes of
the table, a person or group of persons is deemed to have "beneficial
ownership" of any shares as of a given date which such person has the right to
acquire within 60 days after such date.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OWNED SHARES OWNED
---------------- -------------
<S> <C> <C>
Milton Fine(1).............................. 6,207,230 17.5%
Fine Entities(2)............................ 12,771,530 36.1
David J. Fine(3)............................ 6,571,800 18.6
Blackstone Group(4)......................... 2,528,571 7.1
W. Thomas Parrington, Jr.(5)................ 303,660 *
J. William Richardson(6).................... 170,403 *
Robert L. Froman............................ 196,072 *
Marvin I. Droz(7)........................... 100,454 *
R. Michael McCullough(8).................... 10,000 *
Thomas J. Saylak............................ -- --
Steven J. Smith............................. 4,300 *
The Prudential Insurance Company of Ameri-
ca(9)...................................... 2,735,200 7.7
All directors and executive officers as a
group (10 persons)(10)..................... 13,573,919 38.3
</TABLE>
- --------
* Less than 1%.
(1) Includes 5,000 shares owned by Milton Fine's wife, 2,500 shares owned by
Milton Fine's wife in trust for her children and 6,199,730 of the
12,771,530 shares beneficially owned by the Fine Entities as to which
Milton Fine is trustee. Milton Fine disclaims beneficial ownership of all
of such shares.
(2) The Fine Entities are comprised of six trusts: Milton Fine is the trustee
of two of the trusts and David J. Fine is the trustee of four of the
trusts.
(3) David J. Fine may be deemed to beneficially own 6,571,800 of the
12,771,530 shares beneficially owned by the Fine Entities as to which
David J. Fine is trustee. David J. Fine disclaims beneficial ownership of
such shares.
(4) The Blackstone Group's address is 345 Park Avenue, New York, New York
10154.
(5) Includes 3,000 shares owned by Mr. Parrington's daughters. Mr. Parrington
disclaims beneficial ownership of such shares.
(6) Includes 500 shares owned by Mr. Richardson's daughters. Mr. Richardson
disclaims beneficial ownership of all of such shares.
(7) Consists of 83,454 shares owned by a trust for which Mr. Droz is trustee
and 17,000 shares owned by a trust for which Mr. Droz's wife is trustee.
Mr. Droz disclaims beneficial ownership of such shares.
(8) All of the shares shown in the table to be beneficially owned by Mr.
McCullough are owned by Mr. McCullough's wife. Mr. McCullough disclaims
beneficial ownership of such shares.
(9) The address of The Prudential Insurance Company of America is 751 Broad
Street, Newark, New Jersey 07102-3777.
(10) Includes 10,000 shares that are subject to certain risks of forfeiture
under Interstate's Equity Incentive Plan.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of all material United States federal
income tax consequences of the Merger to Patriot, Wyndham International and
Interstate and their respective U.S. Stockholders (as defined below in "--
Federal Income Taxation of Holders of Paired Shares--Taxation of Taxable U.S.
Stockholders") as well as certain other tax considerations for U.S. holders of
Paired Shares. The following discussion is based upon current provisions of
the Code, existing, temporary and final regulations thereunder and current
administrative rulings and court decisions, all of which are subject to
change, possibly on a retroactive basis. No attempt has been made to comment
on all United States federal income tax consequences of the Merger that may be
relevant to stockholders of Patriot, Wyndham International and Interstate. The
tax discussion set forth below is included for general information only. It is
not intended to be, nor should it be construed to be, legal or tax advice to a
particular stockholder of Patriot, Wyndham International and Interstate.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF PATRIOT CAPITAL STOCK, WYNDHAM INTERNATIONAL COMMON STOCK OR
INTERSTATE COMMON STOCK SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT
ORGANIZATIONS, NON-U.S. STOCKHOLDERS AND HOLDERS WHOSE SHARES WERE ACQUIRED
PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. STOCKHOLDERS OF PATRIOT, WYNDHAM INTERNATIONAL AND INTERSTATE
ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING ANY STATE, LOCAL OR OTHER TAX
CONSEQUENCES OF THE MERGER.
TAX CONSEQUENCES OF THE MERGER
Prior to the Closing, Goodwin, Procter & Hoar llp, counsel to the Patriot
Companies, will deliver an opinion to Patriot and Interstate to the effect
that, on the basis of the representations, assumptions and conditions set
forth in such opinion, the Merger will be treated for United States federal
income tax purposes as a reorganization within the meaning of Section 368(a)
of the Code and that Patriot and Interstate will each be a party to such
reorganization within the meaning of Section 368(b) of the Code. Assuming the
Merger is so treated, no gain or loss will be recognized by Interstate as a
result of the Merger. Stockholders of Interstate will recognize gain, but not
loss, on the exchange of shares of Interstate Common Stock for Paired Shares
and/or cash pursuant to the Merger in an amount equal to the lesser of (a) the
fair market value of the Wyndham International Common Stock as of the
Effective Time that they receive, plus the amount of cash received in
connection with the Merger (pursuant to a Cash Election or in lieu of
fractional shares of Wyndham Common Stock) (such value and cash received by a
stockholder is referred to herein as the stockholder's "boot") or (b) the
amount by which the fair market value of the Paired Shares as of the Effective
Time, plus the amount of cash received in connection with the Merger, exceeds
the stockholder's adjusted tax basis in the Interstate Common Stock exchanged
therefor. Any such gain will be characterized as capital gain (assuming the
Interstate Common Stock exchanged was a capital asset in the hands of the
stockholder) unless the boot received has the effect of the distribution of a
dividend, in which case the gain would be treated as a dividend to the extent
of the stockholder's ratable share of Interstate's undistributed earnings and
profits (see below). Interstate stockholders may also recognize gain or loss
from the "redemption" of fractional shares of Patriot Common Stock (as
discussed below). The Patriot Companies' estimate of the value of a share of
Wyndham International Common Stock is discussed below. No gain or loss will be
recognized by Patriot as a result of the Merger. Neither Wyndham
International, which is not a constituent corporation in the Merger, nor the
stockholders of Patriot and Wyndham International, will recognize gain or loss
as a result of the Merger.
The opinion of Goodwin, Procter & Hoar llp will be based, in part, upon a
representation by the management of Interstate that there is no plan or
intention on the part of stockholders of Interstate that own 5% or more of the
Interstate Outstanding Shares, and, to the best knowledge of Interstate's
management, there is no plan or intention on the part of the remaining
stockholders of Interstate, to dispose of a number of Paired Shares received
in the Merger that would reduce the aggregate value of the Patriot Common
Stock held by Interstate
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stockholders to less than 45% of the value of the Interstate Common Stock as of
the Effective Time, and upon counsel's assumption to the effect that such
representation is correct as if made without such "best knowledge"
qualification. The opinion referred to above has been filed as an exhibit to
the Registration Statement, of which this Joint Proxy Statement/Prospectus is a
part.
In general, the determination as to whether the gain recognized by an
Interstate stockholder in the Merger will be treated as capital gain or
dividend income depends upon whether and to what extent the transactions
related to the Merger will be deemed to reduce the stockholder's percentage
stock ownership of Patriot following the Merger. For purposes of that
determination, the stockholder is treated as if it first exchanged all of its
shares of Interstate Common Stock solely for Patriot Common Stock and then
Patriot immediately redeemed (the "deemed redemption") a portion of such
Patriot Common Stock in exchange for the boot the stockholder actually
received. If, under Section 302 of the Code, the deemed redemption is "not
essentially equivalent to a dividend" with respect to the stockholder, then any
gain recognized by the stockholder in the transaction will be capital gain. In
general, in order for the deemed redemption to be "not essentially equivalent
to a dividend," the deemed redemption must result in a "meaningful reduction"
in the stockholder's deemed percentage stock ownership of Patriot following the
Merger. In general, that determination requires a comparison of (i) the
percentage of the outstanding stock of Patriot the stockholder owned or is
considered to have owned immediately before the deemed redemption and (ii) the
percentage of the outstanding stock of Patriot the stockholder owns immediately
after the deemed redemption. Stock owned for this purpose includes stock
actually owned as well as stock treated as being owned under the constructive
ownership rules of Section 318 of the Code. The IRS has indicated in a
published ruling that, in the case of a small minority holder of a publicly
held corporation who exercises no control over corporate affairs, a reduction
in the holder's proportionate interest in the corporation from .0001118% to
.0001081% would constitute a meaningful reduction. In addition, the deemed
redemption will not be essentially equivalent to a dividend if it is
"substantially disproportionate." The deemed redemption will be "substantially
disproportionate" with respect to an Interstate stockholder if the percentage
of the outstanding voting stock of Patriot (following the Merger and the deemed
redemption) actually owned by the stockholder and constructively owned by the
stockholder under the constructive ownership rules of Section 318 of the Code
(treating the Patriot Common Stock acquired by Patriot in the deemed redemption
as not outstanding) is less than 80% of the percentage of the outstanding
voting stock of Patriot actually and constructively owned by the stockholder
following the Merger but immediately before the deemed redemption (treating the
Patriot Common Stock acquired by Patriot in the deemed redemption as
outstanding).
In applying the foregoing tests, under the attribution rules of Section 318
of the Code, a stockholder is deemed to own (i) stock owned and, in some cases,
constructively owned by certain family members, by certain estates and trusts
of which the stockholder is a beneficiary, and by certain affiliated entities,
and (ii) stock subject to an option actually or constructively owned by the
stockholder or such other persons. As these rules are complex, each stockholder
that believes it may be subject to these rules should consult its tax advisor.
Interstate stockholders should be aware that the Taxpayer Relief Act of 1997
(the "Relief Act") recently modified the capital gain rates applicable to
individuals, trusts and estates. See "--Federal Income Taxation of Holders of
Paired Shares--Taxation of Taxable U.S. Stockholders."
The aggregate tax basis of the shares of Patriot Common Stock received by an
Interstate stockholder in the Merger (including any fractional shares of
Patriot Common Stock for which cash is received) will be the same as the
aggregate tax basis of his or her shares of Interstate Common Stock exchanged
therefor, increased by any gain recognized in the transaction (whether capital
gain or dividend income), and decreased by (i) the fair market value of the
Wyndham International Common Stock received and (ii) any cash received in
connection with the Merger pursuant to a Cash Election or in lieu of fractional
shares of Wyndham International Common Stock. The holding period for shares of
Patriot Common Stock received by a stockholder will include the period that
such shares of Interstate Common Stock were held by the holder, provided such
shares were held as a capital asset at the Effective Time.
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If an Interstate stockholder has differing bases and/or holding periods in
respect of his or her shares of Interstate Common Stock, he or she should
consult his or her tax advisor prior to the exchange with regard to computing
his or her gain with respect to particular blocks of Interstate Common Stock
and identifying the particular bases and/or holding periods of the particular
shares of Patriot Common Stock he or she receives in the exchange.
The aggregate tax basis of the shares of Wyndham International Common Stock
received by an Interstate stockholder in the Merger will be equal to the fair
market value of the Wyndham International Common Stock as of the Effective
Time. The holding period for shares of Wyndham International Common Stock
received by a stockholder will begin on the day it is distributed.
Cash received in lieu of fractional shares of Patriot Common Stock will be
treated as received in redemption for such fractional interest, and gain or
loss will be recognized, measured by the difference between the amount of cash
received and the portion of the basis of the shares of Patriot Common Stock
allocable to such fractional shares. Such gain or loss will constitute capital
gain or loss from the sale of stock if the stockholder holds its Interstate
Common Stock as a capital asset at the Effective Time.
Under the terms of the Pairing Agreement, the Patriot Companies are
obligated to agree on the relative values of a share of Patriot Common Stock
and a share of Wyndham International Common Stock that comprise a Paired
Share. As of the date of the mailing of this Joint Proxy Statement/Prospectus,
the companies have determined that the value of a share of Wyndham
International Common Stock should represent 5% of the value of a Paired Share.
There can be no assurance, however, that the IRS will agree with such
valuation or that these relative values will not have changed by the Effective
Time.
The Charters generally provide that no individual or entity (other than
Look-Through Entities) may beneficially own or constructively own in excess of
8.0% of the outstanding shares of any class or series of equity stock of
Patriot or Wyndham International and that no Look-Through Entity may
beneficially own or constructively own in excess of 9.8% of the outstanding
shares of any class or series of Equity Stock of Patriot or Wyndham
International. Paired Shares received by any Interstate stockholder in the
Merger in excess of the applicable ownership limitation will be converted into
Excess Stock in accordance with the Excess Share Provisions of the Charters.
See "Description of Capital Stock--Excess Stock" and "--Certain Provisions of
the Charters and Bylaws--Restrictions on Ownership and Transfer." Although not
entirely free from doubt, such Excess Stock likely would be treated as "boot"
in the same manner as cash received in the Merger pursuant to a Cash Election
for purposes of the foregoing rules.
The conclusion above that Interstate will not recognize gain or loss as a
result of the Merger assumes that Patriot makes an election pursuant to IRS
Notice 88-19 with respect to the Merger. Patriot will make the election
pursuant to IRS Notice 88-19 if such election is available. If Patriot failed
to make the election (or it were no longer available), Interstate would
recognize gain on the Merger notwithstanding that the Merger qualifies as a
"reorganization" within the meaning of Section 368(a) of the Code.
MERGER DIVIDEND
To maintain its qualification as a REIT, following the Merger, Patriot will
be required to distribute the current and accumulated earnings and profits of
Interstate (as determined for federal income tax purposes). See "--REIT
Qualification." The distribution will be taken into account by Patriot's
taxable U.S. Stockholders as ordinary income to the extent it is made out of
current or accumulated earnings and profits, and will not be eligible for the
dividends received deduction generally available for corporations. See "--
Federal Income Taxation of Holders of Paired Shares."
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REIT QUALIFICATION
General
If certain detailed conditions imposed by the provisions of the Code are met,
entities such as Patriot that invest primarily in real estate and that
otherwise would be treated for federal income tax purposes as corporations
generally are not taxed at the corporate level on their "real estate investment
trust taxable income" that is currently distributed to stockholders. This
treatment substantially eliminates the "double taxation" on earnings (i.e., at
both the corporate and stockholder levels) that ordinarily results from the use
of corporations.
Prior to the consummation of the Merger, Patriot has been and will continue
to be operated in a manner intended to allow it to qualify as a REIT. Patriot
intends to operate following the Merger in a manner so that Patriot will
continue to qualify as a REIT. If Patriot fails to qualify as a REIT in any
taxable year, Patriot will be subject to federal income taxation as if it were
a domestic corporation, and Patriot's stockholders will be taxed in the same
manner as stockholders of ordinary corporations. In this event, Patriot could
be subject to potentially significant tax liabilities, and the amount of cash
available for distribution to stockholders would be reduced and possibly
eliminated. Unless entitled to relief under certain Code provisions, and
subject to the discussion below regarding Section 269B(a)(3) of the Code,
Patriot also would be disqualified from re-electing REIT status for the four
taxable years following the year during which qualification was lost. Failure
of Old Patriot to have qualified as a REIT also could disqualify Patriot as a
REIT and/or subject Patriot to significant tax liabilities.
Patriot's qualification and taxation as a REIT following the Merger will
depend upon Patriot's continuing ability to meet, through actual operating
results, the income and asset requirements, distribution levels, diversity of
stock ownership and other requirements for qualification as a REIT under the
Code. Counsel has not reviewed and will not review Patriot's compliance with
these tests on a continuing basis. Moreover, qualification as a REIT involves
the application of highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations and the
determination of various factual matters and circumstances not entirely within
Patriot's control. The complexity of these provisions is greater in the case of
a REIT that owns hotels and leases them to a corporation with which its stock
is paired. Accordingly, no assurance can be given that Patriot will satisfy
such tests on a continuing basis following the Merger. See "Risk Factors--REIT
Tax Risks."
In connection with the mailing of this Joint Proxy Statement/Prospectus,
Goodwin, Procter & Hoar llp will render an opinion to the effect that (i) for
periods ending on or before the date of such opinion, Patriot has qualified to
be treated as a REIT and (ii) for subsequent periods, including periods
following the Merger, Patriot will be organized in conformity with the
requirements for qualification as a REIT and the proposed manner of operations
of Patriot will enable Patriot to continue to qualify as a REIT. The opinion of
Goodwin, Procter & Hoar llp will be filed as an exhibit to the Registration
Statement of which the Joint Proxy Statement/Prospectus is a part. This opinion
is based on representations from Patriot regarding Old Patriot's and Patriot's
compliance with the requirements for REIT qualification, and is not binding on
the IRS. Each of Old Patriot's and Patriot's qualification as a REIT depends on
its having met or meeting, as the case may be, through actual operating
results, the various requirements for qualification as a REIT under the Code.
Counsel has not verified and will not verify the companies' compliance with
those tests. Accordingly, no assurance can be given that the IRS will not
challenge the status of Patriot as a REIT prior to the Merger or the status of
Patriot as a REIT following the Merger.
In rendering its opinion regarding REIT qualification, Goodwin, Procter &
Hoar llp will rely upon the representations of Patriot that it will distribute,
with respect to the taxable year in which the Merger closes, all earnings and
profits inherited from Interstate. Accordingly, Interstate has agreed that, at
the Closing Date, Interstate will deliver to Patriot a statement of E&P as of a
date not more than 30 days prior to the Closing Date, together with evidence of
such E&P from Coopers & Lybrand L.L.P. in a form reasonably satisfactory to
Patriot, and a statement of estimated E&P of Interstate as of the Closing Date.
Interstate further agreed that, prior to the Closing Date, it will cooperate in
Patriot's efforts to obtain from Coopers & Lybrand L.L.P. such firm's
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computation, or confirmation of the Company's computation, of E&P of
Interstate at the Effective Time. Patriot also must distribute with respect to
1998 the E&P inherited from Old Wyndham, and Patriot expects to obtain from
Coopers & Lybrand L.L.P. a similar statement of Old Wyndham's E&P. There can
be no assurance, however, that the IRS will not challenge the calculation of
the E&P inherited from Interstate. If the IRS were to determine that
Interstate's or Old Wyndham's actual E&P exceeded the amount distributed,
Patriot would be disqualified as a REIT.
Paired Shares
Section 269B(a)(3) of the Code provides that if the shares of a REIT and a
non-REIT are paired, then the REIT and the non-REIT shall be treated as one
entity for purposes of determining whether either company qualifies as a REIT.
If Section 269B(a)(3) applied to Patriot and Wyndham International, then
Patriot would not be eligible to be taxed as a REIT. Section 269B(a)(3) does
not apply, however, if the shares of the REIT and the non- REIT were paired on
June 30, 1983 and the REIT was taxable as a REIT on June 30, 1983. As a result
of this "grandfathering" rule, Section 269B(a)(3) did not apply to Cal Jockey
for periods prior to the Cal Jockey Merger, and, by its terms, this
"grandfathering" rule continued to apply to Patriot after the Cal Jockey
Merger and will continue to apply to Patriot following the Merger. There are,
however, no judicial or administrative authorities interpreting this
"grandfathering" rule in the context of a merger or otherwise, and this
interpretation, as well as the opinion of Goodwin, Procter & Hoar llp
regarding Patriot's qualification as a REIT, is based solely on the literal
language of the statute. Moreover, if for any reason Patriot failed to qualify
as a REIT in 1983, the benefit of the "grandfathering" rule would not be
available to Patriot, and Patriot would not qualify as a REIT for any taxable
year. See "Risk Factors--REIT Tax Risks--Dependence on Qualification as a
REIT."
Potential Reallocation of Income
Due to the paired share structure, Patriot, Wyndham International, Patriot
Partnership, Wyndham International Partnership, and their respective
subsidiary entities are and will be controlled by the same interests. As a
result, the IRS could, pursuant to Section 482 of the Code, seek to
distribute, apportion or allocate gross income, deductions, credits or
allowances between or among them if it determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes
or to clearly reflect income. Patriot and Wyndham International believe that
all material transactions between Patriot and Wyndham International following
the Merger, and among them and/or their subsidiary entities, will be
negotiated and structured with the intention of achieving an arm's-length
result. Patriot and Wyndham International believe that all material
transactions between them have been similarly negotiated and structured with
the intention of achieving an arm's-length result. If true, the potential
application of Section 482 of the Code should not have a material effect on
Patriot or Wyndham International following the Merger. There can be no
assurance, however, that the IRS will not challenge the terms of such
transactions, or that such challenge would not be successful.
Sale of Land by Patriot
The sale following the Cal Jockey Merger of certain land previously owned by
Cal Jockey to an affiliate of PaineWebber (the "PaineWebber Land Sale") was
structured to qualify as a tax-deferred like-kind exchange. There can be no
assurances, however, that such transaction qualified as a like-kind exchange.
If and to the extent the sale did not qualify as a tax-deferred like-kind
exchange, any capital gains recognized by Patriot will be taxed to Patriot at
applicable capital gains rates, unless distributed to stockholders. To the
extent that the gain recognized due to the failure to qualify as a like-kind
exchange did not qualify for capital gains treatment, the gain would be
combined with Patriot's other 1997 taxable income, 95% of which must be
distributed in order to maintain Patriot's status as a REIT. Any material
amounts of such non-capital gains likely would have disqualified Patriot as a
REIT. Notwithstanding the foregoing, in the event that the property in the
PaineWebber Land Sale constituted "dealer property," then the sales could not
in any event have qualified as a like-kind exchange, the gain likely would be
subject to a 100% tax, and the amount of gain would constitute nonqualifying
income that would have disqualified Patriot as a REIT in 1997. Although
Patriot believes that the PaineWebber
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Land Sale did not constitute a sale of dealer property, whether or not such
sale constituted a sale of dealer property is a factual determination not
susceptible of legal opinion, and Patriot did not receive opinions from counsel
on such determination. As a result, the opinion rendered by Goodwin, Procter &
Hoar llp regarding Patriot's qualification as a REIT necessarily relies on
representations from Patriot to the effect that the sale did not constitute the
sale of dealer property.
Classification of Patriot Partnership as a Publicly Traded Partnership
Section 7704 of the Code treats certain "publicly traded partnerships" as
corporations. If the Patriot Partnership were taxed as a corporation under
these rules, Patriot would be disqualified as a REIT. A partnership is a
publicly traded partnership if interests in such partnership are either traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). Interests in the Patriot
Partnership have not and will not be traded on an established securities
market. Currently, the Patriot Partnership relies on restrictions on transfers
and redemptions recently included in its partnership agreement in order to
avoid being taxed as a corporation under Section 7704 of the Code. Prior to
such amendments, the Patriot Partnership relied on an exemption from the
publicly traded partnership rules based on the nature of its income as well as
a safe harbor based on the number of its partners. There can be no assurance
that efforts to avoid taxation as a corporation under these provisions have
been or will be successful.
Built-In Gain Tax
If Patriot recognizes gain on the disposition of an asset acquired from
Interstate during the ten-year period beginning at the Effective Time, then to
the extent of the asset's "built-in gain" (i.e., the excess of the fair market
value of such asset at the Effective Time over its then tax basis), Patriot
will be subject to tax on such gain at the highest regular corporate rate
applicable, pursuant to Treasury Regulations not yet promulgated. Patriot would
have to distribute 95% of the excess of the amount of recognized built-in gain
over the amount of tax paid in order to maintain its qualification as a REIT.
The foregoing assumes that Patriot makes an election pursuant to IRS Notice 88-
19 with respect to the Merger. Patriot will make the election pursuant to IRS
Notice 88-19 if such election is available. See "--Tax Consequences of the
Merger." These built-in gains taxes also will apply to any assets of Old
Wyndham that are sold during the ten-year period following the Wyndham Merger.
EFFECTS OF COMPLIANCE WITH REIT REQUIREMENTS
Operating income derived from hotels or a racetrack does not constitute
qualifying income under the REIT requirements. Accordingly, all of Patriot's
hotels, other than hotels held by taxable entities in which Patriot does not
hold voting control, have been leased to Lessees and Wyndham International, and
Patriot will continue to lease such hotels after the Merger. Similarly, Patriot
has subleased the land underlying the Racecourse and leased the related
improvements to Wyndham. Rent derived from such leases will be qualifying
income under the REIT requirements, provided several requirements are
satisfied. Among other requirements, a lease may not have the effect of giving
Patriot a share of the net income of the lessee, and the amount of personal
property leased under the lease must not exceed a defined, low level. Patriot
also may not provide services, other than customary services and (beginning in
1998) de minimis non-customary services, to the Lessees or their subtenants. In
addition, the leases must also qualify as "true" leases for federal income tax
purposes (as opposed to service contracts, joint ventures or other types of
arrangements). There are, however, no controlling Treasury Regulations,
published rulings, or judicial decisions that discuss whether leases similar to
the leases constitute "true" leases. Therefore, there can be no complete
assurance that the IRS will not successfully assert a contrary position.
Payments under a lease will not constitute qualifying income for purposes of
the REIT requirements if Patriot owns, directly or indirectly, 10% or more of
the ownership interests in the relevant lessee. Constructive ownership rules
apply, such that, for instance, Patriot is deemed to own the assets of
stockholders who own 10%
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or more in value of the stock of Patriot. The Charters are therefore designed
to prevent a stockholder of Patriot from owning REIT stock or Wyndham stock
that would cause Patriot to own, actually or constructively, 10% or more of the
ownership interests in a Lessee (including Wyndham International and the
Wyndham International Partnership). Thus, Patriot should never own, actually or
constructively, 10% or more of a Lessee. However, because the relevant
constructive ownership rules are broad and it is not possible to monitor
continually direct and indirect transfers of Paired Shares, and because the
charter provisions referred to above may not be effective, no absolute
assurance can be given that such transfers, or other events of which Patriot
has no knowledge, will not cause Patriot to own constructively 10% or more of
one or more Lessees at some future date.
The REIT provisions also impose certain asset tests which limit the value of
the non-real estate assets held by Patriot. Although Patriot will hold
substantial non-real estate assets, including non-voting stock in certain
corporate subsidiaries that will hold the management assets required from
Interstate and Old Wyndham, Patriot does not believe that the value of such
assets will exceed the applicable limits. There can be no assurance, however,
that the IRS will not challenge these valuations.
In addition to the considerations discussed above, the REIT requirements will
impose a number of other restrictions on the operations of Patriot. For
example, net income from sales of property sold to customers in the ordinary
course of business (other than inventory acquired by reason of certain
foreclosures) is subject to a 100% tax unless eligible for a certain safe
harbor. Minimum distribution requirements also generally require Patriot to
distribute each year at least 95% of its taxable income for the year (excluding
any net capital gain). In addition, certain asset tests limit Patriot's ability
to acquire non-real estate assets.
NON-DEDUCTIBILITY OF PARACHUTE PAYMENTS
In connection with the Merger, each outstanding Interstate Stock Option
becomes 100% vested and exercisable in full. See "The Merger and Subscription--
Interests of Certain Officers, Directors and Stockholders of Interstate." Under
the Code, the accelerated vesting of the outstanding Interstate Stock Options
is treated as a "parachute payment." To the extent that a member of Interstate
Senior Management receives parachute payments that exceed the limits determined
by Section 280G of the Code, the "excess" parachute payments are not deductible
by Interstate (or its successor employer). It is estimated that the
acceleration of outstanding Interstate Stock Options held by members of
Interstate Senior Management will create an excess parachute payment in an
amount of approximately $ million.
TAXATION OF WYNDHAM INTERNATIONAL; CORPORATE SUBSIDIARIES
As a C corporation under the Code, Wyndham International is subject to United
States federal income tax on its taxable income at corporate rates. Certain
corporate subsidiaries of the Patriot Partnership that are controlled by
Wyndham International also will be subject to federal income tax.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES
Separate Taxation
Notwithstanding that Paired Shares may only be transferred as a unit, holders
of Paired Shares will be treated for U.S. federal income tax purposes as
holding equal numbers of shares of Patriot Common Stock and of Wyndham
International Common Stock. The tax treatment of distributions to stockholders
and of any gain or loss upon sale or other disposition of the Paired Shares (as
well as the amount of gain or loss) must therefore be determined separately
with respect to each share of Patriot Common Stock and each share of Wyndham
International Common Stock contained within each Paired Share. The tax basis
and holding period for each share of Patriot Common Stock and each share of
Wyndham International Common Stock also must be determined separately. See "--
Tax Consequences of the Merger." Upon a taxable sale of a Paired Share, the
amount realized should be allocated between Patriot Common Stock and the
Wyndham International Common Stock based on their then-relative values.
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Taxation of Taxable U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of Paired Shares
that for United States federal income tax purposes (A) is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate, the income of which is subject
to United States federal income taxation regardless of its source or (iv) a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust
and (B) is not an entity that has a special status under the Code (such as a
tax-exempt organization or a dealer in securities).
As long as Patriot qualifies as a REIT, distributions made to Patriot's
taxable U.S. Stockholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account by
such U.S. Stockholders as ordinary income and will not be eligible for the
dividends received deduction generally available to corporations. For purposes
of determining whether distributions on the Patriot Common Stock are out of
current or accumulated earnings and profits, the earnings and profits of
Patriot will be allocated first to Patriot's outstanding preferred stock (if
any), and then allocated to the Patriot common stock. Subject to the
discussion below regarding changes to the capital gains tax rates,
distributions that are designated as capital gain dividends will be taxed as
capital gains (to the extent they do not exceed Patriot's actual net capital
gain for the taxable year) without regard to the period for which the
stockholder has held his or her Patriot Common Stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Patriot
Common Stock, but rather will reduce the adjusted basis of such stock. To the
extent that such distributions in excess of current and accumulated earnings
and profits exceed the adjusted basis of a stockholder's Patriot Common Stock,
such distributions will be included in income as long-term capital gain (or,
in the case of individuals, trusts and estates, mid-term capital gain if the
Patriot Common Stock has been held for more than one year but not more than 18
months, and in the case of all taxpayers short-term capital gain if the
Patriot Common Stock has been held for one year or less), assuming the shares
are a capital asset in the hands of the stockholder. In addition, any
distribution declared by Patriot in October, November or December of any year
and payable to a stockholder of record on a specified date in any such month
shall be treated as both paid by Patriot and received by the stockholder on
December 31 of such year, provided that the distribution is actually paid by
Patriot during January of the following calendar year.
Distributions from Wyndham International up to the amount of Wyndham
International's current or accumulated earnings and profits (less any earnings
and profits allocable to distributions on any preferred stock of Wyndham
International) will be taken into account by U.S. Stockholders as ordinary
income and generally will be eligible for the dividends-received deduction for
corporations (subject to certain limitations). Distributions in excess of
Wyndham International's current and accumulated earnings and profits will not
be taxable to a holder to the extent that they do not exceed the adjusted
basis of the holder's Wyndham International Common Stock, but rather will
reduce the adjusted basis of such Wyndham International Common Stock. To the
extent that such distributions exceed the adjusted basis of a holder's Wyndham
International Common Stock, they will be included in income as long-term
capital gain (or, in the case of individuals, trusts and estates, mid-term
capital gain if the Interstate Common Stock has been held for more than one
year but not more than 18 months, and in the case of all taxpayers short-term
capital gain if the Interstate Common Stock has been held for one year or
less), assuming the shares are a capital asset in the hands of the
stockholder.
Patriot may elect to retain and pay income tax on its net long-term capital
gains recognized during the taxable year. For taxable years beginning after
December 31, 1997, if Patriot so elects for a taxable year, its stockholders
would include in income as capital gain their proportionate share of such
portion of Patriot's net capital gains as Patriot may designate. Such retained
capital gains may be further designated by Patriot as 20% rate gain,
unrecaptured Section 1250 gain, or 28% rate gain, as discussed below.
Stockholders must account for their share of such retained capital gains in
accordance with such further designations; if no such further
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designation is made, the retained capital gains are treated as 28% rate gain.
A stockholder would be deemed to have paid its share of the tax paid by
Patriot, which would be credited or refunded to the stockholder. The
stockholder's basis in its shares of Patriot Common Stock would be increased
by the amount of undistributed capital gains (less the capital gains tax paid
by Patriot) included in the stockholder's capital gains.
Taxable distributions from Patriot or Wyndham International and gain or loss
from the disposition of shares of Patriot Common Stock and Wyndham
International Common Stock will not be treated as passive activity income and,
therefore, stockholders generally will not be able to apply any passive
activity losses (such as losses from certain types of limited partnerships in
which the stockholder is a limited partner) against such income. In addition,
taxable distributions from Patriot or Wyndham International generally will be
treated as investment income for purposes of the investment interest deduction
limitations. Capital gain dividends from Patriot, capital gains (other than
short- term capital gains) from the disposition of Paired Shares and actual or
deemed distributions from either company treated as such, including capital
gains (other than short-term capital gains) recognized on account of
nontaxable distributions in excess of a stockholder's basis and any deemed
capital gain dividends to a Patriot stockholder on account of undistributed
capital gains of Patriot, will be treated as investment income for purposes of
the investment interest deduction limitation only if and to the extent the
stockholder so elects, in which case such capital gain dividends and gains
will be taxed at ordinary income rates to the extent of such election. Patriot
and Wyndham International will notify stockholders after the close of their
taxable years as to the portions of the distributions attributable to that
year that constitute ordinary income, return of capital, and (in the case of
Patriot) capital gain. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of Patriot or of
Wyndham International.
The Relief Act alters the taxation of capital gain income. Under the Relief
Act, individuals, trusts and estates that hold certain investments for more
than 18 months may be taxed at a maximum long-term capital gain rate of 20% on
the sale or exchange of those investments. Individuals, trusts and estates
that hold certain assets for more than one year but not more than 18 months
may be taxed at a maximum mid-term capital gain rate of 28% on the sale or
exchange of those investments. The Relief Act also provides a maximum rate of
25% for "unrecaptured Section 1250 gain" for individuals, trusts and estates,
special rules for "qualified 5-year gain," as well as other changes to prior
law. The Relief Act allows the IRS to prescribe regulations on how the Relief
Act's new capital gain rates will apply to sales of assets by, and sales of
interests in, "pass-through entities," which include REITs such as Patriot.
IRS Notice 97-64 sets forth guidance regarding sales of assets by REITs
pending the release of regulations and provides, among other things, that a
REIT may designate a capital gains dividend as a 20% rate gain distribution,
an unrecaptured Section 1250 gain distribution or a 28% rate gain
distribution. Absent any such designation, a capital gains dividend will be
treated as a 28% rate gain distribution. In general, the Notice provides that
a REIT must determine the maximum amounts which may be designated in each
class of capital gain dividends as if the REIT were an individual whose
ordinary income is subject to a marginal tax rate of at least 28 percent.
Similar rules will apply in the case of designated retained capital gains (see
above discussion). Patriot will notify stockholders after the close of
Patriot's taxable year as to the portions of the distributions attributable to
that year that constitute ordinary income, return of capital, and capital gain
(and, with respect to capital gain dividends, the portions constituting 20%
rate gain distributions, unrecaptured Section 1250 gain distributions, and 28%
rate gain distributions), as well as the amounts of any designated retained
capital gains (including the amounts thereof constituting 20% rate gain,
unrecaptured Section 1250 gain, and 28% rate gain) and Patriot's taxes with
respect to any designated retained capital gains. Final regulations when
issued may alter the rules of the Notice regulations. In addition, the IRS has
not prescribed regulations or other guidance regarding the application of the
new rates to sale of interests in REITs such as Patriot, and it remains
unclear how the new rules will affect such sales (if at all). Investors are
urged to consult their own tax advisors with respect to the new rules
contained in the Relief Act.
Taxation of Stockholders on the Disposition of Paired Shares
In general, and assuming the taxpayer has the same holding period for the
Patriot Common Stock and Wyndham International Common Stock that comprise his
or her Paired Shares, any gain or loss realized upon a taxable disposition of
Paired Shares by a stockholder who is not a dealer in securities will be
treated as long-term
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capital gain or loss if the Paired Shares have been held for more than one
year, (or, in the case of individuals, trusts and estates, mid-term capital
gain or loss if the Paired Shares have been held for more than one year but
not more than 18 months, and long-term capital gain or loss if the Paired
Shares have been held for more than 18 months), and otherwise as short-term
capital gain or loss. In addition, any loss upon a sale or exchange of Patriot
Common Stock by a stockholder who has held such stock for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from Patriot or undistributed
capital gains required to be treated by such stockholder as long-term capital
gain. All or a portion of any loss realized upon a taxable disposition of
Paired Shares may be disallowed if other Paired Shares are purchased within 30
days before or after the disposition.
Information Reporting Requirements and Backup Withholding
Patriot and Wyndham International will each report to their U.S.
Stockholders and the IRS the amount of distributions paid during each calendar
year, and the amount of tax withheld, if any. Under the backup withholding
rules, a stockholder may be subject to backup withholding at the rate of 31%
with respect to distributions paid unless such holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (ii) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding and otherwise complies with the
applicable requirements of the backup withholding rules. A stockholder who
does not provide Patriot and Wyndham International with his, her or its
correct taxpayer identification number also may be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. In addition, Patriot may be
required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their nonforeign status to Patriot.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. They are, however, subject to
taxation on their unrelated business taxable income, as defined in Section
512(a)(1) of the Code ("UBTI"). While many investments in real estate generate
UBTI, amounts distributed by Patriot to Exempt Organizations generally should
not constitute UBTI, nor should dividends paid by Wyndham International
generally constitute UBTI. However, if an Exempt Organization finances its
acquisition of Paired Shares with debt, a portion of its income from Patriot
and Wyndham International will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under paragraphs (7), (9),
(17), and (20), respectively, of Code Section 501(c) are subject to different
UBTI rules, which generally will require them to characterize distributions
from Patriot and Wyndham International as UBTI.
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MANAGEMENT OF PATRIOT AND WYNDHAM INTERNATIONAL
PATRIOT
Immediately following the Effective Time, the number of directors of Patriot
will be fixed at eleven (with one existing vacancy). At such time, the
directors of Patriot will be Paul A. Nussbaum, William W. Evans III, John C.
Deterding, John H. Daniels, Gregory R. Dillon, Arch K. Jacobson, James D.
Carreker, Philip J. Ward, Harlan R. Crow (all of whom currently are members of
the Patriot Board) and Milton Fine (who currently serves as Chairman of the
Interstate Board and who will become a director of Patriot immediately after
the Effective Time in accordance with the terms of the Merger Agreement and
the Shareholders Agreement). Pursuant to an agreement among the parties to the
Wyndham Merger Agreement, one additional director may be added to the Patriot
Board before July 5, 1998. Such additional director will be nominated by
Messrs. Nussbaum, Evans, Jacobson, Daniels and Deterding. Under the terms of
the Merger Agreement, the executive officers of Patriot following the Merger
will be the current executive officers of Patriot.
The age, positions and business experience of the directors and executive
officers of Patriot that have been designated are set forth below. Following
the Merger, the Patriot Board will continue to be divided into three classes,
with terms ending in 1998, 1999 and 2000 at the respective annual meetings of
stockholders. Directors elected at stockholder meetings hold office for three-
year terms. Certain of the stockholders of Patriot have agreed, pursuant to
certain agreements, dated as of April 14, 1997, by and among Old Patriot and
each of CF Securities, Paul A. Nussbaum, William W. Evans III, Leslie V.
Bentley, James D. Carreker, Stanley M. Koonce, Jr. and Anne L. Raymond (the
"Voting Agreements"), to vote their shares of Patriot Common Stock in favor of
the nominees designated by the Patriot Board in accordance with the terms of
the Voting Agreements. Executive officers will be elected annually by the
Patriot Board for terms ending on the next annual meeting of the Patriot
Board.
<TABLE>
<CAPTION>
NAME POSITION WITH PATRIOT AGE
---- --------------------- ---
<S> <C> <C>
Paul A. Nussbaum........ Chairman of the Board of Directors and Chief Executive 50
Officer (term expires 1998)
William W. Evans III.... President, Chief Operating Officer and Director (term expires 2000) 45
Anne L. Raymond......... Chief Financial Officer, Executive Vice President and Treasurer 39
Harlan R. Crow.......... Director (term expires 1998) 48
John C. Deterding....... Director (term expires 1998) 65
Gregory R. Dillon....... Director (term expires 1999) 74
John H. Daniels......... Director (term expires 1999) 70
Philip J. Ward.......... Director (term expires 1999) 49
James D. Carreker....... Director (term expires 2000) 50
Arch K. Jacobson........ Director (term expires 2000) 69
Milton Fine............. Director (term expires 1998) 71
</TABLE>
Paul A. Nussbaum became Chairman of the Board of Directors and Chief
Executive Officer of Old Patriot in April 1995, continued in such capacity for
Patriot following the Cal Jockey Merger, and will continue in such capacity
for Patriot following the Merger. Mr. Nussbaum founded the Patriot American
group of companies ("Patriot American") in 1991 and has been its Chief
Executive Officer since its inception. Prior to his association with Patriot
American, Mr. Nussbaum practiced real estate and corporate law in New York for
20 years, the last 12 years of which as chairman of the real estate department
of Schulte Roth & Zabel. He currently serves as a member of the Dallas
Symphony and is a member of the Urban Land Institute, the American College of
Real Estate Lawyers and the Advisory Board of the Real Estate Center of the
Wharton School of Business, University of Pennsylvania. Mr. Nussbaum is a
member of the Board of Visitors of the Georgetown University Law Center and an
Overseer of Colby College, Waterville, Maine. He also serves on the Boards of
Directors of FirstPlus Financial Group, Inc. and Mack-Cali Realty Corporation.
He holds a B.A. from the State University of New York at Buffalo and a J.D.
from the Georgetown University Law Center.
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William W. Evans III began serving in the Office of the Chairman of Old
Patriot in March 1997, continued in such capacity for Patriot following the Cal
Jockey Merger, and became a director of Patriot in July 1997. Mr. Evans assumed
the position of President and Chief Operating Officer of Patriot in January
1998 in connection with the closing of the Wyndham Merger. Previously, Mr.
Evans was a Managing Director in PaineWebber's Real Estate Group with
responsibility principally for the origination and structuring of principal
transactions. He joined PaineWebber as a result of the firm's acquisition of
Kidder, Peabody and Co. Incorporated in December 1994. Prior to joining Kidder,
Peabody in 1992, Mr. Evans was a First Vice President and head of the Real
Estate Financing Division of Swiss Bank Corporation, responsible for all real
estate activities of the U.S. organization of the bank. Mr. Evans is a graduate
of the University of Virginia.
Anne L. Raymond became Chief Financial Officer and an Executive Vice
President of Patriot in January 1998 in connection with the closing of the
Wyndham Merger. Ms. Raymond joined Old Wyndham in 1983 as Controller and served
in that and other financial capacities through September 1987. From September
1987 to July 1994, she served as Investment Manager for Crow Family Holdings,
where her responsibilities included managing and overseeing Crow Family
Holdings' interest in the Trammell Crow Company and Old Wyndham. Upon the
formation of the Crow Investment Trust in August 1994, Ms. Raymond was named
Director--Capital Markets thereof and had responsibility for developing and
maintaining investment relationships with real estate capital sources. In March
1995, Ms. Raymond rejoined Old Wyndham as Executive Vice President and Chief
Financial Officer, and was elected a director of Old Wyndham in April 1996. Ms.
Raymond holds a B.S. in Business Administration from the University of
Missouri.
Harlan R. Crow became a director of Patriot in January 1998 in connection
with the closing of the Wyndham Merger. Mr. Crow became a director of Old
Wyndham in April 1996. Mr. Crow was the chief executive officer of Crow Family
Holdings, an investment company managing investments in a variety of real
estate related and other businesses, from 1986 to January 1998. Prior to 1986,
Mr. Crow was a Regional Partner in the office building unit of Trammell Crow
Company, a commercial real estate management and development company. Mr. Crow
is a former member of the Board of Directors of Texas Commerce Bancshares, a
banking institution. In any given year within the past six years, Mr. Crow has
indirectly owned interests in over 1,000 partnerships (or affiliates of
partnerships) or corporations. In the past six years, Mr. Crow was a general
partner, officer or director in approximately 95 partnerships or corporations,
or affiliates of such partnerships or corporations, that filed for protection
under federal bankruptcy laws. In addition, in the past six years, Mr. Crow was
a general partner, executive officer or director in approximately 15
partnerships or corporations, or affiliates of such partnerships or
corporations, that were placed in receivership. Mr. Crow has been a Director of
Homegate Hospitality, Inc. since October 1996. Mr. Crow holds a Bachelor of
Business Administration from the University of Texas at Austin.
John C. Deterding became a director of Old Patriot in September 1995 and
continued in such capacity for Patriot following the Cal Jockey Merger. He has
been the owner of Deterding Associates, a real estate consulting company, since
June 1993. From 1975 until June 1993, he served as Senior Vice President and
General Manager of the Commercial Real Estate division of General Electric
Capital Corporation ("GECC"). In directing the real estate activities at GECC,
he was responsible for both domestic and international lending activities,
portfolio purchases, joint ventures, asset management and real estate
securitization. From November 1989 to June 1993, Mr. Deterding served as
Chairman of the General Electric Real Estate Investment Company, a privately
held REIT. He served as Director of GECC Financial Corporation from 1986 to
1993. Mr. Deterding is also a former member and trustee of the Urban Land
Institute. He holds a B.S. from the University of Illinois.
Gregory R. Dillon became a director of Old Patriot in September 1995 and
continued in such capacity for Patriot following the Cal Jockey Merger. He has
been Vice Chairman Emeritus of Hilton Hotels Corporation ("Hilton") since 1993.
He has been a director of Hilton since 1977 and was elected Vice Chairman in
1990. Mr. Dillon served as an Executive Vice President of Hilton from 1980
until 1993. Mr. Dillon was also Executive Vice President of Hilton's franchise
company, Hilton Inns, Inc., from 1971 to 1986. He is a director of the Conrad
N. Hilton Foundation and is a founding member of the American Hotel
Association's Industry Real
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Estate Financing Advisory Council and the National Association of Corporate
Real Estate Executives (NACORE). In addition to his undergraduate degree, Mr.
Dillon holds an LL.B. from DePaul University.
John H. Daniels became a director of Old Patriot in September 1995 and
continued in such capacity for Patriot following the Cal Jockey Merger. He has
served as President of The Daniels Group Inc., a real estate development and
management company, since 1984. Mr. Daniels has also served as Vice Chairman
of Patriot American since its inception in 1991. Prior to forming The Daniels
Group Inc., Mr. Daniels served as Chairman and Chief Executive Officer of
Cadillac Fairview Corporation, a publicly held real estate development and
management company. Mr. Daniels has more than 40 years of real estate
development and management experience. Mr. Daniels is also a director of
Cineplex-Odeon Corporation, Consolidated H.C.I. Corporation, Samoth Capital
Corporation and Anitech Enterprises Inc. Mr. Daniels holds a B.S. in
Architecture from the University of Toronto.
Philip J. Ward became a director of Patriot in January 1998 in connection
with the closing of the Wyndham Merger. Prior to such time, he had served as a
director of Old Wyndham since June 1996. Mr. Ward is the Senior Managing
Director in charge of the Real Estate Investment Division of CIGNA
Investments, Inc., a division of CIGNA Corporation, a position he has held
since December 1985. Mr. Ward joined Connecticut General's Mortgage and Real
Estate Department (a predecessor of CIGNA) in 1971 and became an officer in
1987. Since joining CIGNA, Mr. Ward has held real estate investment
assignments in Mortgage and Real Estate Production and in Portfolio
Management. Mr. Ward is also a director of the Simon DeBartolo Group, Inc., of
Indianapolis, Indiana, and a director of the Connecticut Housing Investment
Fund. Mr. Ward holds a Bachelor of Arts from Amherst College.
James D. Carreker became a director of Patriot in January 1998 in connection
with the closing of the Wyndham Merger. Prior to such time, he had served as
President and Chief Executive Officer of Old Wyndham since May 1988 and as a
director of Old Wyndham since February 1996. He also served as Chief Executive
Officer of Trammell Crow Company, a national real estate company, from August
1994 to December 1995. Prior to 1988, Mr. Carreker served as President of
Burdine's, the Miami based division of Federated Department Stores. Mr.
Carreker holds a B.S. and a Master of Business Administration from Oklahoma
State University.
Arch K. Jacobson became a director of Old Patriot in September 1995 and
continued in such capacity for Patriot following the Cal Jockey Merger. He has
served as President of Jacobson-Berger Capital Group, Inc., a commercial
mortgage banking firm, since 1993. From 1986 to 1993, Mr. Jacobson was
Chairman of Union Pacific Realty Co., a real estate management and development
company. He served in various capacities with the Real Estate Department of
The Prudential Insurance Company from 1955 to 1980 and was President and Chief
Executive Officer of the Prudential Development Company (a subsidiary of the
Prudential Insurance Company) from 1982 to 1986. Mr. Jacobson currently serves
as a director of Walden Residential Properties, Inc., a publicly traded
multifamily apartment REIT. He was formerly a director of La Quinta Limited
Partners, and chaired the committee of independent directors that negotiated
the tender offer for and purchase of that company in 1994. Mr. Jacobson holds
a B.S. from Texas A&M University.
Milton Fine will become a director following the Merger. Mr. Fine co-founded
Interstate in 1961 and is Chairman of the Board of Interstate. Mr. Fine also
served as the Chief Executive Officer of Interstate through March 1996. He is
a life trustee of the Carnegie Institute and Chairman of the Board of Trustees
of the University of Pittsburgh and a member of the Board of Directors of the
Andy Warhol Museum in Pittsburgh, Pennsylvania. Mr. Fine completed his
undergraduate studies magna cum laude, and also holds a J.D., from the
University of Pittsburgh.
WYNDHAM INTERNATIONAL
Immediately following the Effective Time, the number of directors of Wyndham
International will be fixed at eleven. At such time, the directors of Wyndham
International will be Paul A. Nussbaum, Karim Alibhai, Arch K. Jacobson,
Sherwood M. Weiser, Russ Lyon, Jr., Burton C. Einspruch, Leonard Boxer, James
D. Carreker,
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James C. Leslie, Susan T. Groenteman (all of whom currently are members of the
Wyndham International Board) and W. Thomas Parrington, Jr. (who currently
serves as President, Chief Executive Officer and as a director of Interstate
and who will become Vice Chairman of the Wyndham International Board
immediately after the Effective Time in accordance with the terms of the
Merger Agreement ). Pursuant to an agreement among the parties to the Wyndham
Merger Agreement, one additional director may be added to the Wyndham
International Board before July 5, 1998. Such additional director will be
nominated by Messrs. Carreker and Leslie and Ms. Groenteman. Under the terms
of the Merger Agreement, the executive officers of Wyndham International
following the Merger will be the current executive officers of Wyndham
International.
The age, positions and business experience of the directors and executive
officers of Wyndham International that have been designated are set forth
below. Following the Merger, the Wyndham International Board will continue to
be divided into three classes, with terms ending in 1998, 1999 and 2000 at the
respective annual meetings of stockholders. Directors elected at stockholder
meetings hold office for three-year terms. Certain of the stockholders of
Wyndham International have agreed, pursuant to the Voting Agreements, to vote
their shares of Wyndham International Common Stock in favor of nominees
designated by the Wyndham International Board in accordance with the terms of
the Voting Agreements. Executive officers will be elected annually by the
Wyndham International Board for terms ending on the next annual meeting of the
Wyndham International Board.
<TABLE>
<CAPTION>
NAME POSITION WITH WYNDHAM INTERNATIONAL AGE
---- ----------------------------------- ---
<C> <S> <C>
James D. Carreker.......... Chairman of the Board of Directors and Chief 50
Executive
Officer (term expires 1998)
W. Thomas Parrington, Jr... Vice Chairman of the Board of Directors 52
(term expires 1998)
Karim Alibhai.............. President, Chief Operating Officer and 33
Director (term expires 2000)
Chief Financial Officer, Executive Vice
Rex E. Stewart............. President and Treasurer 50
Leslie V. Bentley.......... Executive Vice President 46
Thomas W. Lattin........... Executive Vice President 52
Executive Vice President--Acquisitions and
Paul Novak................. Development 51
Executive Vice President--Marketing and
Stanley M. Koonce, Jr...... Strategic Planning 49
Russ Lyon, Jr.............. Director (term expires 1998) 67
Sherwood M. Weiser......... Director (term expires 1998) 66
Burton C. Einspruch........ Director (term expires 1999) 62
Arch K. Jacobson........... Director (term expires 1999) 69
Leonard Boxer.............. Director (term expires 1999) 58
Susan T. Groenteman........ Director (term expires 1999) 43
Paul A. Nussbaum........... Director (term expires 2000) 50
James C. Leslie............ Director (term expires 2000) 42
</TABLE>
James D. Carreker became Chairman of the Board of Directors and Chief
Executive Officer of Wyndham International in January 1998 in connection with
the closing of the Wyndham Merger. For biographical information on Mr.
Carreker, see "Management of Patriot and Wyndham International--Patriot."
W. Thomas Parrington, Jr. will become Vice Chairman of the Board of
Directors of Wyndham International upon the Effective Time. Mr. Parrington has
been employed with Interstate since 1981. He has served as Chief Executive
Officer of Interstate since April 1996 and as President and Director of
Interstate since 1994. Mr. Parrington has also served as Chief Financial
Officer prior thereto. Mr. Parrington is a graduate of the Georgetown
University School of Business.
Karim Alibhai became the President and Chief Operating Officer and a
director of Wyndham International on October 1, 1997 in connection with the
acquisition of GAH by Wyndham International. For the prior 11 years, Mr.
Alibhai was a principal of the Gencom Group, an affiliated group of companies
that acquired, developed,
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renovated, leased and managed hotel properties in the United States and Canada
through Gencom American Hospitality. Most recently, Mr. Alibhai was the
President and Chief Executive Officer of the Gencom Group. He holds a B.A. from
Rice University.
Rex E. Stewart became Executive Vice President and Chief Financial Officer of
Old Patriot in April 1995 and served as Chief Financial Officer and Treasurer
for the Patriot Companies from the Cal Jockey Merger until the consummation of
the Wyndham Merger in January 1998, after which he serves as Executive Vice
President
and Chief Financial Officer of Wyndham International. From 1993 until joining
Old Patriot, he served as Chief Financial Officer and Treasurer of Metro Joint
Venture, an independent hotel management company based in Dallas, Texas. He
served in the same capacities for Metro Hotels, Inc. from 1986 until 1993. He
holds a B.B.A. from Texas A&M University and an M.B.A. from the University of
Southern California. He is a certified public accountant.
Leslie V. Bentley became Executive Vice President for Wyndham International
in January 1998 in connection with the closing of the Wyndham Merger. He had
been employed by Old Wyndham since March 1985, had served as Executive Vice
President and President of the Old Wyndham Garden Division since May 1990 and
was elected a director of Old Wyndham in January 1997. From January 1987 to
June 1988, Mr. Bentley served as Regional Vice President of Old Wyndham. From
June 1988 to December 1988, Mr. Bentley served as Vice President of Operations
of Old Wyndham, and from December 1988 to May 1990, he served as Senior Vice
President of Operations of Old Wyndham. Prior to joining Old Wyndham, Mr.
Bentley was employed by Marriott International Hotels for eight years. Mr.
Bentley holds a B.S. in Hotel and Restaurant Administration from Pennsylvania
State University.
Thomas W. Lattin became an Executive Vice President for Wyndham International
in January 1998 in connection with the closing of the Wyndham Merger. He became
President and Chief Operating Officer of Old Patriot in April 1995 and
continued in such capacity for Wyndham International following the Cal Jockey
Merger. From 1987 through 1994, he served as the National Partner of the
hospitality industry consulting practice of Laventhol & Horwath and
subsequently as a partner in the national hospitality consulting group of
Coopers & Lybrand L.L.P. In 1994, he joined the Hospitality Group of Kidder,
Peabody & Co. Incorporated as a Senior Vice President and later served as a
Senior Vice President with PaineWebber Incorporated. Mr. Lattin holds a B.S.
and M.S. in Hotel Management from the Cornell School of Hotel Administration.
He is a certified public accountant.
Paul Novak was named Executive Vice President--Acquisitions and Development
of Wyndham International in June 1997 and will continue in such capacity with
Wyndham International following the Merger. From 1994 through June 1997, Mr.
Novak was President and Chief Executive Officer of Bedrock Partners, a private
investment group established in 1994 to acquire hotel properties and convert
them to Wyndham Hotels or Wyndham Garden Hotels. From 1992 through 1994, Mr.
Novak was a principal in his own consulting firm where he directed real estate
development, marketing and acquisition assignments from numerous clients. Prior
thereto, he served as a Senior Vice President of Marriott International from
1981 until 1992 with responsibility for developing more than 400 properties.
Mr. Novak is a member of the Urban Land Institute, The National Realty
Committee and the Travel and Tourism Research Association. He received a B.A.
from Michigan State University.
Stanley M. Koonce, Jr. became Executive Vice President--Marketing and
Strategic Planning for Wyndham International in January 1998 in connection with
the closing of the Wyndham Merger. He had served as Executive Vice President--
Marketing, Planning and Technical Services of Old Wyndham since October 1994,
was elected a director of Old Wyndham in January 1997 and served as Senior Vice
President of Sales and Marketing of Old Wyndham from October 1989 to October
1994. Mr. Koonce served as President of CUC Travel Services, a division of CUC
International, in Stamford, Connecticut from 1986 to 1989, as Vice President of
the Marketing Department with American Express from 1979 to 1986 and as a
Director of Finance and Planning for American Airlines from 1976 to 1979. Mr.
Koonce holds a B.S. in Mathematics and an M.B.A. from the University of North
Carolina.
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Russ Lyon, Jr. became a director of Wyndham International in July 1997 in
connection with the Cal Jockey Merger. He is currently a managing general
partner of Western Realty L.P., a shopping center development and management
concern, where he has served since 1970. Mr. Lyon was previously a managing
general partner of Carefree Resorts L.P., a resort development and management
firm, and Carefree Resorts Corp. from 1983 and 1992, respectively, until both
were acquired by Patriot in January 1997.
Sherwood M. Weiser became a director of Wyndham International on October 1,
1997 in connection with the GAH Acquisition. Currently, Mr. Weiser is the
Chairman and Chief Executive Officer of Carnival Hotels & Casinos, a hotel and
gaming management and development firm. In 1970, Mr. Weiser founded the Company
formerly known as The Continental Companies. Carnival Hotels & Casinos was a
successor to The Continental Companies. In September 1997, CHCI, the parent
corporation of CHC, entered into a merger agreement with Patriot and Wyndham
International pursuant to which the hospitality-related businesses of CHCI will
merge with and into Wyndham International. Mr. Weiser is a director of Carnival
Corporation, United National Bank and Winsloew Furniture Group. He is a
graduate of the Ohio State University School of Business and holds a J.D. from
the Case Western Reserve University School of Law.
Burton C. Einspruch became a director of Wyndham International in July 1997
in connection with the Cal Jockey Merger. He has been a physician and medical
consultant with his own practice since 1966. He has also been the Medical
Director of First Southwest Corp., a national brokerage firm, since 1991. Dr.
Einspruch also serves as a director for the Dallas National Bank. Dr. Einspruch
holds a B.A. from Southern Methodist University, a Sc. B. from the Southern
Methodist University and an M.D. from Southwestern Medical School.
Arch K. Jacobson will continue to serve as a director of Wyndham
International following the Merger. For biographical information on Mr.
Jacobson, see "Management of Patriot and Wyndham International--Patriot."
Leonard Boxer became a director of Wyndham International in January 1998 in
connection with the closing of the Wyndham Merger. He became a director of Old
Patriot in September 1995, and continued in such capacity for Patriot following
the Cal Jockey Merger. He has been a partner and chairman of the real estate
department of the law firm of Stroock & Stroock & Lavan in New York, New York
since 1987. Previously, he was a founder and managing partner and head of the
real estate department of Olnick Boxer Blumberg Lane & Troy, a real estate law
firm in New York. Mr. Boxer is a member of the Board of Trustees of New York
University Law School. He is a member of the New York Regional Cabinet of the
United States Holocaust Memorial Museum. Mr. Boxer holds a B.A. and an LL.B.
from New York University.
Susan T. Groenteman became a director of Wyndham International in January
1998 in connection with the closing of the Wyndham Merger. She had served as a
director of Old Wyndham since April 1996. Ms. Groenteman is the Director (chief
operating officer) of Crow Family Holdings, an investment company managing
investments in a variety of real estate related businesses, along with other
industries, a position she has held since 1988. From 1986 through 1988, Ms.
Groenteman was Controller of Crow Family Holdings. Ms. Groenteman also served
in a variety of positions for Crow Hotel Company, a predecessor to Old Wyndham.
In any given year within the past five years, Ms. Groenteman has served as an
executive officer or director in over 1,000 partnerships (or affiliates of
partnerships) or corporations. In the past five years, Ms. Groenteman has
served as an executive officer or director of approximately 95 partnerships or
corporations, or for affiliates of such entities, that filed for protection
under federal bankruptcy laws. In addition, in the past five years, Ms.
Groenteman served as an executive officer or director in approximately 15
partnerships or corporations, or affiliates of such partnerships or
corporations, that were placed in receivership. Ms. Groenteman holds a Bachelor
of Business Administration from the University of Texas at Arlington.
Paul A. Nussbaum became Chairman of the Board of Directors and Chief
Executive Officer for Wyndham International following the Cal Jockey Merger,
and will continue as a director of Wyndham International following the Merger.
For biographical information on Mr. Nussbaum, see "Management of Patriot and
Wyndham International--Patriot."
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<PAGE>
James C. Leslie became a director of Wyndham International in January 1998 in
connection with the closing of the Wyndham Merger. He had served as a director
of Old Wyndham since June 1996. Mr. Leslie has served as President and Chief
Operating Officer of The Staubach Company since March 1996. Mr. Leslie served
as Chief Financial Officer of The Staubach Company from 1982 to 1992 and
President-Staubach Financial Services from January 1992 to March 1996. Mr.
Leslie is also President and a board member of Wolverine Holding Company and
serves on the boards of Columbus Realty Trust, FM Properties, Inc., Forum
Retirement Partners, L.P. and The Staubach Company, as well as other private
corporations and charitable organizations. Mr. Leslie is a certified public
account. Mr. Leslie holds a B.S. from the University of Nebraska and an M.B.A.
from the University of Michigan.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The rights of stockholders of Patriot and Wyndham International are governed
by the Charters and the Bylaws. The rights of such stockholders are also
governed by the terms of the Pairing Agreement and the Cooperation Agreement.
The following discussion summarizes certain of the key terms of the Charters,
the Bylaws, the Pairing Agreement and the Cooperation Agreement. This summary
does not purport to be complete and is subject to and qualified in its entirety
by reference to: the Pairing Agreement, the Charters, the Cooperation Agreement
and the Bylaws, which are filed or incorporated by reference as exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part; and the relevant provisions of the DGCL. Stockholders of Patriot, Wyndham
International and Interstate should carefully read the Charters and the Bylaws,
the Pairing Agreement and the Cooperation Agreement.
Under the Charters, each of Patriot and Wyndham International have the
authority to issue 650,000,000 shares of Patriot Common Stock and Wyndham
International Common Stock, respectively, 100,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), and 750,000,000 shares
of excess stock, par value $.01 per share (the "Excess Stock"). Other than
shares of Patriot Series A Preferred Stock issued to CF Securities in
connection with the Wyndham Merger, no shares of any other class or series of
Preferred Stock will be outstanding immediately following consummation of the
Merger. Assuming no Interstate stockholder would receive Paired Shares in
excess of the Ownership Limit or the Look-Through Ownership Limit, as the case
may be, upon consummation of the Merger, no shares of Excess Stock will be
outstanding immediately following consummation of the Merger.
Issuances of shares of Patriot Common Stock, Wyndham International Common
Stock and other equity securities of Patriot and Wyndham International are
subject to the terms and conditions of the Pairing Agreement and the
Cooperation Agreement.
COMMON STOCK
The holders of Paired Shares are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors. Except as
otherwise required by law, by the terms of the Patriot Series A Preferred Stock
(see discussion below), by the Charters with respect to Excess Stock or
provided in any resolution adopted by either of the Patriot Board or the
Wyndham International Board with respect to any series of Preferred Stock, the
holders of Paired Shares exclusively possess all voting power. The Charters do
not provide for cumulative voting in the election of directors. Subject to the
terms of the Patriot Series A Preferred Stock and any preferential rights of
any outstanding series of Preferred Stock and the rights of holders of Excess
Stock, the holders of Paired Shares are entitled to such dividends as may be
declared from time to time by the Patriot Board and the Wyndham International
Board from funds available for such purpose, and upon liquidation are entitled
to receive pro rata all assets of Patriot and Wyndham International available
for distribution to such holders. All Paired Shares issued pursuant to the
Merger will be fully paid and nonassessable, and the holders thereof will not
have preemptive rights.
PREFERRED STOCK
Each of the Patriot Board and the Wyndham International Board is authorized
to provide for the issuance of shares of Preferred Stock in one or more series,
to establish the number of shares in each series and to fix the designation,
powers, preferences and rights of each such series and the qualifications,
limitations or restrictions thereof. Because each of the Patriot Board and the
Wyndham International Board has the power to establish the preferences and
rights of each class or series of Preferred Stock, each such Board of Directors
may, subject to the terms of the Cooperation Agreement (see discussion below),
afford the holders of any series or class of Preferred Stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
shares of Patriot Common Stock or Wyndham International Common Stock,
respectively. The issuance of shares of
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Preferred Stock could have the effect of delaying or preventing a change in
control of Patriot or Wyndham International.
PATRIOT SERIES A PREFERRED STOCK
In connection with the Wyndham Merger, Patriot issued 4,860,876 shares of
Patriot Series A Preferred Stock to CF Securities in accordance with the
provisions of the Certificate of Designation for the Patriot Series A Preferred
Stock (the "Certificate of Designation"). The Patriot Series A Preferred Stock
is a series designated out of the Preferred Stock of Patriot. The following is
a summary of certain provisions of the Patriot Series A Preferred Stock. This
summary does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Patriot Charter and the Certificate of
Designation, which are filed or incorporated by reference as exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part.
Each share of Patriot Series A Preferred Stock is entitled to dividends when,
as and if declared and paid on the Paired Shares in an amount equal to the sum
of the dividends paid on a Paired Share. Dividends on the Patriot Series A
Preferred Stock will rank pari passu with dividends on the Paired Shares.
The Patriot Series A Preferred Stock is entitled to one vote per share,
voting together as a class with the shares of Patriot Common Stock, on any
matter submitted for a vote of the stockholders of Patriot. The Patriot Series
A Preferred Stock is convertible at any time into Paired Shares on a one-for-
one basis by the holders thereof, subject to the Excess Share Provisions set
forth in the Charters. In addition, the Patriot Series A Preferred Stock is
mandatorily convertible at any time and in any amount upon notice by Patriot,
provided that the amount so converted will not cause a violation of the Excess
Share Provisions set forth in the Charters.
Upon a liquidation, dissolution or winding up of Patriot, each holder of
Patriot Series A Preferred Stock is entitled to receive, on a per share basis,
(i) the Wyndham International Dissolution Preference (as defined below) and
(ii) a ratable share, together with the holders of Patriot Common Stock, in the
assets of Patriot available for distribution on the Patriot Common Stock. As
used in the Certificate of Designation, "Wyndham International Dissolution
Preference" means, as applicable, either (A) if Wyndham International has
previously been or is simultaneously liquidated, dissolved or wound up, a
preference equal to the amount per share of Wyndham International Common Stock
which was or will be received by the holders of Wyndham International Common
Stock upon the liquidation, dissolution or winding up of Wyndham International
or (B) if Wyndham International has not previously been or is not
simultaneously liquidated, dissolved or wound up, a preference per share equal
to an amount determined by an independent investment banker selected by the
Patriot Board (with the agreement of the majority holder of the Patriot Series
A Preferred Stock, if there is one at such time) to be equal to the then
current value of a share of Wyndham International Common Stock, without regard
to the paired share structure of the Patriot Companies. If Wyndham
International has been previously liquidated, dissolved or wound up, then any
Wyndham International Dissolution Preference will accrue interest at the
applicable federal rate from the date the liquidating distributions were made
on the Wyndham International Common Stock unless and until paid.
WYNDHAM INTERNATIONAL SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
By operation of the CHCI Merger, each issued and outstanding CHCI Share and
certain stock option rights will be converted into the right to receive shares
of Wyndham International Series A Preferred Stock and shares of Wyndham
International Series B Preferred Stock. Generally, the aggregate number of
shares of Wyndham International Preferred Stock that each stockholder will have
the right to receive pursuant to the CHCI Merger will consist of, to the extent
possible, an equal number of shares of Wyndham International Series A Preferred
Stock and shares of Wyndham International Series B Preferred Stock.
Generally, each share of Wyndham International Series A Preferred Stock may
be redeemed, at the option of the holder, for one Paired Share at any time
following the first anniversary of the closing of the CHCI Merger. Each share
of Wyndham International Series B Preferred Stock may be redeemed, at the
option of the holder,
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for one Paired Share; however, such redemption is generally restricted until
the fifth anniversary of the closing of the CHCI Merger. The value of a Paired
Share at the time of redemption (the "Redemption Value") may, at Wyndham
International's option, be paid in cash. Further, if Wyndham International
fails to comply with certain restrictions, the Wyndham International Preferred
Stock may be redeemed, at the option of the holder, for cash or, at Wyndham
International's option, Paired Shares at the Redemption Value plus a premium.
The dividend rate on the shares of Wyndham International Preferred Stock is
equivalent to the dividend rate on the Paired Shares. Dividends on Wyndham
International Series B Preferred Stock are subject to increase during the five
years subsequent to the closing of the CHCI Merger if the shares are
transferred by the original holder. If the dividends on the Wyndham
International Preferred Stock are not paid when due, dividends will instead
accrue at the rate of 115% per annum on a compounded basis. Dividends on the
Wyndham International Preferred Stock will be preferential to dividends on the
Paired Shares. The Wyndham International Preferred Stock is redeemable at
Wyndham International's option at the Redemption Value, plus a premium in the
case of the original holders thereof and certain permitted transferees. Except
as required by law, the Wyndham International Preferred Stock will be non-
voting.
Upon a liquidation, dissolution, or winding up of Wyndham International, the
holders of Wyndham International Preferred Stock generally will be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of Wyndham International to the holders of Wyndham International
Common Stock, any stock not on a parity with the Wyndham International
Preferred Stock for liquidation purposes or any stock ranking junior to the
Wyndham International Common Stock, an amount equal to the greater of (i)
$23.25, plus all accrued but unpaid dividends, for each share of Wyndham
International Preferred Stock then held by them, and (ii) the amount that a
holder of a share of Wyndham International Preferred Stock would have received
if such holder held the number of shares of Wyndham International Common Stock
equal to the number of such shares of Wyndham International Preferred Stock.
EXCESS STOCK
Upon the violation of certain transfer restrictions contained in the
Charters, shares of any class or series of outstanding capital stock of Patriot
and Wyndham International (collectively, "Equity Stock") will automatically be
converted into an equal number of shares of Excess Stock of Patriot or Wyndham
International, as the case may be, and transferred to a trust (a "Trust"). Such
shares of Excess Stock held in trust shall remain outstanding shares of stock
of Patriot and Wyndham International and shall be held by the trustee of the
Trust (the "Trustee") for the benefit of a charitable beneficiary (a
"Beneficiary"). The Trustee and the Beneficiary shall be designated pursuant to
the terms of the Pairing Agreement. Each share of Excess Stock shall entitle
the holder to the number of votes the holder would have if such share of Excess
Stock was a share of Equity Stock of the same class or series from which such
Excess Stock was converted, on all matters submitted to a vote at any meeting
of stockholders. The Trustee, as record holder of the Excess Stock, shall be
entitled to vote all shares of Excess Stock. Each share of Excess Stock shall
be entitled to the same dividends and distributions (as to timing and amount)
as may be declared by the Patriot Board or the Wyndham International Board, as
the case may be, as shares of the class or series of Equity Stock from which
such Excess Stock was converted. The Trustee of the Trust, as record holder of
the shares of the Excess Stock, shall be entitled to receive all dividends and
distributions and shall hold such dividends and distributions in trust for the
benefit of the Beneficiary of the Trust. Upon the sale of the shares of Excess
Stock to either a permitted transferee under the Charters (a "Permitted
Transferee") or to Patriot or Wyndham International, such shares of Excess
Stock will be automatically converted into an equal number of shares of Equity
Stock of the same class or series from which such Excess Stock was converted.
Pursuant to the Pairing Agreement, the conversion of Equity Stock of Patriot or
Wyndham International into Excess Stock, or the conversion of Excess Stock of
Patriot or Wyndham International into Equity Stock, requires conversion of the
corresponding share of Wyndham International or Patriot, as the case may be.
THE PAIRING AGREEMENT
Under the Pairing Agreement, shares of Patriot Common Stock and Wyndham
International Common Stock shall not be transferrable or transferred on the
books of such company unless a simultaneous transfer is made by
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the same transferor to the same transferee of an equal number of shares of
common stock of the other company. Neither Patriot nor Wyndham International
may issue shares of Patriot Common Stock or Wyndham International Common
Stock, as the case may be, unless provision has been made for the simultaneous
issuance or transfer to the same person of the same number of shares of common
stock of the other company and for the pairing of such shares. Each
certificate issued for Patriot Common Stock or Wyndham International Common
Stock must be issued "back-to-back" with a certificate evidencing the same
number of shares of common stock of the other company. Each certificate must
bear a conspicuous legend on its face referring to the restrictions on
ownership and transfer under the Pairing Agreement. The Pairing Agreement
provides that each of Patriot and Wyndham International may issue shares of
capital stock of any class or series (other than Patriot Common Stock and
Wyndham International Common Stock), irrespective of whether such shares are
convertible into shares of Patriot Common Stock and Wyndham International
Common Stock, without making provision for the simultaneous issuance or
transfer to the same person of the same number of shares of that same class or
series of capital stock of the other company and for the pairing of such
shares.
In addition, pursuant to the Pairing Agreement, neither Patriot nor Wyndham
International may declare a stock dividend consisting in whole or in part of
Patriot Common Stock or Wyndham International Common Stock, issue any rights
or warrants to purchase any shares of Patriot Common Stock or Wyndham
International Common Stock or subdivide, combine or otherwise reclassify the
shares of Patriot Common Stock or Wyndham International Common Stock unless
the other company simultaneously takes the same or equivalent action.
Pursuant to the Pairing Agreement, as desired from time to time, but no less
than once each calendar year, Patriot and Wyndham International are required
to jointly arrange for the determination of the fair market value of the
Wyndham International Common Stock outstanding on such valuation date. Such
valuation may be used from time to time by Patriot and Wyndham International
to change the allocation between the companies of the net proceeds from any
Issuance of Paired Equity. The Pairing Agreement may be terminated by the
Board of Directors of either Patriot or Wyndham International upon 30 days
written notice to the other company that such termination has been approved by
the affirmative vote of the holders of a majority of the outstanding shares of
common stock of the company seeking to terminate the agreement. In the event
the Pairing Agreement is terminated, Patriot and Wyndham International have
agreed to cooperate to effect a separation of the paired shares of both
companies so as to permit the separate issuance and transfer thereof.
THE COOPERATION AGREEMENT
General. Although a paired share structure may result in stockholders of the
paired companies realizing certain economic benefits not realizable by
stockholders of companies not having a paired share structure, each paired
company is a separate corporate entity with a separate Board of Directors and
different management teams. Accordingly, the interests of the Board of
Directors and management of the paired companies may conflict and such
conflicts may possibly rise to disputes between the companies. Prior to the
Cal Jockey Merger, Cal Jockey and Bay Meadows experienced certain
disagreements and disputes, some of which resulted in litigation between the
companies. Patriot and Wyndham International believe that these disagreements
and disputes compromised the ability of Cal Jockey and Bay Meadows to operate
the companies in a manner designed to maximize the potential economic benefits
that could be realized for stockholders of the paired companies. Patriot and
Wyndham International believe that to increase the likelihood that the
stockholders of the two companies may fully realize the economic benefits of
the paired share structure, it is in the best interests of the companies and
their respective stockholders that the risk of potential conflicts between the
two companies be minimized. Accordingly, Patriot and Wyndham International
have entered into the Cooperation Agreement.
Under the terms of the Cooperation Agreement, Patriot and Wyndham
International are obligated to cooperate to the fullest extent possible in the
conduct of their respective operations and to take all necessary action to
preserve the paired share structure and to maximize the economic and tax
advantages associated therewith. One of the primary objectives of the
Cooperation Agreement is to set forth the understanding of the Patriot
Companies that Patriot shall have the sole right and power to authorize,
effect and control issuances of
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paired equity (including securities convertible into paired equity) of the two
companies. The Cooperation Agreement provides for a number of corporate
governance mechanisms designed to accomplish this objective and the other
objectives set forth therein. These mechanisms include (i) the establishment
of a cooperation committee (the "Cooperation Committee") that normally
considers and proposes the agenda listing the matters to be considered at any
joint meeting of the Patriot Board and the Wyndham International Board, (ii)
the establishment of corporate matters categories and procedures for the
consideration and reconsideration of matters brought before the Patriot Board
and the Wyndham International Board, (iii) the establishment of a hotel
acquisitions committee (the "Hotel Acquisitions Committee") that is to
analyze, evaluate and consider potential acquisitions by the Patriot Companies
of hotel properties and related assets, (iv) provisions that govern the sole
authority of Patriot to authorize, effect and control issuances of paired
equity (including securities convertible into paired equity) of the two
companies, and (v) the establishment of an unpaired equity committee (the
"Unpaired Equity Committee") that has the sole authority to authorize and
approve issuances of unpaired equity by Wyndham International.
Cooperation Committee. Pursuant to the Cooperation Agreement, the Patriot
Companies established the Cooperation Committee consisting of (i) the Chairman
of the Patriot Board (who shall be the Chairman of the Cooperation Committee),
(ii) the Chairman of the Wyndham International Board, (iii) a designee of the
Patriot Board reasonably acceptable to Wyndham International (who shall serve
at the pleasure of the Patriot Board and may be removed and replaced at any
time), and (iv) the President of Wyndham International. The Cooperation
Committee currently consists of Paul A. Nussbaum (who is Chairman of the
Patriot Board and Chief Executive Officer of Patriot), James D. Carreker (who
is Chairman of the Wyndham International Board and Chief Executive Officer of
Wyndham International), William W. Evans III (who is the President and a
director of Patriot) and Karim Alibhai (who is President and a director of
Wyndham International). The Cooperation Committee normally considers and
proposes the agenda listing the matters to be considered at any joint meeting
of the Boards of Directors of the companies.
Corporate Matters Categories. Pursuant to the Cooperation Agreement, all
matters to be considered by the Patriot Board or the Wyndham International
Board and all matters related thereto, except (i) a change in Patriot's line
of business and (ii) issuances of paired equity and issuances of unpaired
equity, are classified into the most appropriate of the following three
categories: (x) routine corporate governance matters, such as approval and
retention of independent accountants, the fixing of employee compensation and
other like matters (each, a "Category 1 Matter"); (y) all other matters, other
than a Change of Control and the removal of the Chairman or Chief Executive
Officer of Patriot or Wyndham International and, after January 5, 2001 (the
third anniversary of the Wyndham Merger), all matters (including a Change of
Control) other than the removal of the Chairman or Chief Executive Officer of
Patriot or Wyndham International (each, a "Category 2 Matter"); and (z) the
removal of the Chairman or Chief Executive Officer of either Patriot or
Wyndham International and, until January 5, 2001, any proposed action by
Patriot or Wyndham International, as the case may be, that would result in a
Change of Control (each, a "Category 3 Matter").
The term "Change in Control" as defined in the Cooperation Agreement means
the occurrence, with respect to either Patriot or Wyndham International, of
any one of the following events (Patriot or Wyndham International being
referred to below, as the case may be, as the "Company"): (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company or any trustee fiduciary or other person or entity holding
securities under any employee benefit plan or trust of the Company), together
with all "affiliates" and "associates" (as such terms are defined in Rule 12b-
2 under the Exchange Act) of such person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of either
(A) the combined voting power of the Company's then outstanding securities
having the right to vote generally in an election of the Company's Board of
Directors (the "Voting Securities") or (B) the then outstanding Paired Shares
(in either such case other than as a result of an acquisition of securities
directly from the Company); or (ii) (A) any consolidation or merger of the
Company where the stockholders of the Company immediately prior to the
consolidation or merger would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d- 3 under the
Exchange Act), directly or indirectly, securities representing in the
aggregate 50% or more of the
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Voting Securities of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any), (B)
any sale, lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company or (C) any plan or proposal for
the liquidation or dissolution of the Company. Notwithstanding the foregoing,
as defined in the Cooperation Agreement, a "Change of Control" will not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Paired Shares or other voting securities outstanding, increases (x)
the proportionate number of Paired Shares beneficially owned by any person to
50% or more of the Paired Shares then outstanding or (y) the proportionate
voting power represented by the voting securities beneficially owned by any
person to 50% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in clause
(x) or (y) of this sentence shall thereafter become the beneficial owner of
any additional Paired Shares or other voting securities (other than pursuant
to a stock split, stock dividend, or similar transaction) and whose ownership
immediately thereafter shall equal or exceed the amounts set forth in clauses
(x) or (y), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
At any meeting of the Patriot Board or the Wyndham International Board
(whether or not held jointly), each of Patriot and Wyndham International, as
the case may be, may (the Board submitting any matter being referred to herein
as the "Proposing Board") (i) submit a Category 1 Matter to the consideration
and vote of its Board, irrespective of any consideration or vote by the other
Board, (ii) submit a Category 2 Matter to the consideration and vote of its
Board, and (iii) submit a Category 3 Matter to the consideration and vote of
its Board, with such matter requiring a 66 2/3% vote of its Board for
approval.
If the Proposing Board at any such meeting that is not held jointly (the
"Proposing Board Meeting") shall have approved any Category 2 Matter or
Category 3 Matter, such Proposing Board shall promptly provide notice (the
"Proposing Board Notice") to the other company pursuant to the terms of the
Cooperation Agreement of the occurrence of such meeting and the Category 2
Matters or Category 3 Matters approved at such meeting. The Cooperation
Committee shall convene promptly (in any event, within ten (10) business days)
following the Proposing Board Meeting to consider the actions taken by the
Proposing Board. If the Cooperation Committee votes to approve the action
taken by the Proposing Board with respect to any such matter, then the action
authorized by the Proposing Board may be implemented without consideration of
such matter by the other Board. If the Cooperation Committee does not approve
the action taken by the Proposing Board, the other company's Board (the
"Responding Board") may then hold a meeting within fifteen (15) business days
following receipt by such other company of the Proposing Board Notice to
consider and vote upon the Category 2 Matters or Category 3 Matters approved
by the Proposing Board and during such period the action authorized by the
Proposing Board may not be implemented. In the event that the Responding Board
approves at such a meeting the action taken by the Proposing Board or the
Responding Board does not hold a meeting within fifteen (15) business days
following receipt of the Proposing Board Notice, the action authorized by the
Proposing Board may thereafter be implemented.
In the event the Responding Board holds a meeting within fifteen (15)
business days following receipt of the Proposing Board Notice but does not
approve the action authorized by the Proposing Board, the action authorized by
the Proposing Board may not be implemented. In such an event, the Cooperation
Committee will convene promptly following the meeting of the Responding Board
to consider the contrary positions of the Proposing Board and the Responding
Board and recommend a resolution of such contrary positions in connection with
the reconsideration process described below (the "Reconsideration Process").
The Boards will then follow the Reconsideration Process.
At any joint meeting of the Patriot Board and the Wyndham International
Board, in the event that the Proposing Board approves a Category 2 Matter or
Category 3 Matter but the other Board does not, the action authorized by the
Proposing Board may not be implemented. The Cooperation Committee shall
convene immediately following the joint meeting (unless a quorum of the
Cooperation Committee is not present, in which
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case the Cooperation Committee shall convene as soon as practicable
thereafter) to consider the votes of the Boards taken at such meeting. The
Boards will then follow the Reconsideration Process described below.
Reconsideration Process. Following any meeting of the Cooperation Committee
as described above, any Proposing Board may reconsider a Category 2 Matter at
any subsequent meeting of such Board and, if the Proposing Board approves such
matter by a majority vote at such subsequent meeting, then the Proposing Board
may take the action contemplated by such matter regardless of the position of
the other Board. Following any meeting of the Cooperation Committee as
described above, the Proposing Board may reconsider a Category 3 Matter at any
subsequent meeting of such Board and, if the Proposing Board approves such
matter by a 66 2/3% vote at such subsequent meeting, then the Proposing Board
may take the action contemplated by such matter (but, in the case of a Change
in Control, only if the other Board approves such matter by a majority vote).
Change in Patriot's Line of Business. Until January 5, 2001, any change in
Patriot's line of business shall require a 66 2/3% vote of the Patriot Board
and a majority vote of Wyndham International Board for approval.
Hotel Acquisitions Committee. Pursuant to the Cooperation Agreement, Patriot
and Wyndham International established a Hotel Acquisitions Committee to
analyze, evaluate and consider potential acquisitions by the Patriot Companies
of hotel properties and related assets (which properties and related assets
may consist of a portfolio of hotel properties and related assets, and which
may be acquired in any form, such as by merger, asset acquisition or
otherwise) ("Hotel Acquisitions"). The Hotel Acquisitions Committee has the
sole power and authority to authorize Patriot or Wyndham International, as the
case may be, to enter into a binding agreement with respect to Hotel
Acquisitions involving a proposed purchase price (inclusive of any
indebtedness to be assumed in connection therewith) not exceeding (with
respect to each Hotel Acquisition or such series of Hotel Acquisitions as are
reasonably likely to be considered an integrated transaction) 5% of the total
combined market capitalization of the Patriot Companies computed as of the
last business day of the month immediately preceding the month during which
such Hotel Acquisition is to be authorized and based on the average closing
sale price of a Paired Share over the five (5) Trading Days immediately
preceding such business day. The Hotel Acquisitions Committee consists of six
members as follows: (i) the Chairman of the Patriot Board, (ii) the Chairman
of the Wyndham International Board, (iii) the President of Patriot, (iv) the
President of Wyndham International, (v) a non-employee director of the Patriot
Board selected by the Chairman of the Patriot Board and reasonably
satisfactory to the Wyndham International Board, and (vi) a non-employee
director of the Wyndham International Board selected by the Chairman of the
Wyndham International Board and reasonably satisfactory to the Patriot Board.
Notwithstanding the foregoing, the Hotel Acquisitions Committee shall no
longer have the power and authority described herein on and after January 5,
2001.
Authority to Issue Paired Equity. The Cooperation Agreement provides that,
from and after the date of the Cooperation Agreement until the date (the
"Termination Date") which is twelve (12) months after the date on which the
Pairing Agreement is no longer in effect, the Patriot Board has the sole right
to authorize and to effect, or to cause Wyndham International and the Wyndham
International Board to effect, an Issuance of Paired Equity (as defined below)
and to take or cause to be taken any and all action in contemplation of, or in
connection with, an Issuance of Paired Equity, and the Wyndham International
Charter and Bylaws so provide. In connection therewith, the Patriot Board also
has the authority to cause Wyndham International to comply with the procedures
set forth in the Cooperation Agreement.
The term "Issuance of Paired Equity" as defined in the Cooperation Agreement
means a private or public offering, sale, issuance or delivery of, or
commitment or agreement to commit to offer, sell, issue or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other debt or equity securities of Wyndham International (including, without
limitation, indebtedness having the right to vote, indebtedness convertible
into any equity of any class or any other securities) or limited partnership
interests or units of Wyndham International Partnership), or equity
equivalents of either (including, without limitation, stock appreciation
rights), if it is contemplated that such stock or other securities, or any
securities underlying such stock or other securities, would or could be paired
with shares of Patriot Common Stock or any other securities of Patriot, or, in
the case of limited partnership interests
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or units of the Wyndham International Partnership, it is contemplated that
such interests or units would be economically (or otherwise) "paired" (even if
not pursuant to the Pairing Agreement) with the limited partnership interests
or units of Patriot Partnership. Issuance of Paired Equity also means (A) the
related issuance by Patriot or Patriot Partnership of the securities of
Patriot or Patriot Partnership which are paired with the securities of Wyndham
International or Wyndham International Partnership and (B) any reorganization,
recapitalization, reclassification, stock dividend, stock split, combination
of shares, exchange of shares for other shares of the companies, repurchase or
redemption of shares, change in corporate structure or the like in which the
outstanding Paired Shares would be increased, decreased, changed into or
exchanged for a different number or kind of Paired Shares or other paired
securities.
Pursuant to the Cooperation Agreement, Patriot is entitled to designate from
time to time one or more officers of Patriot to serve as a "Paired Equity
Officer/Director." The Patriot Board has the authority to appoint any such
Paired Equity Officer/Director to the positions of vice president and
assistant secretary of Wyndham. Any Paired Equity Officer/Director may resign
or be removed by Patriot at any time and, at any time thereafter, Patriot may
designate a new Paired Equity Officer/Director. Any Paired Equity
Officer/Director will have the express authority to do any and all acts and
things related to any Issuance of Paired Equity, including, without
limitation, the execution and delivery in the name and on behalf of Wyndham
International of any and all documents, certificates (including stock
certificates) and other instruments necessary or appropriate in connection
with the issuance of any shares of Wyndham International Common Stock pursuant
to an Issuance of Paired Equity, the engagement of investment bankers,
accountants, attorneys and other professionals, and the incurrence of any and
all other transaction costs related thereto.
The Cooperation Agreement provides that Patriot has, and Wyndham
International shall at all times and in all circumstances maintain and support
the position that Patriot has, the sole right and power to authorize and
effect, or to cause Wyndham International and the Wyndham International Board
to effect, the Issuance of Paired Equity and Wyndham International further
agreed not to assert otherwise in any forum, proceeding, action or
communication or take any other action which is inconsistent with its
obligations under the Cooperation Agreement.
Under the terms of the Cooperation Agreement, Wyndham International has
expressly released any and all claims, causes of action, rights, defenses and
arguments that any Issuance of Paired Equity approved by Patriot in any way
violates or infringes any rights that Wyndham International or its past,
present or future officers, directors, employees, stockholders or affiliates
may have, including, without limitation, that any Issuance of Paired Equity
approved by Patriot in any way breaches, violates or infringes any fiduciary
duties, duties of one stockholder to another, partnership duties, joint
venturer duties, or any other duties or obligations that may exist or exist in
the future; provided, that nothing contained in the Cooperation Agreement will
be, or will be asserted to be, an admission that any such duties exist.
Further, Wyndham International has expressly disclaimed, and has agreed not to
assert that, any such duties or obligations exist in any way that would
interfere with the sole rights of Patriot with respect to the Issuance of
Paired Equity.
The Cooperation Agreement requires that Patriot shall give notice (an
"Issuance Notice") to Wyndham International as promptly as practicable of each
determination by Patriot to engage in an Issuance of Paired Equity. Such
Issuance Notice shall include the proposed material terms of such issuance, to
the extent determined by Patriot, including whether such issuance is proposed
to be pursuant to a public or private offering, the amount of Paired Shares
proposed to be issued, and the manner of determining the offering price and
other terms thereof.
Upon receipt of an Issuance Notice, Wyndham International and the Wyndham
International Board shall promptly cooperate with Patriot in every way to
effect such Issuance of Paired Equity pursuant to the terms and schedule
thereof as established by Patriot, including, without limitation, in certain
respects as prescribed in the Cooperation Agreement.
The Cooperation Agreement provides that, upon any Issuance of Paired Equity,
the net proceeds therefrom be allocated 95% to Patriot and 5% to Wyndham
International, unless and until a different allocation is agreed
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to by mutual consent of Patriot and Wyndham International in accordance with
the Pairing Agreement, as amended from time to time.
From time to time, Wyndham International may request that Patriot effect an
Issuance of Paired Equity in connection with employee benefit plans, other
forms of incentive compensation and other arrangements or commitments of
Wyndham International. To the extent that Patriot approves in writing any such
plan, arrangement or commitment, Patriot will either (A) issue the shares of
Patriot Common Stock which form a part of the Paired Shares when the Paired
Shares are required to be issued pursuant to the terms of any such plan,
arrangement or commitment or (B) indemnify Wyndham International to the fullest
extent permitted under applicable law from and against any and all damages, as
specified in the Cooperation Agreement, of Wyndham International which arise
out of any failure by Patriot to issue such shares of Patriot Common Stock.
Authority to Issue Unpaired Equity. From and after the date of the
Cooperation Agreement until the Termination Date, each of Patriot and Wyndham
International has the right to engage in an Issuance of Unpaired Equity (as
defined below) in accordance with and pursuant to the procedures contained in
the Cooperation Agreement, and to take any and all action in contemplation of,
or in connection with, an Issuance of Unpaired Equity.
The term "Issuance of Unpaired Equity," as defined in the Cooperation
Agreement, means, in the case of Wyndham International, a public or private
offering, sale, issuance, delivery or commitment or agreement to commit to
offer, sell, issue or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any or all securities described in the definition of "Issuance of Paired
Equity" if it is contemplated that such stock or other securities, and any
securities underlying such stock or other securities, would not or could not be
paired with shares of Patriot Common Stock or any other securities of Patriot
or, in the case of limited partnership interests or units of Wyndham
International Partnership, it is contemplated that such interests or units
would not or could not economically (or otherwise) be "paired" (even if not
pursuant to the Pairing Agreement) with the limited partnership interests or
units of the Patriot Partnership. "Issuance of Unpaired Equity" means, in the
case of Patriot, a public or private offering, sale, issuance or delivery of,
or commitment or agreement to commit to offer, sell, issue or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), any stock of any class or any
other debt or equity securities of Patriot (including, without limitation,
indebtedness having the right to vote and indebtedness convertible into any
equity of any class or any other securities) or limited partnership interests
or units of Patriot Partnership, or equity equivalents of either (including,
without limitation, stock appreciation rights), if it is contemplated that such
stock or other securities, and any securities underlying such stock or other
securities, would not or could not be paired with shares of Wyndham
International Common Stock or any other securities of Wyndham International or,
in the case of limited partnership interests or units of Patriot Partnership,
it is contemplated that such interests or units would not or could not be
economically (or otherwise) "paired" (even if not pursuant to the Pairing
Agreement) with the limited partnership interests or units of Wyndham
International Partnership.
Wyndham has the right to engage in an Issuance of Unpaired Equity upon the
affirmative vote of a majority of the members of the Unpaired Equity Committee.
Patriot has the right to engage in an Issuance of Unpaired Equity upon the
affirmative vote of a majority of the members of the Patriot Board.
Pursuant to the Cooperation Agreement, the "Unpaired Equity Committee"
consists of (i) the Chairman of the Patriot Board, (ii) the Chairman of the
Wyndham International Board, (iii) two designees of Patriot from either of the
Patriot Board or the Wyndham International Board and (iv) one designee of
Wyndham International from either of the Patriot Board or the Wyndham
International Board. The members of the Unpaired Equity Committee currently
consist of (i) Paul A. Nussbaum until such time as he shall no longer serve as
Chairman of the Patriot Board and, after such time, the Chairman of the Patriot
Board, (ii) James D. Carreker until such time as he shall no longer serve as
Chairman of the Wyndham International Board and, after such time, the Chairman
of the Wyndham International Board, (iii) two designees of Patriot from either
the Patriot Board or the Wyndham
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International Board and (iv) one designee of Wyndham International from either
the Patriot Board or the Wyndham International Board.
Holders of Unpaired Equity. Under the terms of the Cooperation Agreement,
whenever, from time to time, there shall be outstanding any class of equity
securities of Patriot, Wyndham International or any of their respective
subsidiaries, which securities are not paired with corresponding securities of
the other company or its subsidiaries, but are convertible or exchangeable
into or for Paired Shares (including, without limitation, any shares of
unpaired Preferred Stock of Patriot issued to CF Securities after the date of
the Cooperation Agreement) (the "Unpaired Shares"), then, so long as any such
Unpaired Shares were issued in accordance with the terms of the Cooperation
Agreement, Patriot and Wyndham International will issue shares of Patriot
Common Stock or shares of Wyndham International Common Stock, as the case may
be, underlying such Unpaired Shares in accordance with the terms thereof. The
covenants of Patriot and Wyndham International set forth in the Cooperation
Agreement will be made for the benefit of the holders of such Unpaired Shares
and such holders will be express third-party beneficiaries thereof.
Indemnification by Patriot. Under the Cooperation Agreement, Patriot is
obligated to indemnify and hold harmless all directors and officers of Wyndham
International from and against all losses, claims, damages, liabilities and
expenses ("Damages") to which any such directors or officers may become
subject insofar as such Damages arise out of an Issuance of Paired Equity or
an Issuance of Unpaired Equity prior to the termination of the Cooperation
Agreement to the same extent, and on the same terms and conditions (including,
without limitation, provision for advancement of expenses and contribution)
that Patriot indemnifies its own directors and officers with respect to such
matters, provided that in no event shall a director or officer of Wyndham
International receive greater indemnification for Damages than would a
director or officer, as the case may be, of Patriot in a like circumstance.
Removal of Directors. If at any time any director of Wyndham International
shall interfere or fail to cooperate fully with any Issuance of Paired Equity,
such director will be deemed to be no longer acting within the scope of his
authority with respect to the management of the affairs of Wyndham
International and to have failed to remain qualified as a director. In such
event, such director shall automatically cease to be a director. The
determination of whether any director of Wyndham International has interfered
or failed to cooperate fully with any Issuance of Paired Equity will be made
by the Patriot Board and notice of any such determination shall be given by
Patriot to Wyndham International within 10 days after the date of such
determination. Notwithstanding when such determination and notice shall be
made and given, any such director shall be deemed to have ceased to be a
director at the time of any interference or failure to cooperate; provided,
however, that for purposes of the indemnification provided under the
Cooperation Agreement and any other right to indemnification to which such
director would otherwise be entitled, such director shall be deemed to have
been acting as a director until such time as such determination and notice
shall be made and given, and such director's right to indemnification, if any,
shall in no way be prejudiced solely by reason of having acted as a director
during the period from the time of such interference or failure to cooperate
until such determination and notice are made and given.
Termination. Unless earlier terminated at any time by the mutual consent of
Patriot and Wyndham International, the Cooperation Agreement will terminate on
the Termination Date. In the event of any termination of the Cooperation
Agreement, neither Patriot nor Wyndham International (or any of its directors,
officers, employees or agents) will have any liability or further obligation
to any other party.
Amendment. The corporate governance provisions of the Cooperation Agreement,
including those related to the Cooperation Committee and the Hotel
Acquisitions Committee, and the provisions related to the Issuance of Paired
Equity and Issuance of Unpaired Equity, termination of directors of Wyndham
International and termination of the Cooperation Agreement, may only be
waived, amended, supplemented or modified with the approval of a 66 2/3% vote
of each of the Patriot Board and the Wyndham International Board.
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CERTAIN PROVISIONS OF THE CHARTERS AND THE BYLAWS
Restrictions on Ownership and Transfer
For Patriot to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of capital
stock. Specifically, not more than 50% in value of Patriot's outstanding
shares of capital stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year, and Patriot must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of twelve months or
during a proportionate part of a shorter taxable year. In addition, Patriot
must meet certain requirements regarding the nature of its gross income in
order to qualify as a REIT. One such requirement is that at least 75% of
Patriot's gross income for each year must consist of rents from real property
and income from certain other real property investments. The rents received by
Patriot Partnership and its subsidiary partnerships from the Lessees will not
qualify as rents from real property if Patriot owns, actually or
constructively, 10% or more of the ownership interests in any Lessee within
the meaning of Section 856(d)(2)(B) of the Code, the result of which would be
the loss of REIT status for Patriot. See "Certain Federal Income Tax
Considerations--REIT Qualification."
In order to protect Patriot against the risk of losing its status as a REIT
and to otherwise protect Patriot from the consequences of a concentration of
ownership among its stockholders, the Charters provide, subject to certain
exceptions, that no single person (which includes a "group" of persons) (other
than Look-Through Entities) may Beneficially Own or Constructively Own (as
those terms are defined below) in excess of 8.0% of the outstanding shares of
any class or series of Equity Stock of Patriot or Wyndham International,
unless the Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Charters. Any transfer of Equity Stock of
Patriot or Wyndham International that would (i) result in any person or entity
owning, directly or indirectly, shares of Equity Stock of Patriot or Wyndham
International in excess of the Ownership Limit, unless the Ownership Limit is
waived by the Board of Directors of the relevant corporation in accordance
with the Charters, (ii) result in the capital stock of Patriot being
beneficially owned (within the meaning of Section 856(a)(5) of the Code) by
fewer than 100 persons within the meaning of Section 856(a)(5) of the Code,
(iii) result in Patriot being "closely held" within the meaning of Section
856(h) of the Code or (iv) cause Patriot to own, actually or constructively,
10% or more of the ownership interests in a tenant of the real property of
Patriot or a subsidiary of Patriot within the meaning of Section 856(d)(2)(B)
of the Code, shall be void ab initio, and the intended transferee will acquire
no right or interest in such shares of Equity Stock. For purposes of the
Charters, "Beneficial Ownership" means, with respect to any individual or
entity, ownership of shares of Equity Stock equal to the sum of (i) the shares
of Equity Stock directly or indirectly owned by such individual or entity,
(ii) the number of shares of Equity Stock treated as owned directly or
indirectly by such individual or entity through the application of the
constructive ownership rules of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code, and (iii) the number of shares of Equity
Stock which such individual or entity is deemed to beneficially own pursuant
to Rule 13d-3 under the Exchange Act. The Charters provide that pension plans
described in Section 401(a) of the Code and mutual funds registered under the
Investment Company Act of 1940 are treated as Look-Through Entities that are
subject to a 9.8% "Look-Through Ownership Limit." Pension plans and mutual
funds are among the entities that are not treated as holders of stock under
the "five or fewer" requirement and the beneficial owners of such entities
will be counted as holders for this purpose. For purposes of computing the
percentage of shares of any class or series of Equity Stock of Patriot or
Wyndham International Beneficially Owned by any person or entity, any shares
of Equity Stock of Patriot or Wyndham International which are deemed to be
Beneficially Owned by such person or entity pursuant to Rule 13d-3 of the
Exchange Act but which are not outstanding shall be deemed to be outstanding.
The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have correlative meanings. Also for purposes of the Charters,
"Constructive Ownership" means ownership of shares of Equity Stock by an
individual or entity who is or would be treated as a direct or indirect owner
of such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
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Upon the occurrence of a purported transfer of shares that would result in a
violation of any of the foregoing transfer restrictions, that number of shares
that violate the transfer restrictions shall be automatically converted into
an equal number of shares of Excess Stock and transferred to a Trust for the
benefit of the Beneficiary, effective on the Trading Day prior to the date of
the purported transfer of such shares, and the record holder of the shares of
Equity Stock that are converted into shares of Excess Stock (a "Prohibited
Owner") shall submit such number of shares of Equity Stock to Patriot or
Wyndham International, as the case may be, for registration in the name of the
Trustee. In the case of Equity Stock that is paired, upon the conversion of a
share of Equity Stock into a share of Excess Stock, the corresponding paired
share of that same class or series of Equity Stock of the other company shall
simultaneously be converted into a share of Excess Stock; such shares of
Excess Stock shall be paired and shall be simultaneously transferred to a
Trust. Upon the occurrence of such a conversion of shares of any class or
series of Equity Stock into an equal number of shares of Excess Stock, such
shares of Equity Stock shall be automatically retired and canceled, without
any action required by the Board of Directors of either of Patriot or Wyndham
International, and shall thereupon be restored to the status of authorized but
unissued shares of the particular class or series of Equity Stock from which
such Excess Stock was converted and may be reissued as that particular class
or series of Equity Stock.
Shares of Equity Stock that are converted into shares of Excess Stock and
transferred to a Trust shall be held in trust for the exclusive benefit of the
Beneficiary. Shares of Excess Stock will remain issued and outstanding shares
of stock. Each share of Excess Stock shall be entitled to the same dividends
and distributions (as to both timing and amount) as may be declared by the
Patriot Board or the Wyndham International Board, as the case may be, as
shares of the class or series of Equity Stock from which such Excess Stock was
converted. The Trustee, as record holder of the shares of Excess Stock, shall
be entitled to receive all dividends and distributions and shall hold all such
dividends or distributions in trust for the benefit of the Beneficiary. The
Prohibited Owner with respect to such shares of Excess Stock shall repay to
the Trust the amount of any dividends or distributions received by it (i) that
are attributable to any shares of Equity Stock that have been converted into
shares of Excess Stock and (ii) the record date of which was on or after the
date that such shares were converted into shares of Excess Stock. Patriot and
Wyndham International shall take all measures that they determine reasonably
necessary to recover the amount of any such dividend or distribution paid to a
Prohibited Owner, including, if necessary, withholding any portion of future
dividends or distributions payable on shares of Equity Stock beneficially
owned or constructively owned by the person who, but for the restrictions on
transfer, would constructively own or beneficially own the shares of Excess
Stock and, as soon as reasonably practicable following receipt or withholding
thereof, shall pay over to the Trust for the benefit of the Beneficiary the
dividends so received or withheld, as the case may be.
In the event of any voluntary or involuntary liquidation of, or winding up
of, or any distribution of the assets of, Patriot or Wyndham International,
each holder of shares of Excess Stock shall be entitled to receive, ratably
with each other holder of shares of Equity Stock of the same class or series
from which the Equity Stock was converted, that portion of the assets of
Patriot or Wyndham International, as the case may be, that is available for
distribution to the holders of such class or series of Equity Stock. The Trust
shall distribute to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution; provided, however,
that the Prohibited Owner shall not be entitled to receive amounts in excess
of, in the case of a purported transfer in which the Prohibited Owner gave
value for shares of Equity Stock and which transfer resulted in the conversion
of the shares into shares of Excess Stock, the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock (which, in the case of
Equity Stock that is paired, shall equal the price paid per share multiplied
by the most recent Valuation Percentage (as defined below)) and, in the case
of a non-transfer event or transfer in which the Prohibited Owner did not give
value for such shares (e.g., if the shares were received through a gift or
devise) and which non-transfer event or transfer, as the case may be, resulted
in the conversion of the shares into shares of Excess Stock, the price per
share equal to the Market Price (as defined below) on the date of such non-
transfer event or transfer. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
Each share of Excess Stock shall entitle the holder to the number of votes
the holder would have, if such share of Excess Stock was a share of Equity
Stock of the same class or series from which such Excess Stock
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was converted, on all matters submitted to a vote at any meeting of
stockholders. The holders of shares of Excess Stock converted from the same
class or series of Equity Stock shall vote together with the holders of such
Equity Stock as a single class on all such matters. The Trustee, as record
holder of the shares of Excess Stock, shall be entitled to vote all shares of
Excess Stock. Any vote taken by a Prohibited Owner prior to the discovery by
Patriot or Wyndham International, as the case may be, that the shares of
Equity Stock were exchanged for shares of Excess Stock will be rescinded as
void ab initio.
The Trustee shall have the exclusive and absolute right to designate one or
more Permitted Transferees of any and all shares of Excess Stock if Patriot or
Wyndham International or both, in the case of Paired Shares, fail to exercise
its or their option with respect to such shares as described below; provided,
however, that (i) the Permitted Transferee so designated purchases for
valuable consideration (whether in a public or private sale) the shares of
Excess Stock (which, in the case of Excess Stock that is paired, shall equal
the price paid per share multiplied by the most recent Valuation Percentage)
and (ii) the Permitted Transferee so designated may acquire such shares of
Excess Stock without violating any of the aforementioned transfer restrictions
and without such acquisition resulting in the exchange of such shares of
Equity Stock so acquired for shares of Excess Stock and the transfer of such
shares of Excess Stock to a Trust. Upon the designation by the Trustee of a
Permitted Transferee, the Trustee shall cause to be transferred to the
Permitted Transferee that number of shares of Excess Stock of Patriot or
Wyndham International, as the case may be, acquired by the Permitted
Transferee. Upon such transfer of the shares of Excess Stock to the Permitted
Transferee, such shares of Excess Stock shall be automatically converted into
an equal number of shares of Equity Stock of the same class and series from
which such Excess Stock was converted. In the case of Equity Stock that is
paired, upon the conversion of a share of Excess Stock into a share of Equity
Stock of the same class or series from which such Excess Stock was converted,
the corresponding paired share of Excess Stock of the other company shall
simultaneously be converted into a share of Equity Stock of the same class or
series from which such Excess Stock was converted and such shares of Equity
Stock shall be paired. Upon the occurrence of such a conversion of shares of
Excess Stock into an equal number of shares of Equity Stock, such shares of
Excess Stock shall be automatically retired and canceled, without any action
required by the Patriot Board or the Wyndham International Board, and shall
thereupon be restored to the status of authorized but unissued shares of
Excess Stock and may be reissued as such. The Trustee shall (i) cause to be
recorded on the stock transfer books of Patriot or Wyndham International or
both, in the case of Paired Shares, that the Permitted Transferee is the
holder of record of such number of shares of Equity Stock and (ii) distribute
to the Beneficiary any and all amounts held with respect to the shares of
Excess Stock after making payment to the Prohibited Owner. If the transfer of
shares of Excess Stock to a purported Permitted Transferee shall violate any
of the aforementioned transfer restrictions including, without limitation, the
Ownership Limit, such transfer shall be void ab initio as to that number of
shares of Excess Stock that cause the violation of any such restriction when
such shares are converted into shares of Equity Stock and the purported
Permitted Transferee shall be deemed to be a Prohibited Owner and shall
acquire no rights in such shares of Excess Stock. Such shares of Equity Stock
shall be automatically re-converted into Excess Stock and transferred to the
Trust from which they were originally sold. Such conversion and transfer to
the Trust shall be effective as of the close of trading on the Trading Day
prior to the date of the transfer to the purported Permitted Transferee and
the provisions of the Charters regarding compensation to a Prohibited Owner
shall apply to such shares with respect to any future transfer of such shares
by the Trust.
A Prohibited Owner shall be entitled to receive from the Trustee following
the sale or other disposition of such shares of Excess Stock the lesser of (i)
(a) in the case of a purported transfer in which the Prohibited Owner gave
value for shares of Equity Stock and which transfer resulted in the conversion
of such shares into shares of Excess Stock, the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock (which, in the case of
Excess Stock that is paired, shall be determined based on the Valuation
Percentage) and (b) in the case of a non-transfer event or transfer in which
the Prohibited Owner did not give value for such shares (e.g., if the shares
were received through a gift or devise) and which non-transfer event or
transfer, as the case may be, resulted in the conversion of such shares into
shares of Excess Stock, the price per share equal to the Market Price on the
date of such non-transfer event or transfer and (ii) the price per share
(which, in the case of Excess Stock that is paired, shall be determined based
on the Valuation Percentage) received by the Trustee from the
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sale or other disposition of such shares of Excess Stock. Any amounts received
by the Trustee in respect of such shares of Excess Stock and in excess of such
amounts to be paid the Prohibited Owner shall be distributed to the
Beneficiary.
Shares of Excess Stock shall be deemed to have been offered for sale by a
Trust to Patriot or Wyndham International or both, in the case of Paired
Shares, or a designee of such company or companies, at a price per share equal
to the lesser of (i) the price per share (which, in the case of Excess Stock
that is paired, shall be determined based on the Valuation Percentage) in the
transaction that created such shares of Excess Stock (or, in the case of
devise, gift or non-transfer event, the Market Price at the time of such
devise, gift or non-transfer event) or (ii) the Market Price on the date
either company or both companies, in the case of Paired Shares, accept such
offer. Either company or both companies, in the case of Paired Shares, shall
have the right to accept such offer for a period of 90 days following the
later of (a) the date of the non-transfer event or purported transfer which
results in such shares of Excess Stock or (b) the date on which either company
or both companies, in the case of Paired Shares, determine in good faith that
a transfer or non-transfer event resulting in shares of Excess Stock has
previously occurred, if either company or both companies, in the case of
Paired Shares, do not receive a notice of such transfer or non-transfer event.
In the case of shares of Excess Stock that are paired, neither Patriot nor
Wyndham International shall accept such an offer with respect to its shares of
Excess Stock without the agreement of the other company to accept such offer
with respect to the corresponding Paired Shares of its Excess Stock.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. "Closing Price" on any
date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of Equity Stock are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Equity Stock are
listed or admitted to trading or, if the shares of Equity Stock are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if the shares of Equity Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the shares of Equity Stock. In
the case of Equity Stock that is paired, "Market Price" shall mean the "Market
Price" for Paired Shares multiplied by a fraction (expressed as a percentage)
determined by dividing the value for such Equity Stock most recently
determined under the Pairing Agreement over the value of a paired share most
recently determined under the Pairing Agreement (the "Valuation Percentage").
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
Any person or entity that acquires or attempts to acquire shares of Equity
Stock in violation of the aforementioned transfer restrictions, or any person
or entity that owned shares of Equity Stock that were transferred to a Trust,
shall immediately give written notice to Patriot or Wyndham International or
both, in the case of Paired Shares, of such event and shall provide such other
information as the appropriate company or both companies, as the case may be,
may request to determine the effect, if any, of such violation on Patriot's
status as a REIT.
Each person or entity that is an owner, actually or constructively, of
shares of Equity Stock and each person or entity that (including the
stockholder of record) is holding shares of Equity Stock for such an owner
shall provide to Patriot or Wyndham International or both, in the case of
Paired Shares, a written statement or affidavit stating such information as
the appropriate company or both companies, as the case may be, may request to
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determine Patriot's status as a REIT and to ensure compliance with the
Ownership Limit or the Look-Through Ownership Limit, as the case may be. In
addition, every person or entity that owns of record, actually or
constructively, more than 5%, or such lower percentages as required pursuant
to regulations under the Code, of the outstanding shares of any class or
series of Equity Stock of Patriot or Wyndham International shall, within 30
days after January 1 of each year, provide to Patriot or Wyndham International
or both, in the case of Paired Shares, a written statement or affidavit
stating the name and address of such owner, the number of shares of Equity
Stock owned, actually or constructively, and a description of how such shares
are held.
All certificates representing shares of Equity Stock shall bear a legend
referring to the aforementioned transfer restrictions. The transfer
restrictions will continue to apply until the Patriot Board determines that it
is no longer in the best interests of Patriot to attempt to qualify, or to
continue to qualify, as a REIT.
The restrictions on transfer contained in the Charters could have the effect
of discouraging a takeover or other transaction in which holders of some, or a
majority, of shares of Equity Stock might receive a premium from their shares
of Equity Stock over the then prevailing Market Price or which such holders
might believe to be otherwise in their best interest.
Number of Directors; Removal; Filling Vacancies
The Charters and the Bylaws provide that the number of directors of each of
Patriot and Wyndham International shall be fixed by resolution duly adopted
from time to time by the Board of Directors. Pursuant to the terms of the
Charters, the directors are divided into three classes with the term of office
of one class expiring each year. As the term of each class expires, directors
in that class will be elected for a term of three years and until their
successors are duly elected and qualified.
The Charters and the Bylaws each provide that a director may be removed,
only for cause, by the vote of holders of at least 75% of the outstanding
shares of capital stock entitled to vote for the election of directors at a
special meeting of the stockholders called for the purpose of removing such
director. "Cause," with respect to the removal of any director, is defined in
the Charters to mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of court, (iii) gross dereliction of duty, (iv)
commission of any action involving moral turpitude or (v) commission of an
action which constitutes intentional misconduct or a knowing violation of law
if such action in either event results both in an improper substantial
personal benefit and a material injury to Patriot or Wyndham International, as
the case may be. Any and all vacancies in the respective Boards of Directors,
however occurring, shall be filled solely by the affirmative vote of a
majority of the remaining directors of the applicable company then in office,
even if less than a quorum of the applicable Board of Directors. Any director
so appointed shall hold office for the remainder of the full term of the class
of directors in which the vacancy occurred and until such director's successor
is duly elected and qualified or, if earlier, such director's earlier
resignation or removal.
The staggered board provisions prevent stockholders of Patriot and Wyndham
International from voting on the election of all directors at each annual
meeting. The existence of a staggered board, the fact that directors may only
be removed for cause and with a 75% vote and the fact that vacancies in the
Board of Directors shall be filled solely by the vote of remaining directors
may have the effect of delaying or deferring a change in control of Patriot
and Wyndham International or the removal of incumbent management.
Special Meetings of Stockholders
The Bylaws provide that a special meeting of stockholders may only be called
by the Chairman of the Board of Directors or a majority of the Board of
Directors. Accordingly, stockholders of Patriot and Wyndham International will
have no ability to call a special meeting of stockholders.
Limitation of Liability and Indemnification
The Charters, in conjunction with the DGCL, eliminate a director's personal
liability (and the personal liability of a member of any duly authorized and
constituted committee of Patriot or Wyndham International, as
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the case may be, or of their respective Boards) to Patriot or Wyndham
International, as the case may be, or their respective stockholders for breach
of fiduciary duty, except for liability (i) for any breach of the director's
duty of loyalty to Patriot or Wyndham International, as the case may be, or
their respective stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or otherwise. The DGCL permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of the
corporation, provided that each such person acted in good faith and in a
manner that he or she reasonably believed was in or not opposed to the
corporation's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The DGCL does not
allow indemnification of directors in the case of an action by or in the right
of the corporation (including stockholder derivative suits) unless the
directors successfully defend the action or indemnification is ordered by the
court. The Bylaws provide for indemnification to the fullest extent authorized
by the DGCL and, therefore, these statutory indemnification rights are
available to the directors, officers, employees and agents of Patriot and
Wyndham International.
Amendment of Charters and Bylaws
Each Charter provides that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of a greater proportion and certain provisions relating to the
Cooperation Agreement, such Charter may be amended in the manner prescribed by
the DGCL, which requires the approval of the applicable Board of Directors and
the approval of the stockholders of Patriot or Wyndham International, as
applicable, by the affirmative vote of a majority of the outstanding shares
entitled to vote on such amendment.
The Bylaws may be amended or repealed (i) except as otherwise provided by
law, by the affirmative vote of a majority of the directors then in office or
(ii) at any meeting of stockholders by the affirmative vote of at least two-
thirds of the shares present in person or represented by proxy at such meeting
and entitled to vote on such amendment or repeal, voting together as a single
class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of the
majority of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class.
Business Combinations
The DGCL requires that a merger, consolidation or any sale, lease or
exchange of all or substantially all of a corporation's property and assets
(collectively, "business combinations") be approved by a majority of the
outstanding shares of the corporation entitled to vote on such a matter, or a
greater proportion if required by the certificate of incorporation. In
addition, under the DGCL, a publicly-held corporation may not engage in a
business combination with an "interested stockholder" for a period of three
years following the time of the transaction in which the person became an
interested stockholder, unless (i) prior to such time the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii)
upon consummation of the transaction which resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the vote of
66 2/3% of the outstanding voting stock which is not
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owned by the interested stockholder. Subject to certain exceptions, the DGCL
defines an "interested stockholder" as a person who, together with affiliates
and associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Bylaws provide that any corporate action shall be approved at a
stockholder meeting at which a quorum is present by the affirmative vote of a
majority of shares present in person or by proxy at such meeting and entitled
to vote on the matter, except where a larger vote is required by law, the
Charters or the Bylaws. The DGCL provides for a larger vote with respect to
business combinations and, therefore, a business combination involving Patriot
or Wyndham International will require the approval of a majority of the
outstanding shares of Patriot or Wyndham International, as the case may be. In
addition, the Charters provide that a business combination with a Related
Person (as defined below) requires, with certain exceptions, the approval of
66 2/3% of the outstanding shares of capital stock of Patriot or Wyndham
International, as the case may be, which shall include the affirmative vote of
at least 50% of the outstanding shares of capital stock held by stockholders
other than the Related Person. However, such 66 2/3% voting requirement shall
not be applicable if the business combination was approved by the Board of
Directors prior to the acquisition by such Related Person of the beneficial
ownership of 5% or more of the outstanding shares of the capital stock of
Patriot or Wyndham International, as the case may be. For purposes of the
Charters, a "Related Person" is defined as any person or entity who
beneficially owns (as defined in Rule 13d-3 promulgated under the Exchange
Act) more than 5% of the outstanding shares of capital stock of Patriot or
Wyndham International, as the case may be, and any "affiliate" or "associate"
(as those terms are defined in Rule 12b-2 promulgated under the Exchange Act).
The business combination provisions of the DGCL, together with the Related
Person provision of the Charters, may have the effect of deterring certain
takeovers of Patriot and Wyndham International.
Provisions Relating to the Cooperation Agreement
Consideration of Corporate Matters. The DGCL provides that the business and
affairs of a Delaware corporation shall be managed by or under the direction
of its Board of Directors, except as maybe otherwise provided in the DGCL or
in the corporation's certificate of incorporation. In addition, the DGCL
provides that if any such provision is made in the certificate of
incorporation, the powers and duties conferred or imposed upon the Board of
Directors by the DGCL shall be exercised or performed to such extent and by
such person or persons as shall be provided in the certificate of
incorporation. The Charters provide that the property, affairs and business of
Patriot and Wyndham International generally are managed under the direction of
the Patriot Board and the Wyndham International Board. Notwithstanding such
provisions, the Charters establish certain procedures for the conduct of the
business and affairs of Patriot and Wyndham International, as follows.
The Charters provide that all matters to be considered by either the Patriot
Board or the Wyndham International Board, and all matters related thereto,
except (i) a Change in Patriot's line of business and (ii) Issuances of Paired
Equity and Issuances of Unpaired Equity, shall be classified into the most
appropriate of the following three categories: (i) routine corporate
governance matters, such as approval and retention of independent accountants,
the fixing of employee compensation and other like matters; (ii) all other
matters, other than a Change of Control and the removal of the Chairman or
Chief Executive Officer of Patriot or Wyndham International and, after January
5, 2001, all other matters (including a Change of Control); and (iii) any
proposed action by Patriot or Wyndham International, as the case may be, that
would result in a Change of Control, until January 5, 2001. At any meeting of
the Patriot Board or the Wyndham International Board (whether or not held
jointly), the Proposing Board may (i) submit a Category 1 Matter to the
consideration and vote of its Board, irrespective of any consideration or vote
by the other Board, (ii) submit a Category 2 Matter to the consideration and
vote of its Board, and (iii) submit a Category 3 Matter to the consideration
and vote of its Board, with such matter requiring a 66 2/3% vote of its Board
for approval until January 5, 2001, after which time a Category 3 Matter shall
become a Category 2 Matter. If the Proposing Board at any Proposing Board
Meeting that it is not held jointly with the other company shall have approved
any Category 2 Matter or Category 3 Matter, such Proposing Board shall
promptly provide the Proposing Board Notice to the other company in accordance
with the terms of the Cooperation Agreement of the occurrence of such meeting
and the Category 2 Matters or
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Category 3 Matters approved at such meeting. The Cooperation Committee shall
convene promptly (in any event, within ten business days) following the
Proposing Board Meeting to consider the actions taken by the Proposing Board.
If the Cooperation Committee votes to approve the action taken by the
Proposing Board with respect to any such matter, then the action authorized by
the Proposing Board may be implemented without consideration of such matter by
the other Board. If the Cooperation Committee does not approve the action
taken by the Proposing Board, the other company's Board (the "Responding
Board") may then hold a meeting within 15 business days following receipt by
such other company of the Proposing Board Notice to consider and vote upon the
Category 2 Matters or Category 3 Matters approved by the Proposing Board and
during such period the action authorized by the Proposing Board may not be
implemented. In the event that the Responding Board approves at such a meeting
the action taken by the Proposing Board or the Responding Board does not hold
a meeting within 15 business days following receipt of the Proposing Board
Notice, the action authorized by the Proposing Board may thereafter be
implemented. In the event the Responding Board holds a meeting within 15
business days following receipt of the Proposing Board Notice but does not
approve the action authorized by the Proposing Board, the action authorized by
the Proposing Board may not be implemented. In such an event, the Cooperation
Committee will convene promptly following the meeting of the Responding Board
to consider the contrary positions of the Proposing Board and the Responding
Board and recommend a resolution of such contrary positions in connection with
the Reconsideration Process. The Boards will then follow the Reconsideration
Process.
The Charters provide that at any joint meeting of the Boards of Directors of
Patriot and Wyndham International, in the event that the Proposing Board
approves a Category 2 Matter or Category 3 Matter but the other Board does
not, the action authorized by the Proposing Board may not be implemented. The
Cooperation Committee shall convene immediately following the joint meeting
(unless a quorum of the Cooperation Committee is not present, in which case
the Cooperation Committee shall convene as soon as practicable thereafter) to
consider the votes of the Boards taken at such meeting The Boards will then
follow the Reconsideration Process.
Following any meeting of the Cooperation Committee as described above, any
Proposing Board may reconsider a Category 2 Matter at any subsequent meeting
of such Board and, if the Proposing Board approves such matter by a majority
vote at such subsequent meeting, then the Proposing Board may take the action
contemplated by such matter regardless of the position of the other Board.
Following any meeting of the Cooperation Committee as described above, the
Proposing Board may reconsider a Category 3 Matter at any subsequent meeting
of such Board and, if the Proposing Board approves such matter by a 66% vote
at such subsequent meeting, then the Proposing Board may take the action
contemplated by such matter (but only if the other Board approves such matter
by a majority vote in the case of a Change in Control).
Pursuant to the Patriot Charter, until January 5, 2001, any Change in
Patriot's line of business shall require a 66 2/3% vote of the Patriot Board
and a majority vote of the Wyndham International Board for approval.
Hotel Acquisitions Committee. Pursuant to the Charters, Patriot and Wyndham
International established a Hotel Acquisitions Committee to analyze, evaluate
and consider potential Hotel Acquisitions. The Hotel Acquisitions Committee
has the sole power and authority to cause Patriot or Wyndham International, as
the case may be, to enter into a binding agreement with respect to Hotel
Acquisitions involving a proposed purchase price (inclusive of any
indebtedness to be assumed in connection therewith) not exceeding (with
respect to each Hotel Acquisition or such series of Hotel Acquisitions as are
reasonably likely to be considered an integrated transaction) 5% of the total
combined market capitalization of the Patriot Companies computed as of the
last business day of the month immediately preceding the month during which
such Hotel Acquisition is to be authorized and based on the average closing
sale price of a Paired Share over the five Trading Days immediately preceding
such business day. The members of the Hotel Acquisitions Committee shall be
determined as provided in the Cooperation Agreement. Notwithstanding the
foregoing, the Hotel Acquisitions Committee shall no longer have the power and
authority described in the Charters on and after January 5, 2001.
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Limitation on Committees. Pursuant to the Charters, for the term of the
Cooperation Agreement, the formation by Patriot or Wyndham International of
either (i) an executive or similar committee of its Board of Directors which
is authorized to act upon any Category 2 Matter or Category 3 Matter or (ii) a
nomination committee for the purpose of nominating directors, shall require
the approval of the Board of Directors of the other company.
Voting by Directors. Under the Charters, any vote on any matter by the Board
of Directors of either Patriot or Wyndham International or the members of the
Cooperation Committee, the Unpaired Equity Committee or the Hotel Acquisitions
Committee shall require for approval the affirmative vote of the applicable
number or percentage of all of the members of either such Board of Directors
then in office or the then existing members of the Cooperation Committee, as
the case may be.
Issuance of Paired Equity. Under the terms of the Wyndham International
Charter, from and after the date of the Cooperation Agreement until the
Termination Date, the Patriot Board shall have the sole right to authorize and
to effect, or to cause Wyndham International and the Wyndham International
Board to effect, an Issuance of Paired Equity and to take or cause to be taken
any and all action in contemplation of, or in connection with, an Issuance of
Paired Equity. In connection therewith, the Patriot Board shall also have the
authority to cause Wyndham International to comply with the Paired Equity
Issuance procedures set forth in the Wyndham International Charter. Patriot
shall be entitled to designate from time to time one or more officers of
Patriot to serve as a Paired Equity Officer/Director. The Patriot Board shall
have the authority to appoint any such Paired Equity Officer/Director to the
positions of vice president and assistant secretary of Wyndham International.
Any Paired Equity Officer/Director may resign or be removed by Patriot at any
time and, at any time thereafter, Patriot may designate a new Paired Equity
Officer/Director. Any Paired Equity Officer/Director shall have the express
authority to do any and all acts and things related to any Issuance of Paired
Equity, including, without limitation, the execution and delivery in the name
and on behalf of Wyndham International of any and all documents, certificates
(including stock certificates) and other instruments necessary or appropriate
in connection with the issuance of any Wyndham International Common Stock
pursuant to an Issuance of Paired Equity, the engagement of investment
bankers, accountants, attorneys and other professionals, and the incurrence of
any and all other transaction costs related thereto. Wyndham International
shall at all times and in all circumstances maintain and support the position
that Patriot has the sole right and power to authorize and effect, or to cause
Wyndham International and the Wyndham International Board to effect, the
Issuance of Paired Equity, and Wyndham International shall not assert
otherwise in any forum, proceeding, action or communication or take any other
action which is inconsistent with its obligations under the Wyndham
International Charter.
The terms of the Wyndham International Charter provide that Patriot shall
give an Issuance Notice to Wyndham International as promptly as practicable of
each determination by Patriot to engage in an Issuance of Paired Equity. Such
Issuance Notice shall include the proposed material terms of such issuance, to
the extent determined by Patriot, including whether such issuance is proposed
to be pursuant to a public or private offering, the amount of Paired Equity
proposed to be issued, and the manner of determining the offering price and
other terms thereof.
The terms of the Wyndham International Charter provide that upon receipt of
an Issuance Notice, Wyndham International and the Wyndham International Board
shall promptly cooperate with Patriot in every way to effect such Issuance of
Paired Equity pursuant to the terms and schedule thereof as established by
Patriot.
Issuance of Unpaired Equity. Pursuant to the Wyndham International Charter,
Wyndham International shall have the right to engage in an Issuance of
Unpaired Equity upon the affirmative vote of a majority of the members of the
Unpaired Equity Committee. Pursuant to the Charter of Patriot, Patriot shall
have the right to engage in an Issuance of Unpaired Equity upon the
affirmative vote of a majority of the members of the Patriot Board.
Removal of Directors. The terms of the Wyndham International Charter provide
that if at any time any director of Wyndham International shall interfere or
fail to cooperate fully with any Issuance of Paired Equity,
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such director shall be deemed to be no longer acting within the scope of his
authority with respect to the management of the affairs of Wyndham
International and to have failed to remain qualified as a director. In such
event, such director shall automatically cease to be a director. The
determination of whether any director of Wyndham International has interfered
or failed to cooperate fully with any Issuance of Paired Equity shall be made
by the Patriot Board and notice of any such determination shall be given by
Patriot to Wyndham International within 10 days after the date of such
determination. Notwithstanding when such determination and notice shall be
made and given, any such director shall be deemed to have ceased to be a
director at the time of any interference or failure to cooperate; provided,
however, that for purposes of any right to indemnification to which such
director would otherwise be entitled, such director shall be deemed to have
been acting as a director until such time as such determination and notice
shall be made and given, and such director's right to indemnification, if any,
shall in no way be prejudiced solely by reason of having acted as a director
during the period from the time of such interference or failure to cooperate
until such determination and notice are made and given.
Amendment of Charter. The Charters provide that any amendment or repeal of
any of the provisions of the Charters, as applicable, relating to the
provisions of the Cooperation Agreement shall first require a 66 2/3% vote of
the Board of the relevant corporation, as well as a 66 2/3% vote of the Board
of the other corporation.
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COMPARISON OF STOCKHOLDERS RIGHTS
The following is a summary of material differences between the rights of
holders of Interstate Common Stock and the rights of holders of Paired Shares.
The rights of the stockholders of Interstate are governed primarily by
Pennsylvania law, the Interstate Charter and the Interstate Bylaws. Because
the Patriot Companies are Delaware corporations, the rights of Interstate
stockholders who receive Paired Shares in the Merger will be governed after
the Merger primarily by Delaware law and by the Charters and Bylaws. In
addition, the rights of holders of Paired Shares are governed by the Pairing
Agreement and the Cooperation Agreement. Except as set forth below, Interstate
and the Patriot Companies do not believe that there are any material
differences between stockholders rights under Pennsylvania and Delaware law
and under the Interstate Charter and the Interstate Bylaws and the Charters
and Bylaws. This discussion, however, is not and does not purport to be
complete or to identify all differences that may, under any given situation,
be material to stockholders. This summary is qualified in its entirety by
reference to the full text of the Interstate Charter and the Interstate Bylaws
and the Charters and Bylaws.
Amendments to Bylaws
Under Pennsylvania law, subject to certain exceptions, the power to adopt,
amend or repeal bylaws may be vested by a corporation's bylaws in the
directors and, unless the articles of incorporation otherwise provide,
stockholders may change the bylaws without the consent of the directors. The
Interstate Bylaws provide its stockholders with the power to amend or repeal
bylaws by the majority vote of stockholders at any meeting at which a quorum
is present except that certain bylaw provisions relating to stockholder
meetings, the number, election, term, removal and nomination of directors,
indemnification of officers and directors and amendments to the Interstate
Bylaws may not be amended or repealed, and no provision inconsistent with such
provisions may be adopted, by stockholders without the affirmative vote of the
holders of at least 80% of Interstate's voting stock, voting together as a
single class, except that if any such action is approved by the holders of a
majority, but less than 80%, of the then-outstanding voting stock (in addition
to any other approvals required by law), such action will be effective as of
one year from the date of adoption. The Interstate Board may also amend or
repeal the Interstate Bylaws provided that no such amendment or repeal may
vary from or conflict with any amendment or repeal adopted by Interstate's
stockholders.
Under Delaware law, the power to adopt, amend or repeal bylaws may be vested
by a corporation's certificate of incorporation in the directors (although the
stockholders may not be divested of such power). The Charters and Bylaws
provide that the Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors or
(ii) at any meeting of stockholders by the affirmative vote of at least two-
thirds of the shares represented at such meeting and entitled to vote on such
action, voting together as a single class; provided, that if the relevant
Board of Directors recommends that stockholders approve such amendment or
repeal, such amendment or repeal will only require the affirmative vote of the
majority of the shares represented at such meeting and entitled to vote on
such action, voting together as a single class.
Amendments to Charters
Under Pennsylvania law, stockholders of a registered corporation such as
Interstate may not propose amendments to the articles of incorporation;
rather, any such amendment must be proposed by the corporation's board of
directors and submitted to a vote of the stockholders. The affirmative vote of
a majority of the votes cast by the holders of shares entitled to vote on a
proposed amendment is required to approve the amendment, unless a specific
provision of the PBCL or the corporation's articles of incorporation require a
greater percentage. The Interstate Charter requires that holders of at least
80% of Interstate's voting stock, voting together as a single class, must
approve any amendment, repeal or adoption of a provision of the Interstate
Charter that is inconsistent with any existing charter provision pertaining to
the number, election and term of members of the Interstate Board, except that
if any such action is approved by the holders of a majority, but less than
80%, of the then-outstanding voting stock, such action will be effective as of
one year from the date of approval.
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The Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders, which require
the approval of a greater percentage, the Charters may be amended by the
approval of the Board of Directors of the relevant corporation and the
affirmative vote of the holders of a majority of the outstanding shares
entitled to vote on such amendment. With respect to the provisions of the
Charters relating to the Cooperation Agreement, an amendment or repeal of any
such provision requires a 66 2/3% vote of the relevant Board of Directors, as
well as a 66 2/3% vote of the Board of Directors of the other company, and
thereafter the affirmative vote of a majority of the outstanding shares of the
relevant corporation entitled to vote on such amendment or repeal.
Dividend Declarations
Under Pennsylvania law, a corporation has the power, subject to restrictions
in its bylaws, to make distributions to its stockholders, unless after giving
effect thereto (i) the corporation would not be able to pay its debts as they
become due in the usual course of business or (ii) the corporation's assets
would be less than the sum of its total liabilities plus the amount that would
be needed upon the dissolution of the corporation to satisfy the preferential
rights, if any, of stockholders having superior preferential rights to those
stockholders receiving the distribution. The Interstate Charter contains no
limitations on such powers.
Under Delaware law, directors may, subject to any restrictions in a
corporation's certificate of incorporation, declare and pay dividends either
(i) out of its capital surplus or (ii) in case there is no surplus, out of the
net profits for the fiscal year in which the dividend is declared and the
preceding year. The directors of a Delaware corporation may not declare a
dividend out of net profits, however, if the capital of the corporation is
less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. The Charters provide that, subject to the rights of holders of
preferred stock, holders of Paired Shares are entitled to receive such
dividends and other distributions in cash, stock or property as may be
declared thereon by the corporation's Board of Directors.
Boards of Directors
Under Pennsylvania law, a corporation's articles of incorporation may
provide that its directors be elected in two or more classes whose terms
expire at different times, provided that no single term may exceed four years.
The Interstate Charter provides for only one class of directors, the number to
be determined by (i) a vote of a majority of the entire Interstate Board or
(ii) the affirmative vote of the holders of at least 80% of Interstate's
voting stock, voting together as a single class. Pennsylvania law provides
that, unless a corporation's articles of incorporation or bylaws provide
otherwise, its directors may be removed by the stockholders, for or without
cause, and by the board of directors for any proper cause specified in the
bylaws. The Interstate Bylaws provide for such removal by (i) a majority of
the entire Interstate Board or (ii) the affirmative vote of the holders of at
least a majority of Interstate's voting stock, voting together as a single
class, but only for cause; provided, however, that the Chairman of the
Interstate Board may be removed only by the affirmative vote of the holders of
at least 80% of Interstate's voting stock, voting together as a single class.
Under the Interstate Charter, any vacancies of the Board will be filled solely
by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board, by a sole remaining
director, or, if there is no remaining director, by the stockholders.
Under Delaware law, the certificate of incorporation or bylaws of a
corporation may provide that directors be elected in one, two or three classes
whose terms expire at different times, provided that no single term may exceed
three years. The Charters and Bylaws provide that the number of directors will
be fixed by resolution adopted from time to time by the relevant Board of
Directors. Pursuant to the Charters and Bylaws, the directors of each of
Patriot and Wyndham International are divided into three classes with the term
of office of one class expiring each year. As the term of each class expires,
directors in that class are elected for a term of three years. Under Delaware
law, unless otherwise provided in a corporation's certificate of
incorporation, directors may be removed, for or without cause, by the holders
of a majority of the stock then entitled to vote at an election of directors.
The Charters provide that a director may be removed, but only for cause, by
the vote of holders of at
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least 75% of the outstanding shares of capital stock entitled to vote for the
election of directors at a special meeting of the stockholders called for the
purpose of removing such director. "Cause," with respect to the removal of any
director, is defined in the Charters to mean (i) conviction of a felony, (ii)
declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude, or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to Patriot or Wyndham
International, as applicable.
Under the Charters, any vacancies in the Board of Directors, however
occurring, will be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even if less than a quorum. Any director
so appointed will hold office for the remainder of the full term of the class
of directors in which the vacancy occurred.
The staggered board provisions in the Charters prevent stockholders of the
Patriot Companies from voting on the election of all directors at each annual
meeting. The existence of a staggered board and the fact that the directors
may only be removed for cause may have the effect of delaying or deferring a
change in control of such corporation or the removal of incumbent management.
Limitation of Liability
Both Delaware and Pennsylvania law permit a corporation's charter or bylaws
to limit a director's exposure to monetary liability for breach of fiduciary
duty. Under Pennsylvania law, however, a director cannot be relieved of
liability for (i) breach of the statutory duties of care and good faith to the
company, (ii) breach or omission constituting self-dealing, willful misconduct
or recklessness, (iii) violation of criminal statutes, or (iv) non-payment of
federal, state or local taxes. The Interstate Charter eliminates personal
liability for any action, or failure to take action, by directors to the
extent not prohibited by the PBCL.
Under Delaware law, a director cannot be relieved of liability for (i)
breach of the duty of loyalty to the company, (ii) acts or omissions not in
good faith or constituting intentional misconduct or knowing violation of the
law, (iii) declaration of an improper dividend, stock purchase or redemption
of shares, or (iv) any transaction from which the director derived an improper
personal benefit. The Charters, in conjunction with the DGCL, eliminate a
director's personal liability to the Patriot Companies and their stockholders
for breach of fiduciary duty, except for liability (a) for any breach of the
director's duty of loyalty to the applicable corporation, or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) under Section 174 of the DGCL,
or (d) for any transaction from which the director derived an improper
personal benefit.
Fiduciary Duty
Both Delaware and Pennsylvania law provide that the board of directors has
the ultimate responsibility for managing the business affairs of a
corporation. In discharging this function, directors owe fiduciary duties of
care and loyalty to the corporation and to its security holders.
Under Pennsylvania law, a director may, in considering the best interests of
a corporation, consider (i) the effects of any action on stockholders,
employees, suppliers, customers and creditors of the corporation and on
communities in which offices or other facilities of the corporation are
located, (ii) the short-term and long-term interests of the corporation,
including the possibility that the best interests of the corporation may be
served by the continued independence of the corporation, (iii) the resources,
intent and conduct of any person seeking to take control of the corporation,
and (iv) all other pertinent factors.
The DGCL contains no similar provision; however, Delaware courts have held
that the duty of care requires directors to exercise an informed business
judgment. An informed business judgment means that the directors have informed
themselves of all material information reasonably available to them. Delaware
courts have, under
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certain circumstances, also imposed a heightened standard of conduct upon
directors in matters involving a contest for control of the corporation.
Indemnification
Both Delaware and Pennsylvania law permit a corporation to indemnify its
directors, officers, employees or agents in a third-party action against
expenses, judgments, fines and settlement amounts paid in such third-party
action (and against expenses incurred in any derivative action), if such
person acted in good faith and reasonably believed that his or her actions
were in, or not opposed to, the best interests of the corporation. With
respect to any criminal proceeding, both Delaware and Pennsylvania law permit
indemnification when the director or officer had no reasonable cause to
believe that his or her conduct was unlawful. Furthermore, both states' laws
provide that a corporation may advance expenses incurred in defending any
action upon receipt of an undertaking by the person to repay the amount
advanced if it is ultimately determined that the person is not entitled to
indemnification.
In general, no indemnification for expenses in derivative actions is
permitted under either the DGCL or the PBCL where the person has been adjudged
liable to the corporation, unless a court finds the person entitled to such
indemnification. If, however, the person has been successful in defending a
third-party or derivative action, indemnification for expenses incurred is
mandatory under both states' laws.
In both states, the statutory provisions for indemnification are
nonexclusive with respect to any other rights, such as contractual rights
under a bylaw, agreement or vote of stockholders or disinterested directors to
which a person seeking indemnification may be entitled. Unlike Delaware law,
however, Pennsylvania law expressly permits such contractual or other rights
to provide for indemnification in connection with a third-party action,
including a derivative action, unless a court determines that the acts or
omissions giving rise to the claim for indemnification constituted willful
misconduct or recklessness.
Meetings of Stockholders
Under Pennsylvania law, if the annual meeting for election of directors is
not held on the designated date, the directors are required to cause such a
meeting to be held as soon thereafter as may be convenient. If they fail to do
so for a period of six months after the designated date, any stockholder may
call the meeting at any time thereafter.
Under Pennsylvania law, special meetings of stockholders may be called by
(i) the board of directors, (ii) unless otherwise provided in the articles of
incorporation, stockholders entitled to cast at least 20% of the votes which
all stockholders are entitled to cast at the particular meeting, and (iii)
such officers or other persons as may be provided in the bylaws. The
Interstate Charter and Bylaws allow for a special meeting of stockholders to
be called (a) by the Chairman of the Board, (b) by the secretary at the
written request of 80% of the entire Interstate Board, (c) at the written
request of holders of at least 25% of Interstate's voting stock, unless an
annual or special meeting has previously been scheduled to be held within 90
days after receipt of such request, or (d) as otherwise prescribed by law.
Under Delaware law, if the annual meeting for the election of directors is
not held on the designated date, the directors are required to cause such a
meeting to be held as soon thereafter as convenient. If they fail to do so for
a period of 30 days after the designated date, or if no date has been
designated for a period of 13 months after the organization of the corporation
or after its last annual meeting, the Court of Chancery may summarily order a
meeting to be held upon the request of any stockholder or director.
Under Delaware law, special meetings of stockholders may be called by the
board of directors or by such persons as may be authorized by the certificate
of incorporation or bylaws. The Charters and Bylaws provide that only the
Chairman or a majority of the Board of Directors may call a special meeting.
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Action by Stockholders Without Meeting
The Interstate Charter provides that stockholder action can be taken only at
an annual or special meeting of stockholders and not by written consent in
lieu of a meeting.
The Charters provide that any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken in lieu of such
meeting by unanimous written consent of the stockholders signed by each
stockholder entitled to vote on the matter.
Dissenters' Rights
Under Pennsylvania law, stockholders may perfect dissenters' rights with
regard to certain corporate actions, including certain mergers, consolidations
or the sale, lease or exchange of substantially all of the assets of the
corporation. See "The Merger and Subscription--Dissenters' Rights" for a
discussion of the application of the Pennsylvania law provisions relating to
dissenters' rights in connection with the Merger.
Under Delaware law, stockholders may perfect appraisal rights with respect
to corporate actions involving mergers or consolidations. However, under
Delaware law, appraisal rights are generally denied when a corporation's
shares are listed on a national securities exchange or held of record by more
than 2,000 persons.
Transactions with Certain Affiliated Persons
Under Pennsylvania law, no business combination (defined to include certain
mergers, sales of assets, sales of 5% or more of outstanding stock, loans,
recapitalization or liquidations or dissolutions) involving a Pennsylvania
corporation and any holder of 20% or more of the corporation's voting stock
(an "Interested Stockholder") may be entered into unless (i) approved by the
board of directors of the corporation prior to the interested stockholder's
share acquisition date, (ii) (a) five years have expired since the acquisition
of shares of the corporation by the interested stockholder and (b) either (1)
a majority of stockholders of the corporation (excluding the interested
stockholder) approves the business combination or (2) the business combination
is approved by the affirmative vote of all of the holders of all of the
outstanding common shares and satisfies certain minimum statutory
requirements, or (iii) approved (a) by a majority of votes that all
stockholders would be entitled to cast in an election of directors, not
including shares beneficially owned by the interested stockholder, provided
that (1) the meeting is called no earlier than three months after the
interested stockholder became, and if at the time of the meeting the
interested stockholder is, the beneficial owner of shares entitling the
interested stockholder to cast at least 80% of the votes that all stockholders
would be entitled to cast in an election of directors and (2) the business
combination satisfies certain other minimum statutory conditions, or (b)
approved by the affirmative vote of all of the holders of all of the
outstanding common shares. However, such law does not restrict any offer to
purchase all of a corporation's shares.
Delaware similarly prohibits business combinations between a corporation and
a holder of 5% or more of the corporation's voting stock. Delaware law,
however, does not apply to business combinations occurring more than three
years after the interested stockholder acquired such status. Exceptions to the
restrictions on such business combinations include: (i) prior approval by the
board of directors of the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder and (ii)
subsequent approval of the business combination by the board of directors and
by a vote of at least two-thirds of the outstanding voting stock of the
corporation. Delaware law also provides exceptions for cases in which, upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, such interested stockholder holds 85% of the voting
stock of the company. The Bylaws provide that any action pertaining to any
transaction involving Patriot or Wyndham International, as the case may be, in
which an advisor, director or officer of such corporation, or any affiliate of
any of the foregoing persons, has any direct or indirect interest other than
solely as a result of such person's status as a director, officer or
stockholder of such corporation, must be approved by the relevant Board of
Directors.
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Derivative Actions
Under Pennsylvania law, a stockholder may maintain a derivative action, even
if the stockholder was not a stockholder at the time of the alleged
wrongdoing, if there is a strong prima facie case in favor of the claim
asserted and if the court determines in its discretion that serious injustice
would result without such action. Under Delaware law, a stockholder may bring
a derivative action only if he or she was a stockholder at the time of the
alleged wrongdoing and has made a demand on the board of directors for relief.
Restriction on Ownership and Transfer; Pairing
The Interstate Charter and the Interstate Bylaws do not include any
provisions restricting the ownership or transfer of Interstate Common Stock.
The Bylaws provide that, until such time as the limitation on transfer
provided for in the Pairing Agreement are terminated, shares of Patriot Common
Stock or Wyndham International Common Stock may not be transferable or
transferred on the books of either company unless a simultaneous transfer is
made by the same transferor to the same transferee of an equal number of
shares of common stock of the other company and such shares are paired with
one another. In addition, pursuant to the Pairing Agreement, Patriot may not
issue shares of Patriot Common Stock and Wyndham International may not issue
shares of Wyndham International Common Stock unless provision has been made
for the simultaneous issuance or transfer to the same person of the same
number of shares of common stock of the other company and for the pairing of
such shares. See "Description of Capital Stock--The Pairing Agreement."
The Charters provide, pursuant to the Ownership Limit, that no person or
entity (other than certain Look- Through Entities) may Beneficially Own or
Constructively Own in excess of 8.0% of the outstanding shares of any class or
series of Equity Stock of Patriot or Wyndham International, unless the
Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Charters. For purposes of computing the
percentage of shares of any class or series of Equity Stock of Patriot or
Wyndham International Beneficially Owned by any person or entity, any shares
of Equity Stock of Patriot or Wyndham International which are deemed to be
Beneficially Owned by such person or entity pursuant to Rule 13d-3 of the
Exchange Act but which are not outstanding will be deemed to be outstanding.
Any transfer of shares of Equity Stock of Patriot or Wyndham International
that would (i) result in any person or entity owning, directly or indirectly,
shares of Equity Stock of Patriot or Wyndham International in excess of the
Ownership Limit, unless the Ownership Limit is waived by the Board of
Directors of the relevant corporation in accordance with the Charters, (ii)
result in the capital stock of Patriot being beneficially owned (within the
meaning of Section 856(a)(5) of the Code) by fewer than 100 persons within the
meaning of Section 856(a)(5) of the Code; (iii) result in Patriot being
"closely held" within the meaning of Section 856(h) of the Code, or (iv) cause
Patriot to own, actually or constructively, 10% or more of the ownership
interests in a tenant of the real property of Patriot or a subsidiary of
Patriot within the meaning of Section 856(d)(2)(B) of the Code, will be void
ab initio, and the intended transferee will acquire no rights in such shares
of Equity Stock. The Charters provide that pension plans described in Section
401(a) of the Code and mutual funds registered under the Investment Company
Act of 1940 are treated as Look-Through Entities that are subject to a 9.8%
Look-Through Ownership Limit. Pension plans and mutual funds are among the
entities that are not treated as holders of stock under the "five or fewer"
requirement and the beneficial owners of such entities will be counted as
holders for this purpose. See "Description of Capital Stock--Certain
Provisions of the Charters and the Bylaws--Restrictions on Ownership and
Transfer."
Mergers and Major Transactions
Under Delaware law, fundamental corporate transactions such as mergers,
sales of all or substantially all of the corporation's assets and dissolutions
require the approval of the holders of a majority of the outstanding stock
entitled to vote on the matter. Pennsylvania law requires such transactions to
be approved by a majority of the votes cast with respect to the matter.
Differences Resulting from the Pairing Agreement
The Pairing Agreement is unique to the paired share structure of Patriot and
Wyndham International and provides that shares of Patriot Common Stock and
Wyndham International Common Stock will not be
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transferable on the books of such company unless a simultaneous transfer is
made by the same transferor to the same transferee of an equal number of
shares of common stock of the other company. In addition, neither Patriot nor
Wyndham International may issues shares of Patriot Common Stock and Wyndham
International Common Stock unless provision has been made for the simultaneous
issuance or transfer to the same person of the same number of shares of common
stock of the other company and for the pairing of such shares. See
"Description of Capital Stock--The Pairing Agreement."
Differences Resulting from the Cooperation Agreement
Under the terms of the Cooperation Agreement, Patriot and Wyndham
International are obligated to cooperate to the fullest extent possible in the
conduct of their respective operations and to take all necessary action to
preserve the paired share structure and to maximize the economic and tax
advantages associated therewith. One of the primary objectives of the
Cooperation Agreement is to set forth the understanding of the Patriot
Companies that Patriot has the sole right and power to authorize, effect and
control issuances of paired equity (including securities convertible into
paired equity) of the two companies. The Cooperation Agreement provides for a
number of corporate governance mechanisms designed to accomplish this
objective and the other objectives set forth therein. These mechanisms include
(i) the establishment of a Cooperation Committee that considers and proposes
the agenda listing the matters to be considered at any joint meeting of the
Boards of Directors of Patriot and Wyndham International, (ii) the
establishment of corporate matters categories and procedures for the
consideration and reconsideration of matters brought before the Boards of
Directors of Patriot and Wyndham International, (iii) the establishment of a
Hotel Acquisitions Committee that analyzes, evaluates and considers potential
acquisitions by the Patriot Companies of hotel properties and related assets,
(iv) provisions that govern the sole authority of Patriot to authorize, effect
and control issuances of paired equity (including securities convertible into
paired equity) of the two companies, and (v) the establishment of an Unpaired
Equity Committee that has the sole authority to authorize and approve
issuances of unpaired equity by Wyndham International. The existence of the
Cooperation Agreement may have the effect of delaying, deferring or preventing
the acquisition or control of Patriot or Wyndham International. See
"Description of Capital Stock--The Cooperation Agreement."
Case Law and the Court System
There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. A comparable body of judicial interpretation
does not yet exist in Pennsylvania. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under the DGCL. Pennsylvania
does not have an equivalent court system. As a result of these factors, there
may be less certainty as to the outcome of matters governed by the PBCL, and
therefore it may be more difficult to obtain legal guidance as to such
matters, than would be the case under Delaware law.
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SELLING SECURITYHOLDERS
This Joint Proxy Statement/Prospectus also relates to the offer of Paired
Shares from time to time following the Merger by the Registration Rights
Holders. See "The Merger and Subscription--Interests of Certain Officers,
Directors and Stockholders of Interstate." The following table provides the
names of each Registration Rights Holder, the number of shares of Interstate
Common Stock owned by such holder as of January 6, 1998, and the number of
Paired Shares offered by each Registration Rights Holder, to the best
knowledge of the Patriot Companies.
<TABLE>
<CAPTION>
SHARES OF
INTERSTATE
COMMON STOCK PAIRED SHARES PERCENT OF
OWNED AS OF OFFERED BY ALL PAIRED
NAME JANUARY 6, 1998 THIS PROSPECTUS(1) SHARES (1)
---- --------------- ------------------ ----------
<S> <C> <C> <C>
Fine Entities..................... 12,771,530 10,275,973(2) %
Blackstone Group.................. 2,528,571 3,390,814(3) %
</TABLE>
- --------
(1)Assumes each Interstate Share will be converted into 1.341 Paired Shares.
See "The Merger Agreement--The Merger and Subscription" for a discussion of
how the Exchange Ratio will be determined.
(2)Represents the estimated maximum number of Paired Shares issuable to the
Fine Entities. The Fine Entities have elected to receive Cash Consideration
in respect of all Interstate Shares owned by them. See "Certain Related
Agreements--Shareholders Agreement."
(3)Represents the estimated maximum number of Paired Shares offered by the
Blackstone Group, assuming that none of its members makes a Cash Election
in the Merger.
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PLAN OF DISTRIBUTION
This Joint Proxy Statement/Prospectus also relates to the offer from time to
time following the Merger by the Registration Rights Holders of Paired Shares.
See "The Merger and Subscription--Interests of Certain Officers, Directors and
Stockholders of Interstate." The Patriot Companies have registered the Paired
Shares for sale pursuant to their obligations under the Registration Rights
Agreement, but registration of such shares does not necessarily mean that any
of the Paired Shares will be offered or sold by the Registration Rights
Holders. Neither Patriot nor Wyndham International will receive any of the
proceeds of the sale of the Paired Shares offered hereby.
The distribution of Paired Shares may be effected from time to time in one
or more underwritten transactions at a fixed price or prices, which may be
changed, or in other transactions at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Any such underwritten offering may be on either a "best efforts" or a
"firm commitment" basis. In connection with any such underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from the Registration Rights Holders and/or from
purchasers of the Paired Shares for whom they may act as agents. Underwriters
may sell Paired Shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents.
The Registration Rights Holders and any underwriters, dealers or agents that
participate in the distribution of Paired Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of Paired Shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At a time a particular offer of Paired Shares is made by a Registration
Rights Holder, a prospectus supplement, if required, will be distributed that
will set forth the names of any underwriters, dealers or agents and any
discounts, commissions and other terms constituting compensation from the
Registration Rights Holders and any other required information.
The sale of Paired Shares by the Registration Rights Holders may also be
effected from time to time by selling Paired Shares directly to purchasers or
to or through broker-dealers. In connection with any such sale, any such
broker-dealer may act as agent for the Registration Rights Holders or may
purchase from the Registration Rights Holders all or a portion of the Paired
Shares as principal, and sales may be made pursuant to any of the methods
described below. Such sales may be made on the NYSE or other exchanges on
which the Paired Shares are then traded, in the over-the-counter market, in
negotiated transactions or otherwise, in each case at prices and at terms then
prevailing or at prices related to the then-current market prices or at prices
otherwise negotiated.
The Paired Shares may also be sold in one or more of the following
transactions: (i) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may
position and resell all or a portion of the block as principal to facilitate
the transaction; (ii) purchases by any such broker-dealer as principal and
resale by such broker-dealer for its own account pursuant to a prospectus
supplement; (iii) a special offering, an exchange distribution or a secondary
distribution in accordance with applicable NYSE or other stock exchange rules;
(iv) ordinary brokerage transactions and transactions in which any such
broker-dealer solicits purchasers; (v) sales "at the market" to or through a
market maker or into an existing trading market, on an exchange or otherwise,
for such shares; and (vi) sales in other ways not involving market makers or
established trading markets, including direct sales to purchasers. In
effecting sales, broker- dealers engaged by the Registration Rights Holders
may arrange for other broker-dealers to participate. Broker- dealers will
receive commissions or other compensation from the Registration Rights Holders
in amounts to be negotiated immediately prior to the sale that will not exceed
those customary in the types of transactions involved. Broker-dealers may also
receive compensation from purchasers of the Paired Shares which is not
expected to exceed that customary in the types of transactions involved.
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In connection with distributions of the Paired Shares or otherwise, the
Registration Rights Holders may enter into hedging transactions with broker-
dealers or others prior to or after the Effective Time of the Merger. Such
broker-dealers may engage in short sales of Paired Shares or other
transactions in the course of hedging the positions assumed by such persons in
connection with such hedging transactions or otherwise. The Registration
Rights Holders may also sell Paired Shares short and redeliver Paired Shares
to close out such short positions; enter into option or other transactions
with broker-dealers or others which may involve the delivery to such persons
of the Paired Shares offered hereby, which Paired Shares such persons may
resell pursuant to this Joint Proxy Statement/Prospectus; and/or pledge the
Paired Shares to a broker or dealer or others and, upon a default, such
persons may effect sales of the pledged Paired Shares pursuant to this Joint
Proxy Statement/Prospectus. In addition, any Paired Shares covered by this
Joint Proxy Statement/Prospectus that qualify for resale pursuant to Rule 145
of the Securities Act may be sold under Rule 145 rather than with this Joint
Proxy Statement/Prospectus.
In order to comply with the securities laws of certain states, if
applicable, the Paired Shares may be sold only through registered or licensed
brokers or dealers.
Until the distribution of the Paired Shares is completed, rules of the
Commission may limit the ability of any underwriters and selling group members
to bid for and purchase the Paired Shares. As an exception to these rules,
underwriters are permitted to engage in certain transactions that stabilize
the price of the Paired Shares. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Paired
Shares.
The lead underwriters may also impose a penalty bid on certain other
underwriters participating in the offering and selling group members. This
means that if the lead underwriters purchase Paired Shares in the open market
to reduce the underwriters' short position or to stabilize the price of the
Paired Shares, they may reclaim the amount of any selling concession from the
underwriters and selling group members who sold those Paired Shares as part of
the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resale of the security before the distribution is
completed.
Neither of the Patriot Companies makes any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above might have on the price of the Paired Shares. In addition, neither of
the Patriot Companies makes any representation that underwriters will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
All expenses incident to the offering and sale of the Paired Shares (other
than brokerage and underwriting commissions and taxes of any kind and any
legal, accounting and other expenses incurred by the Registration Rights
Holders) will be paid by the Patriot Companies. The Patriot Companies have
agreed to indemnify the Registration Rights Holders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act. See "The Merger and Subscription--Interests of Certain Officers,
Directors and Stockholders of Interstate."
OTHER MATTERS
It is not expected that any matters other than those described in this Joint
Proxy Statement/Prospectus will be brought before the Patriot Companies'
Special Meetings or the Interstate Special Meeting. If any other matters are
presented, however, it is the intention of the persons named in the Patriot
proxy, the Wyndham International proxy and the Interstate proxy to vote such
proxy in accordance with their best judgment.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon for
Interstate by Jones, Day, Reavis & Pogue, New York, New York. Certain legal
matters in connection with the Merger, the validity of the Paired Shares to be
issued pursuant to the Merger and the validity of the Merger Subscribed Shares
to be issued pursuant
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to the Merger Subscription will be passed upon for Patriot and Wyndham
International by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The (a) Consolidated Financial Statements of Old Patriot as of December 31,
1996 and 1995 and for the year ended December 31, 1996 and the period October
2, 1995 (inception of operations) through December 31, 1995 and the related
financial statement schedules, (b) the Combined Financial Statements of the
Initial Hotels as of December 31, 1994 and for the year ended December 31, 1994
and the period January 1, 1995 through October 1, 1995, and (c) the Financial
Statements of NorthCoast Hotels, L.L.C. as of December 31, 1996 and the period
April 2, 1996 (inception of operations) through December 31, 1996 appearing in
Old Patriot's 1996 Annual Report on Form 10-K (and with respect to the
Consolidated Financial Statements of Old Patriot referred to above also
appearing in the Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company dated July
1, 1997), have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated herein by
reference. With respect to the Combined Financial Statements of the Initial
Hotels, such report is based in part on the reports of Coopers & Lybrand
L.L.P., independent accountants, as set forth in their respective reports for
Certain of the Initial Hotels and Troy Hotel Investors. The (a) Financial
Statements of Buckhead Hospitality Joint Venture as of December 31, 1995 and
for the year then ended, (b) the Combined Financial Statements of Gateway Hotel
Limited Partnership and Wenatchee Hotel Limited Partnership as of December 31,
1995 and for the year then ended, and (c) the individual Statements of Direct
Revenue and Direct Operating Expenses for the Plaza Park Suites Hotel and the
Roosevelt Hotel for the year ended December 31, 1995, appearing in Old
Patriot's Current Report on Form 8-K, dated April 2, 1996, as amended (filed
April 17, 1996 and June 14, 1996), have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein
and incorporated herein by reference. The (a) Statement of Direct Revenue and
Direct Operating Expenses of the Mayfair Suites Hotel for the year ended
December 31, 1995, (b) Statement of Direct Revenue and Direct Operating
Expenses of Marriott WindWatch Hotel for the year ended December 29, 1995, and
(c) the Financial Statements of Concorde O'Hare Limited Partnership as of
December 29, 1995 and for the year then ended appearing in Old Patriot's
Current Report on Form 8-K, dated December 5, 1996 (filed December 5, 1996),
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon included therein and incorporated herein by reference.
The (a) Consolidated Financial Statements of Resorts Limited Partnership as of
and for the years ended December 31, 1996 and 1995, (b) Financial Statements of
CV Ranch Limited Partnership as of and for the years ended December 31, 1996
and 1995, and (c) Financial Statements of Telluride Resort and Spa Limited
Partnership as of and for the years ended December 31, 1996 and 1995, appearing
in Old Patriot's Current Report on Form 8-K, dated January 16, 1997, as amended
(filed January 31, 1997, February 21, 1997, April 8, 1997, April 9, 1997, and
May 19, 1997) have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon included therein and incorporated herein by
reference. The (a) Consolidated Financial Statements of GAH-II, L.P. as of
December 31, 1996 and 1995 and for the years then ended, (b) the Financial
Statements of G.B.H. Joint Venture (d/b/a Grand Bay Hotel) as of December 31,
1996 and 1995 and for the years then ended, (c) the Financial Statements of
River House Associates (d/b/a Sheraton Gateway Hotel) as of December 31, 1996
and 1995 and for the years then ended, and (d) the Financial Statements of W-L
Tampa, Ltd. (the Sheraton Grand Hotel) as of December 31, 1996 and 1995 and for
the years then ended, appearing in the Joint Current Report on Form 8-K of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated September 30, 1997, as amended (filed October 14, 1997 and
October 28, 1997), have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. The (a) Consolidated Financial Statements of
ClubHouse Hotels, Inc. as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, (b) the Combined Financial
Statements of ClubHouse Acquisition Hotels as of December 31, 1996 and 1995 and
for the years then ended, and (c) the Financial Statements of Valdosta C. I.
Associates, L.P. as of December 31, 1994 and for the year then ended, appearing
in Wyndham Hotel Corporation's Current Report on Form 8-K, dated July 31, 1997,
as amended (filed August 15, 1997 and
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September 18, 1997), have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. The (a) Consolidated Financial Statements of
WHG Resorts & Casinos Inc. as of June 30, 1997 and 1996, and for each of the
three years in the period ended June 30, 1997 and the related financial
statement schedule, (b) Financial Statements of Posadas de San Juan Associates
as of June 30, 1997 and 1996, and for each of the three years in the period
ended June 30, 1997 and the related financial statement schedule, (c) Financial
Statements of WKA El Con Associates as of June 30, 1997 and 1996, and for each
of the three years in the period ended June 30, 1997, and (d) Financial
Statements of El Conquistador Partnership L.P. as of March 31, 1997 and 1996,
and for each of the three years in the period ended March 31, 1997, appearing
in the Joint Current Reports on Form 8-K of Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company dated September 30, 1997
(filed November 12, 1997), and December 10, 1997 (filed December 10, 1997) have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated herein by reference. Each of the above referenced
financial statements are included herein or incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The Financial Statements of Certain of the Initial Hotels as of December 31,
1994 and for the period from January 1, 1995 to October 1, 1995 and for the
year ended December 31, 1994, the Financial Statements of Troy Hotel Investors
as of October 1, 1995 and for the period January 1, 1995 to October 1, 1995 and
Troy Park Associates as of December 29, 1994 and for the period January 1, 1994
through December 29, 1994, included in Old Patriot's 1996 Annual Report on Form
10-K, the statement of Direct Revenue and Direct Operating Expenses for the
Holiday Inn--Miami Airport for the year ended August 31, 1996 included in Old
Patriot's Current Report on Form 8-K dated December 5, 1996, the Consolidated
Financial Statements of Wyndham Hotel Corporation as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996,
included in the Annual Report on Form 10-K dated March 26, 1997 of Wyndham
Hotel Corporation, the Combined Financial Statements of Minneapolis Hotels as
of and for the year ended December 31, 1996, the Combined Financial Statements
of Snavely Hotels as of and for the year ended December 31, 1996, and the
combined statement of Direct Revenue and Direct Operating Expenses for the Met
Life Hotels for the year ended December 31, 1996, included in the Report on
Form 8-K dated September 17, 1997, the Financial Statements of SCP ("Buttes")
Inc. as of December 31, 1996 and for the year then ended, included in the
Report on Form 8-K dated September 30, 1997, incorporated by reference in this
Joint Proxy Statement/Prospectus, the financial statements of Royal Palace
Hotel Associates (the "Buena Vista Palace Hotel") as of December 31, 1995 and
1996 and for the years then ended, included in the Joint Current Report on Form
8-K dated December 10, 1997, incorporated by reference in this Proxy
Statement/Prospectus, and the consolidated financial statements of Interstate
Hotels Company as of December 31, 1995 and 1996 and for each of the three years
in the period ended December 31, 1996 included in the Report on Form 8-K dated
December 10, 1997, and the financial statements of Sheraton City Centre as of
December 31, 1996 and for the year then ended and the Statement of Direct
Revenue and Direct Operating Expenses for the Wyndham Emerald Plaza for the
year ended December 31, 1996, included in the Current Report on Form 8-K dated
January 9, 1998, which are incorporated by reference herein have been audited
by Coopers & Lybrand, L.L.P., independent accountants, as set forth in their
reports thereon. Each of the above referenced financial statements have been
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The Financial Statements of Historic Hotel Partners of Birmingham Limited
Partnership as of December 31, 1994 and 1995 and for the years then ended, the
Financial Statements of Historic Hotel Partners of Chicago, Limited Partnership
as of December 31, 1996 and for the year then ended, and the Financial
Statements of Historic Hotel Partners of Nashville, Limited Partnership as of
December 31, 1996 and for the year then ended incorporated by reference in this
Joint Proxy Statement/Prospectus, have been audited by Pannell Kerr Forster PC,
independent auditors, as set forth in their reports thereon. Each of the above
referenced financial statements have been incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The CHC Lease Partners financial statements as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and the period inception (October 2,
1995) through December 31, 1995, incorporated by
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reference in this Joint Proxy Statement/Prospectus, by reference to the Current
Report on Form 8-K dated July 1, 1997, and the CHC International, Inc.
Hospitality Division financial statements as of November 30, 1996 and 1995 and
for the years then ended, incorporated by reference in this Joint Proxy
Statement/Prospectus, by reference to the Current Report on Form 8-K dated
September 30, 1997, as amended, and the Joint Current Report on Form 8-K dated
December 10, 1997, have been so incorporated in reliance on the reports of
Price Waterhouse LLP, independent certified public accountants, given on the
authority of said firm as experts in auditing and accounting.
The Separate and Combined Financial Statements of Patriot and Wyndham and its
subsidiary (formerly known as Cal Jockey and Bay Meadows) as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, incorporated in this Joint Proxy Statement/Prospectus by reference from
the Annual Report on Form 10-K for the year ended December 31, 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report with respect thereto (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the proposed merger and certain
disagreements between Cal Jockey and Bay Meadows), which is incorporated herein
by reference. The combined financial statements of the Partnerships of Acquired
Hotels as of December 31, 1996 and 1995 and for each of the two years in the
period ended December 31, 1996, incorporated in this Joint Proxy
Statement/Prospectus by reference from the report on Form 8-K/A No. 1 dated
September 30, 1997 of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference. Each of the financial statements referenced in this paragraph are
incorporated herein by reference in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The Combined Financial Statements of the Crow Family Hotel Partnerships
incorporated by reference in this Joint Proxy Statement/Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving such
reports.
The Financial Statements of each of Wichita C.I. Associates III, L.P., Topeka
C.I. Associates, L.P., Albuquerque C.I. Associates, L.P. and C.I. Nashville,
Inc. as of December 31, 1995 and 1994 and for the two years in the period ended
December 31, 1995, incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Mayer Hoffman McCann L.C.,
independent auditors, as stated in their report with respect thereto and
incorporated herein by reference.
STOCKHOLDER PROPOSALS
Any Patriot stockholder who wishes to submit a proposal for presentation at
Patriot's 1998 Annual Meeting of Stockholders must have submitted the proposal
to Patriot American Hospitality, Inc. not later than November 24, 1997 for
inclusion, if appropriate, in Patriot's proxy statement and form of proxy
relating to its 1998 Annual Meeting.
Any Wyndham International stockholder who wishes to submit a proposal for
presentation at Wyndham International's 1998 Annual Meeting of Stockholders
must have submitted the proposal to Wyndham International not later than
November 24, 1997 for inclusion, if appropriate, in Wyndham International's
proxy statement and form of proxy relating to its 1998 Annual Meeting.
Any Interstate stockholder who wishes to submit a proposal for presentation
at Interstate's 1998 Annual Meeting of Stockholders (which will be held only if
the Merger has not been consummated prior to the date the meeting is to be
held) must have submitted the proposal to Interstate Hotels Company, Foster
Plaza Ten, 680 Andersen Drive, Pittsburgh, Pennsylvania 15220, Attention:
Corporate Secretary. Such proposal must have been received not later than
November 28, 1997 in order to be considered for inclusion, if appropriate, in
Interstate's proxy statement and form of proxy relating to its 1998 Annual
Meeting.
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GLOSSARY OF DEFINED TERMS
Unless otherwise defined herein, the following capitalized terms shall have
the meanings set forth below for the purposes of this Joint Proxy
Statement/Prospectus:
"ACMs" means asbestos-containing materials.
"Acquisition Agreement" has the meaning set forth in "The Merger Agreement--
Certain Covenants."
"Acquisition Proposal" has the meaning set forth in "The Merger Agreement--
Certain Covenants--Acquisition Proposals and Related Matters."
"ADA" means the Americans with Disabilities Act of 1990.
"ADR" means average daily room rates.
"Aggregate Cash Consideration" means the aggregate amount of Cash
Consideration that will be paid to Interstate stockholders in the Merger.
"Antitrust Division" means the Antitrust Division of the Department of
Justice.
"Assumed Options" means outstanding Interstate Stock Options which will be
assumed by Patriot.
"Average Closing Price" means the average closing price of a Paired Share on
the NYSE over the 20 Trading Days immediately preceding the fifth Trading Day
prior to the Interstate Special Meeting.
"Bay Meadows" means Bay Meadows Operating Company, a Delaware corporation,
the predecessor in interest of Wyndham International.
"Beneficial Ownership" has the meaning given it in the Charters and set
forth in "Description of Capital Stock--Certain Provisions of the Charters and
the Bylaws--Restrictions on Ownership and Transfer."
"Beneficiary" means a charitable beneficiary of the Trust, to be designated
pursuant to the terms of the Pairing Agreement.
"Blackstone" means Blackstone Real Estate Advisors, L.P.
"Blackstone Group" means certain entities affiliated with Blackstone Group
Merchant Banking Fund II, L.P.
"Board Representation Date" has the meaning set forth in "Certain Related
Agreements--Shareholders Agreement."
"Buena Vista Acquisition" means the acquisition by Patriot of an aggregate
95% ownership interest in the Buena Vista Palace Hotel.
"Bylaws" means, collectively, the Patriot Bylaws and the Wyndham
International Bylaws, each as amended to date.
"Cal Jockey" means California Jockey Club, a Delaware corporation, the
predecessor in interest of Patriot.
"Cal Jockey Merger" means the merger, on July 1, 1997, of Old Patriot with
Cal Jockey, with Cal Jockey as the surviving company (which changed its name
to Patriot American Hospitality, Inc.).
"Carefree Resorts" means, collectively, the following resorts in Patriot's
portfolio. 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.
"Cash Consideration" means cash to be received pursuant to Cash Elections
made by Interstate stockholders or pursuant to any proration applied as
described in "The Merger Agreement--The Merger and Subscription."
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"Cash Election" means the election by the Interstate stockholders to receive
Cash Consideration pursuant to the Merger Agreement.
"Category 1 Matter" means routine corporate governance matters, such as
approval and retention of independent accountants, the fixing of employee
compensation and other like matters to be considered by the Patriot Board or
the Wyndham Board.
"Category 2 Matter" means matters, other than Category 1 and 3 Matters and
other than a Change of Control and the removal of the Chairman or Chief
Executive Officer of Patriot or Wyndham International and, after January 5,
2001, all other matters (including a Change of Control), other than the removal
of the Chairman or Chief Executive Officer of Patriot or Wyndham International,
to be considered by the Patriot Board or the Wyndham International Board.
"Category 3 Matter" means matters to be considered by the Patriot Board or
the Wyndham International Board concerning the removal of the Chairman or Chief
Executive Officer of either Patriot or Wyndham International and, until January
5, 2001, any proposed action by Patriot or Wyndham International, as the case
may be, that would result in a Change of Control.
"Cause" has the meaning given it in the Charters and set forth in
"Description of Capital Stock--Certain Provisions of the Charters and the
Bylaws--Number of Directors; Removal; Filling Vacancies."
"Certificate of Designation" means the Certificate of Designation for the
Patriot Series A Preferred Stock.
"CF Securities" means CF Securities, L.P., the principal stockholder of Old
Wyndham.
"Change in Control" has the meaning set forth in "Description of Capital
Stock--The Cooperation Agreement--Corporate Matters Categories."
"Charters" means, collectively, the Patriot Charter and the Wyndham
International Charter, each as amended to date.
"Chase" means The Chase Manhattan Bank.
"CHC Lease Partners" means CHC Lease Partners, Inc.
"CHCI" means CHC International, Inc.
"CHCI Merger" means the merger of the hospitality-related business of CHCI
with and into Wyndham International, with Wyndham International being the
surviving company.
"CHCI Merger Agreement" means the Agreement and Plan of Merger, dated as of
September 30, 1997, between Patriot, Wyndham International and CHCI.
"CHRB" means the California Horse Racing Board.
"Claim" has the meaning set forth in "The Merger Agreement--Indemnification."
"Clipped Share Alternative" has the meaning set forth in "The Merger and
Subscription--Background of the Merger."
"Closing" means the closing of the Merger.
"Closing Date" means the closing date of the Merger.
"Closing Price" has the meaning given it in the Charters and set forth in
"Description of Capital Stock--Certain Provisions of the Charters and the
Bylaws--Restrictions on Ownership and Transfer."
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"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Companies" has the meaning set forth in "The Merger and
Subscription--Opinion of Financial Advisor to the Patriot Companies--Pro Forma
Merger Analysis."
"Commission" means the Securities and Exchange Commission.
"Company A" has the meaning set forth in "The Merger and Subscription--
Background of the Merger."
"Comparable Companies" has the meaning set forth in "The Merger and
Subscription--Opinion of Financial Advisor to Interstate--Selected Comparable
Publicly Traded Company Analysis."
"Comparable Transactions" has the meaning set forth in "The Merger and
Subscription--Opinion of Financial Advisor to Interstate--Selected Comparable
Transaction Analysis."
"Comparative Companies" has the meaning set forth in "The Merger and
Subscription--Opinion of Financial Advisor to the Patriot Companies--Selected
Comparative Public Companies Analysis."
"Constructive Ownership" has the meaning given it in the Charters and set
forth in "Description of Capital Stock--Certain Provisions of the Charters and
the Bylaws--Restrictions on Ownership and Transfer."
"Cooperation Agreement" means the Cooperation Agreement, dated December 18,
1997, between Patriot and Wyndham International.
"Cooperation Committee" means a cooperation committee that shall consider and
propose the agenda listing the matters to be considered at any joint meeting of
the Patriot Board and the Wyndham International Board.
"Crow Assets" means 11 full-service Wyndham brand hotels with 3,072 rooms
acquired by the Patriot Partnership pursuant to certain agreements with the
Crow Family Entities.
"Crow Assets Acquisition" means the acquisition of the Crow Assets by Patriot
pursuant to certain agreements with the Crow Family Entities.
"Crow Family Entities" means the partnerships which have contracted to sell
the Crow Assets to the Patriot Partnership pursuant to certain agreements,
which partnerships are owned by certain members of the Crow family, certain
members of the senior management of Old Wyndham and others.
"Demand Deadline" has the meaning set forth in "The Merger and Subscription--
Dissenters' Rights."
"Demand Form" has the meaning set forth in "The Merger and Subscription--
Dissenters' Rights."
"DGCL" means the Delaware General Corporation Law.
"E&P" means current and accumulated earning and profits as determined for
federal income tax purposes.
"EBIT" means earnings before interest expense and income taxes.
"EBITDA" means earnings before interest expense, income taxes, depreciation
and amortization.
"Effective Time" means the time at which the Merger becomes effective.
"El Conquistador" means the El Conquistador Resort & Country Club.
"EPS" means earnings per share.
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"Equity Stock" means, at any time, the collective outstanding shares of any
class or series of capital stock of either of the Patriot Companies.
"ESAs" means environmental site assessments.
"Excess Paired Shares" means those Paired Shares which would cause the
applicable ownership limit of Paired Shares to be exceeded.
"Excess Share Provisions" means provisions contained in the Charters that
limit the number of Paired Shares which may be beneficially owned by any person
or entity.
"Excess Shares" has the meaning set forth in "The Merger and Subscription--
Terms of the Merger and Subscription."
"Excess Stock" means excess stock, par value $.01 per share, of Patriot and
Wyndham International into which Excess Paired Shares shall be automatically
converted.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means American Stock Transfer & Trust Company, retained by
Patriot and Wyndham International to facilitate the exchange of the Merger
Consideration for the Interstate Certificates.
"Exchange Fund" means certificates for shares of Patriot Common Stock, cash,
certificates for Merger Subscribed Shares and cash in lieu of fractional Paired
Shares deposited with the Exchange Agent pursuant to the Merger Agreement.
"Exchange Ratio" means the applicable number of Paired Shares into which each
share of Interstate Common Stock will be converted, after adjustment for any
stock dividend, subdivision, reclassification, recapitalization, stock split or
combination or similar event affecting the Paired Shares or Interstate Common
Stock.
"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.
"Exercise Spread" has the meaning set forth in "The Merger and Subscription--
Interests of Certain Officers, Directors and Stockholders of Interstate."
"External Growth Scenario" has the meaning set forth in "The Merger and
Subscription--Opinion of Financial Advisor to the Patriot Companies--Discounted
Cash Flow Valuation."
"FF&E" means furniture, fixtures and equipment.
"FFO" means funds from operations.
"Fine Entities" means certain entities affiliated with Mr. Fine.
"Form of Election" means the form for making a Cash Election.
"Franchise Agreements" has the meaning set forth in "Risk Factors--Conversion
to Wyndham Brand; Other Consents and Approvals."
"Franchise Licenses" has the meaning set forth in "Risk Factors--Risks of
Operating Hotels Under Franchise or Brand Affiliations."
"Franchisors" means the franchisors of the brands under which Interstate
operates its hotels.
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"FTC" means the U.S. Federal Trade Commission.
"GAH" means GAH-II, L.P., an affiliate of CHCI and Gencom.
"GAH Acquisition" means the acquisition of GAH.
"GECC" means General Electric Capital Corporation.
"Gencom" means the Gencom American Hospitality group of companies.
"Holder's Estimate" has the meaning set forth in "The Merger and
Subscription--Dissenters' Rights."
"Hotel Acquisitions" means acquisitions by Patriot of hotel properties and
related assets.
"Hotel Acquisitions Committee" means a hotel acquisitions committee that
will analyze, evaluate and consider potential acquisitions by the Patriot
Companies of hotel properties and related assets.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"Initial Offering" means the initial public offering of Old Patriot in
October 1995.
"Initial Proposal" has the meaning set forth in "The Merger and
Subscription--Background of the Merger."
"Interim Transactions Committee" has the meaning set forth in "The Merger
Agreement--Certain Covenants--Interim Transactions Committee."
"Interstate" means Interstate Hotels Company, a Pennsylvania corporation.
"Interstate Board" means the Board of Directors of Interstate.
"Interstate Bylaws" means the Bylaws of Interstate, as amended to date.
"Interstate Certificate" means a certificate representing shares of
Interstate Common Stock.
"Interstate Charter" means the Articles of Incorporation of Interstate, as
amended to date.
"Interstate Common Stock" means common stock, par value $.01 per share, of
Interstate.
"Interstate Comparable Companies" has the meaning set forth in "The Merger
and Subscription--Opinion of Financial Advisor to Interstate--Selected
Comparable Publicly Traded Company Analysis."
"Interstate Outstanding Shares" means the outstanding shares of Interstate
Common Stock as of the Effective Time.
"Interstate Record Date" means , 199 .
"Interstate Senior Management" means the current executive officers of
Interstate.
"Interstate Shares" means shares of Interstate Common Stock.
"Interstate Special Meeting" means the special meeting of stockholders of
Interstate to be held at , on , at a.m. local time (including any
and all adjournments and postponements thereof).
"Interstate Stock Options" means the outstanding options to purchase
Interstate Common Stock.
"Interstate Stock Plans" means the Interstate Equity Incentive Plans.
"Interstate IPO" means the initial public offering of Interstate in June
1996.
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"IRS" means Internal Revenue Service.
"Issuance Notice" means the notice that Patriot must give under the
Cooperation Agreement to Wyndham International of each determination by
Patriot to engage in an Issuance of Paired Equity.
"Issuance of Paired Equity" has the meaning set forth in "Description of
Capital Stock--The Cooperation Agreement--Authority to Issue Paired Equity."
"Issuance of Unpaired Equity" has the meaning set forth in "Description of
Capital Stock--The Cooperation Agreement--Authority to Issue Unpaired Equity."
"Joint Proxy Statement/Prospectus" means this Joint Proxy Statement and
Prospectus and the Annexes hereto.
"Lenders" means PaineWebber Real Estate, Chase and certain other lenders
party to the Revolving Credit Facility.
"Lessees" means the lessees to which Patriot leases each of its existing
hotels (except the hotels leased to Wyndham International).
"Letter of Transmittal" means a letter of transmittal to be mailed by the
Exchange Agent to Interstate stockholders promptly after the Effective Time.
"Look-Through Entity" means a person that is either a trust as described in
Section 401(a) of the Code and exempt from tax under Section 501(a) of the
Code, or a person that is registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" has the meaning given it in the Charters and
set forth in "Description of Capital Stock--Certain Provisions of the Charters
and the Bylaws--Restrictions on Ownership and Transfer."
"LTM" means the last 12 months.
"Marriott International" means Marriott International, Inc.
"Marriott Letter Agreement" means the non-binding letter of intent between
Patriot and Marriott International, signed in connection with the Merger
Agreement, stating that Patriot will terminate franchise agreements with
respect to ten Marriott hotels owned and operated by Interstate and convert
such hotels to the Wyndham brand. In return, Wyndham International expects to
enter into management agreements with Marriott with respect to ten other
Marriott hotels currently owned by Interstate which will be owned by Patriot
and leased to Wyndham International.
"Market Price" means, on any date, the average of the Closing Price for the
five consecutive Trading Days ending on such date.
"Merger" means the merger of Interstate with and into Patriot, pursuant to
the Merger Agreement, with Patriot being the surviving company.
"Merger Agreement" means that certain Agreement and Plan of Merger, dated as
of December 2, 1997, among Patriot, Wyndham International and Interstate.
"Merger Alternative" has the meaning set forth in "The Merger and
Subscription--Background of the Merger."
"Merger Consideration" means the Paired Shares at the Exchange Ratio and the
Cash Consideration to be received by Interstate stockholders in the Merger.
"Merger Proposal" means a proposal, to be voted upon at the Patriot Special
Meeting, the Wyndham International Special Meeting and the Interstate Special
Meeting, to adopt the Merger Agreement and approve the transactions
contemplated thereby.
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"Merger Subscribed Shares" means the shares of Wyndham International Common
Stock to be issued to the stockholders of Interstate in connection with the
Merger.
"Merger Subscription" means Interstate's contract, in connection with the
Merger, for Merger Subscribed Shares to be issued directly to Interstate
stockholders in the Merger in an amount equal to the number of shares of
Patriot Common Stock that will be issued to Interstate stockholders in the
Merger.
"Merger Subscription Agreement" means the subscription agreement entered into
between Interstate and Wyndham International prior to the Effective Time with
respect to the Merger Subscribed Shares.
"Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Merrill Lynch Opinion" means the Merrill Lynch written opinion dated
December 2, 1997, confirming its oral opinion delivered on December 1, 1997, to
the Interstate Board.
"Named Executives" means Milton Fine, W. Thomas Parrington, Jr., J. William
Richardson, Robert L. Froman and Marvin I. Droz.
"NAREIT" means the National Association of Real Estate Investment Trusts,
Inc.
"No External Growth Scenario" has the meaning set forth in "The Merger and
Subscription--Opinion of Financial Advisor to the Patriot Companies--Discounted
Cash Flow Valuation."
"Notice of Approval" has the meaning set forth in "The Merger and
Subscription--Dissenters' Rights."
"Notice of Intention to Dissent" has the meaning set forth in "The Merger and
Subscription--Dissenters' Rights."
"NYSE" means the New York Stock Exchange, Inc.
"Old Patriot" includes Patriot American Hospitality, Inc., a Virginia
corporation, and its subsidiaries and affiliated partnerships.
"Old Wyndham" means Wyndham Hotel Corporation, a Delaware corporation.
"Operators" has the meaning set forth in "Risk Factors--Hotel Industry
Risks."
"OP Units" means the paired limited partnership units in Patriot Partnership
and Wyndham International Partnership.
"Other Hotel Acquisitions" means the Buena Vista Acquisition and the
acquisition of the Holiday Inn Beachwood Hotel.
"Other Transactions" means the GAH Acquisition, the CHCI Merger, the Wyndham
Merger, the WHG Merger and the Buena Vista Acquisition.
"Ownership Limit" has the meaning set forth in "Description of Capital
Stock--Certain Provisions of the Charters and the Bylaws--Restrictions on
Ownership and Transfer."
"PaineWebber" means PaineWebber Incorporated.
"PaineWebber Land Sale" means the sale by Patriot on July 14, 1997 of
approximately 174 acres of land in San Mateo, California, representing
substantially all of the land which was owned by Cal Jockey prior to the Cal
Jockey Merger, to an affiliate of PaineWebber for a purchase price of
approximately $80,864,000.
"PaineWebber Opinion" means a written opinion delivered by PaineWebber on
December 2, 1997, to the Patriot Board and the Wyndham International Board.
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"PaineWebber Opinion Fee" means the fee PaineWebber received for delivery of
the PaineWebber Opinion.
"PaineWebber Real Estate" means Paine Webber Real Estate Securities, Inc.
"PaineWebber Selected Transactions" means five announced or completed
mergers between publicly- traded lodging companies including
(acquiror/target): (i) Starwood Lodging Trust/Westin Hotels Limited
Partnership; (ii) Starwood Lodging Inc./ITT Corporation; (iii) Marriott
International, Inc./Renaissance Hotel Group N.V.; (iv) FelCor Suite Hotels,
Inc./Crown Sterling Suites; and (v) Doubletree Corporation/Red Lion Hotels,
Inc.
"Paired Equity Officer/Director" means one or more officers of Patriot
designated by Patriot to serve as a "Paired Equity Officer/Director" pursuant
to the Cooperation Agreement.
"Paired Rights" has the meaning set forth in "The Merger and Subscription--
Background of the Merger."
"Paired Shares" means paired shares of Patriot Common Stock and Wyndham
International Common Stock.
"Pairing Agreement" means the Pairing Agreement, dated February 17, 1983, as
amended to date, between Patriot and Wyndham International.
"Participating Leases" means the separate participating leases pursuant to
which Patriot leases substantially all of its existing hotels to the Lessees
and to Wyndham International.
"Patriot" means Patriot American Hospitality, Inc., a Delaware corporation.
"Patriot Board" means the Board of Directors of Patriot.
"Patriot Bylaws" means the Bylaws of Patriot, as amended to date.
"Patriot Charter" means the Certificate of Incorporation of Patriot, as
amended to date.
"Patriot Common Stock" means the common stock, par value $.01 per share, of
Patriot.
"Patriot Companies" means Patriot and Wyndham International.
"Patriot Companies' Special Meetings" means the Patriot Special Meeting and
the Wyndham International Special Meeting.
"Patriot Partnership" means Patriot American Hospitality Partnership, L.P.,
a subsidiary of Patriot.
"Patriot Partnerships" means Patriot Partnership together with the Wyndham
International Partnership.
"Patriot Record Date" means , 1998.
"Patriot Series A Preferred Stock" means the Series A Convertible Preferred
Stock, par value $.01 per share, of Patriot.
"Patriot Special Meeting" means the special meeting of stockholders of
Patriot to be held at the , on , 1998 at a.m., local time (including
any and all adjournments and postponements thereof).
"Patriot's Estimate" has the meaning set forth in "The Merger and
Subscription--Dissenters' Rights."
"PBCL" means the Pennsylvania Business Corporation Law.
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"Permitted Transferee" means a permitted transferee under the Charters.
"Preferred Stock" means the preferred stock, par value $.01 per share, of
each of Patriot and Wyndham International.
"Prohibited Owner" means the record holder of the shares of Equity Stock
that are converted into shares of Excess Stock.
"Proposing Board" means the Board of Directors submitting any matter at any
meeting of the Patriot Board or the Wyndham International Board.
"Proposing Board Meeting" means a meeting of the Patriot Board or the
Wyndham International Board that is not held jointly.
"Proposing Board Notice" means a notice required to be given by Patriot or
Wyndham International to the other company of the occurrence of a Proposing
Board Meeting and the Category 2 Matters or Category 3 Matters approved at
such meeting.
"Racecourse" means the Bay Meadows Racecourse located in San Mateo,
California.
"Reconsideration Process" has the meaning set forth in "Description of the
Capital Stock--The Cooperation Agreement--Reconsideration Process."
"Redemption Value" has the meaning set forth in "Description of Capital
Stock--Wyndham International Series A Preferred Stock and Series B Preferred
Stock."
"Registration Rights Agreement" has the meaning set forth in "Summary--
Certain Resale Restrictions."
"Registration Rights Holders" means the Fine Entities and the Blackstone
Group.
"Registration Statement" means the Registration Statement on Form S-4 of
which this Joint Proxy Statement/Prospectus is a part.
"REIT" means a real estate investment trust.
"Related Person" means, with respect to the Charters, any person or entity
who beneficially owns (as defined in Rule 13d-3 promulgated under the Exchange
Act) more than 5% of the outstanding shares of capital stock of Patriot or
Wyndham International, as the case may be, and any "affiliate" or "associate"
(as those terms are defined in Rule 12b-2 promulgated under the Exchange Act)
of any such person or entity.
"Relief Act" means the Taxpayer Relief Act of 1997.
"Responding Board" means the Board of Directors responding to the Proposing
Board.
"Restraint" has the meaning set forth in "The Merger Agreement--
Termination."
"Restricted Shares" has the meaning set forth in "The Merger and
Subscription--Interest of Certain Officers, Directors and Stockholders of
Interstate."
"Revolving Credit Facility" means that certain revolving credit facility
entered into by the Patriot Companies and the Lenders, as amended and restated
as of December 16, 1997.
"REVPAR" means room revenue per available room.
"Securities Act" means the Securities Act of 1933, as amended.
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"Shareholders Agreement" means the Shareholders Agreement, dated as of
December 2, 1997, among the Fine Entities, Patriot and Wyndham International.
"Subchapter 15D" means the Subchapter 15D of the PBCL.
"Termination Date" means the date which is 12 months after the date on which
the Pairing Agreement is no longer in effect.
"Term Loan" means the $350 million term loan contemplated by the Term Loan
Agreement.
"Term Loan Agreement" means the Term Loan Agreement, dated as of December
16, 1997, among Patriot, Chase, PaineWebber Real Estate and certain other
lenders.
"The Patriot Companies Comparable Companies" has the meaning set forth in
"The Merger and Subscription--Opinion of Financial Advisor to the Patriot
Companies--Selected Comparable Publicly Traded Company Analysis."
"Trading Day" means a day on which the principal national securities
exchange on which the shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Trust" means a trust to which shares of Excess Stock of Patriot or Wyndham
International, as the case may be, shall be transferred upon the violation of
certain transfer restrictions contained in the Charters.
"Trustee" means the trustee of the Trust to be designated pursuant to the
terms of the Pairing Agreement.
"UBS" means the Union Bank of Switzerland.
"UBS-LB" means the Union Bank of Switzerland, London Branch.
"UBTI" means "unrelated business taxable income" as defined in Section
512(a)(1) of the Code.
"Unpaired Equity Committee" means a committee comprised of directors of
Patriot and Wyndham International that shall have the sole authority under the
Cooperation Agreement to authorize and approve any issuance of unpaired equity
by Wyndham.
"Unpaired Shares" has the definition set forth in "Description of Capital
Stock--The Cooperation Agreement--Holders of Unpaired Equity."
"U.S. Stockholder" means a holder of Paired Shares that for United States
federal income tax purposes is (i) a citizen or resident of the United States,
(ii) a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof,
(iii) an estate, the income of which is subject to United States federal
income taxation regardless of its source or (iv) a trust, if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust and (v) is not an
entity that has a special status under the Code (such as a tax-exempt
organization).
"Valuation Percentage" means a fraction (expressed as a percentage)
determined by dividing the value for Equity Stock most recently determined
under the Pairing Agreement over the value of a Paired Share most recently
determined under the Pairing Agreement.
"Voting Agreements" means those certain Voting Agreements, dated as of April
14, 1997, by and among Old Patriot and CF Securities, Paul A. Nussbaum,
William W. Evans III, Leslie V. Bentley, James D. Carreker, Stanley M. Koonce,
Jr. and Anne L. Raymond.
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<PAGE>
"Voting Securities" has the meaning set forth in "Description of Capital
Stock--The Cooperation Agreement--Corporate Matters Categories."
"WHG" means WHG Resorts & Casinos Inc.
"WHG Merger" means the merger of a wholly owned subsidiary of Wyndham with
and into WHG with WHG being the surviving corporation.
"WHG Merger Agreement" means the Agreement and Plan of Merger, dated as of
September 30, 1997, between Patriot, Wyndham, Patriot American Hospitality
Operating Company Acquisition Subsidiary and WHG.
"Wyndham International" means Wyndham International, Inc., a Delaware
corporation formerly known as "Patriot American Hospitality Operating Company"
and, where the context requires, the Wyndham International Partnership and the
respective subsidiaries of Wyndham International and the Wyndham International
Partnership; including certain corporate subsidiaries of the Patriot Companies
that are controlled solely by Wyndham International Partnership.
"Wyndham International Board" means the Board of Directors of Wyndham
International.
"Wyndham International Bylaws" means the Bylaws of Wyndham International, as
amended to date.
"Wyndham International Charter" means the Certificate of Incorporation of
Wyndham International, as amended to date.
"Wyndham International Common Stock" means common stock, par value $.01 per
share, of Wyndham International.
"Wyndham Merger" means the merger of Old Wyndham with and into Patriot,
pursuant to the Wyndham Merger Agreement, with Patriot being the surviving
company.
"Wyndham Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of April 14, 1997, as amended, between Patriot, Wyndham International
and Old Wyndham.
"Wyndham International Partnership" means Patriot American Hospitality
Operating Partnership, L.P., a subsidiary of Wyndham International.
"Wyndham International Series A Preferred Stock" means the Series A
Preferred Stock, par value $.01, of Wyndham International.
"Wyndham International Series B Preferred Stock" means the Series B
Preferred Stock, par value $.01, of Wyndham International.
"Wyndham International Special Meeting" means the special meeting of
stockholders of Wyndham International to be held at the , on , 199 , at
a.m., local time (including any and all adjournments and postponements
thereof).
151
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 2, 1997
BY AND AMONG
INTERSTATE HOTELS COMPANY,
A PENNSYLVANIA CORPORATION,
PATRIOT AMERICAN HOSPITALITY, INC.,
A DELAWARE CORPORATION
AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY,
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
I. THE MERGER
1.01. The Merger.................................................... A-1
1.02. Closing....................................................... A-1
1.03. Effective Time................................................ A-2
1.04. Effects of the Merger......................................... A-2
1.05. Certificate of Incorporation and Bylaws....................... A-2
1.06. Boards, Committees and Officers............................... A-2
1.07. Subscription Agreement........................................ A-2
1.08. Subscribed Shares and Rights.................................. A-2
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATION; EXCHANGE OF CERTIFICATES
2.01. Effect on Capital Stock....................................... A-2
2.02. Exchange of Certificates...................................... A-5
2.03. Company Stock Plans........................................... A-8
III. REPRESENTATIONS AND WARRANTIES
3.01. Representations and Warranties of the Company................. A-9
3.02. Representations and Warranties of Patriot..................... A-16
IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01. Conduct of Business........................................... A-21
4.02. No Solicitation by the Company................................ A-24
4.03. The Company's Accumulated and Current Earnings and Profits.... A-25
V. ADDITIONAL COVENANTS
5.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Shareholders Meetings......................................... A-25
5.02. Access to Information; Confidentiality........................ A-26
5.03. Regulatory Filings............................................ A-26
5.04. Reasonable Efforts............................................ A-26
5.05. Employee Benefit Matters...................................... A-27
5.06. Certain Employee and Other Matters............................ A-28
5.07. Fees and Expenses............................................. A-28
5.08. Public Announcements.......................................... A-30
5.09. Affiliates; Etc............................................... A-30
5.10. Listing of Paired Shares...................................... A-30
5.11. Shareholder Litigation........................................ A-30
5.12. Tax Treatment................................................. A-30
5.13. Indemnification, Exculpation and Insurance.................... A-30
5.14. Interim Transactions.......................................... A-31
5.15. Ownership Restrictions........................................ A-31
5.16. Termination of Stock Purchase Plan............................ A-31
VI. CONDITIONS PRECEDENT
6.01. Conditions to Each Party's Obligation To Effect the Merger.... A-31
6.02. Conditions to Obligations of Patriot and OPCO................. A-32
6.03. Conditions to Obligation of the Company....................... A-32
6.04. Frustration of Closing Conditions............................. A-33
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
VII. TERMINATION, AMENDMENT AND WAIVER
7.01. Termination.................................................... A-33
7.02. Effect of Termination.......................................... A-34
7.03. Amendment...................................................... A-34
7.04. Extension; Waiver.............................................. A-34
7.05. Procedure for Termination, Amendment, Extension or Waiver...... A-34
VIII. GENERAL PROVISIONS
8.01. Nonsurvival of Representations and Warranties.................. A-35
8.02. Notices........................................................ A-35
8.03. Certain Definitions............................................ A-36
8.04. Interpretation................................................. A-36
8.05. Counterparts................................................... A-36
8.06. Entire Agreement; No Third-Party Beneficiaries................. A-36
8.07. Governing Law.................................................. A-36
8.08. Assignment..................................................... A-36
8.09. Enforcement.................................................... A-37
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 2, 1997, among Interstate
Hotels Company, a Pennsylvania corporation (the "Company"), Patriot American
Hospitality, Inc., a Delaware corporation ("Patriot"), and Patriot American
Hospitality Operating Company, a Delaware corporation ("OPCO" and, together
with Patriot, the "Patriot Companies").
RECITALS
A. The respective Boards of Directors of Patriot, OPCO and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders to consummate, and have therefore approved, the
business combination transaction provided for herein in which the Company
would merge with and into Patriot, and wherein each issued and outstanding
share of Common Stock, par value $0.01 per share, of the Company ("Company
Common Stock") not owned directly or indirectly by Patriot, OPCO or the
Company will be converted into the right to receive the Merger Consideration
on the terms and subject to the conditions of this Agreement (the "Merger");
B. The parties desire to make certain representations, warranties and
covenants in connection with the Merger and to prescribe various conditions to
the Merger;
C. For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
D. Contemporaneously with the execution of this Agreement, the Company,
Patriot and certain other Persons (such other Persons, collectively, the
"Principal Shareholder") have entered into a Shareholders Agreement (the
"Shareholders Agreement") pursuant to which the Principal Shareholder has
agreed to refrain from taking certain actions and Patriot, OPCO and the
Principal Shareholder have agreed to take certain actions on the terms and
subject to the conditions set forth in the Shareholders Agreement; and
E. The shares of common stock, par value $.01 per share, of Patriot (the
"Patriot Common Stock") and the shares of common stock, par value $.01 per
share, of OPCO (the "OPCO Common Stock") are paired and transferable and
traded only in combination as a single unit (the "Paired Shares") on the New
York Stock Exchange (the "NYSE").
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties agree as follows:
I. THE MERGER
1.01. The Merger. On the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Pennsylvania Business Corporation
Law (the "PBCL") and the Delaware General Corporation Law (the "DGCL"), the
Company will be merged with and into Patriot at the Effective Time. Following
the Effective Time, Patriot will be the surviving corporation in the Merger
(the "Surviving Corporation") and will succeed to and assume all the rights
and obligations of the Company in accordance with the PBCL and the DGCL.
1.02. Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date to be specified by the parties (the "Closing Date"),
which (subject to satisfaction or waiver of the conditions set forth in
Article VI) will be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI, unless another time or
date is agreed to by the parties hereto. The Closing will be held at the
offices of Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New
York, unless another place is agreed to in writing by the parties hereto.
A-1
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1.03. Effective Time. Subject to the provisions of this Agreement, as soon
as practicable on or after the Closing Date, the parties will file articles or
a certificate of merger or other appropriate documents (the "Articles of
Merger") executed in accordance with the relevant provisions of the PBCL and
the DGCL and will make all other filings or recordings required under the PBCL
and the DGCL in order to effect the Merger. The Merger will become effective
at such time as the Articles of Merger for the Merger have been duly filed
with the Pennsylvania Department of State and the Secretary of State of
Delaware or at such subsequent date or time as Patriot and the Company agree
and specify in the Articles of Merger (the time the Merger becomes effective
being herein referred to as the "Effective Time").
1.04. Effects of the Merger. The Merger will have the effects set forth in
Section 1929 of the PBCL and Section 259 of the DGCL.
1.05. Certificate of Incorporation and Bylaws. (a) The Amended and Restated
Certificate of Incorporation of Patriot in effect immediately prior to the
Effective Time will be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by Law.
(b) The Amended and Restated Bylaws of Patriot in effect immediately prior
to the Effective Time will be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable Law.
1.06. Boards, Committees and Officers. The individuals serving as the
members of the Board of Directors, committees of the Board of Directors
(including chairmen thereof) and officers of Patriot as of the Effective Time
will serve as such for the Surviving Corporation until the earlier of the
resignation or removal of any such individual or until their respective
successors are duly elected and qualified, as the case may be. In addition,
effective as of immediately after the Effective Time, the Board of Directors
of Patriot will be increased by one and the vacancy so created will be filled
in accordance with the Shareholders Agreement.
1.07. Subscription Agreement. Immediately prior to the Closing, the Company,
OPCO and Patriot will enter into a contract in the form agreed upon by all of
the parties (the "Company/Patriot Subscription Agreement") pursuant to which
consistent with this Agreement the Company will pay for, and OPCO will issue
directly to the shareholders of the Company as part of the consideration to be
paid to such shareholders in the Merger, a number of shares (the "Subscribed
Shares") of OPCO Common Stock equal to the number of shares of Patriot Common
Stock to be issued to shareholders of the Company pursuant to the Merger.
1.08. Subscribed Shares. The parties acknowledge and agree that the
Subscribed Shares will be issued in accordance with Sections 2.01(d) and (g)
to the shareholders of the Company in connection with the Merger and will be
paired with the Patriot Common Stock issued in the Merger and that neither the
Company nor Patriot will at any time become a stockholder of OPCO.
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
2.01. Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
Company Common Stock outstanding immediately prior to the Effective Time
("Shares"):
(a) Cancellation of Treasury Stock and Patriot-Owned Stock. Each Share
that is owned by the Company or by any wholly owned Subsidiary of the
Company, or by Patriot or OPCO or any wholly owned Subsidiary of either of
them, will automatically be canceled and retired and will cease to exist,
and no consideration will be delivered in exchange therefor.
(b) Cancellation of Other Shares. Each Share, other than those described
in Section 2.01(a), will no longer be outstanding and will automatically be
canceled and retired and cease to exist and each holder of a certificate
representing any such Share (a "Certificate") will cease to have any rights
with respect thereto,
A-2
<PAGE>
except (i) the right to receive the Merger Consideration and any additional
cash in lieu of fractional Paired Shares to be issued or paid in
consideration therefor upon surrender of such Certificate in accordance
with Section 2.02, without interest, or (ii) as provided in Section 2.02(j)
in respect of Dissenting Shares.
(c) Electing Shares. Subject to Sections 2.01(a), (f) and (g), each Share
with respect to which a Form of Election to receive cash has been properly
made and not revoked pursuant to Section 2.01(e) will, at the Effective
Time, be converted into, and the holder thereof will be entitled to receive
therefor, $37.50 in cash (the "Maximum Cash Consideration Per Share"). The
cash consideration payable with respect to each Electing Share and, to the
extent applicable pursuant to Section 2.01(h), each Non-Electing Share is
hereinafter referred to as "Cash Consideration," and each Share with
respect to which an election to be converted into cash is duly made as
herein provided is herein referred to as an "Electing Share."
(d) Non-Electing Shares. Each Share other than (1) an Electing Share, (2)
a Share canceled in accordance with Section 2.01(a), and (3) a Dissenting
Share is herein referred to as a "Non-Electing Share." Subject to Section
2.01(h), each Non-Electing Share and each Electing Share described in
Section 2.01(g)(ii) will at the Effective Time be converted into the right
to receive the number of Paired Shares (the "Exchange Ratio") determined as
follows:
(i) If the Meeting Date Price is greater than or equal to $27.970,
but less than or equal to $34.186, then the Exchange Ratio will be the
number determined by dividing $37.50 by the Meeting Date Price;
(ii) If the Meeting Date Price is less than $27.970, but greater than
or equal to $26.416, then the Exchange Ratio will be 1.341;
(iii) If the Meeting Date Price is greater than $34.186, but (x) less
than or equal to $37.294, if the Closing Date is on or before March 30,
1998 or (y) less than or equal to $38.848, if the Closing Date is after
March 30, 1998, then the Exchange Ratio will be 1.097;
(iv) If the Meeting Date Price is greater than $37.294 and the
Closing Date is on or before March 30, 1998, then the Exchange Ratio
will be the number determined by dividing $40.912 by the Meeting Date
Price;
(v) If the Meeting Date Price is greater than $38.848 and the Closing
Date is after March 30, 1998, then the Exchange Ratio will be the
number determined by dividing $42.616 by the Meeting Date Price; and
(vi) If the Meeting Date Price is less than $26.416, then the Company
will have the right to terminate this Agreement pursuant to Section
7.01(g) by giving written notice (the "Termination Notice") of its
election to do so to Patriot prior to 5:00 p.m., New York City time, on
the second Trading Day after the Measurement Date; provided, however,
that the Termination Notice will be deemed to be rescinded and will
have no effect if, prior to 5:00 p.m., New York City time, on the
second Trading Day following the date of delivery by the Company to
Patriot of such Termination Notice, Patriot has given the Company
written notice that it has exercised its right to increase the Exchange
Ratio to the number determined by dividing $35.424 by the Meeting Date
Price. If this subparagraph (vi) applies but the Company fails to give
the Termination Notice, the Exchange Ratio will be 1.341.
In determining the Exchange Ratio as provided above, the final number will
be rounded to three decimal places, rounding up from 0.0005. In the event
of any stock dividend or other distribution or a subdivision, combination
or modification of Patriot Common Stock or OPCO Common Stock with a record
date after the date hereof and prior to the Effective Time, the Exchange
Ratio will be equitably adjusted. For purposes of this Agreement, (a) the
term "Meeting Date Price" means the average per share closing price for a
Paired Share as reported on the NYSE Transactions Tape (as reported in the
Wall Street Journal or, if not reported thereby, by another authoritative
source) over the 20 consecutive Trading Day period ending on the Trading
Day (the "Measurement Date") immediately preceding the fifth Trading Day
prior to the date on which the meeting of the Company's shareholders
pursuant to Section 5.01(b) hereof is to be initially convened; (b) the
"Closing Date" means the date on which the Closing occurs; (c) the term
"Stock Consideration" means the consideration described in the second
sentence of this Section 2.01(d); (d) the term "Merger
A-3
<PAGE>
Consideration" means the Cash Consideration and Stock Consideration; and
(e) the term "Trading Day" means a day on which the NYSE is open for
trading.
(e) Form of Election. The Company will mail a form of election ("Form of
Election") to all holders of record of Shares as of the record date of the
Company Shareholder Meeting. In addition, the Company will use all
reasonable efforts to make the Form of Election and Joint Proxy Statement
available to all persons who become shareholders of the Company during the
period between such record date and the third Trading Day prior to the date
of the initial convening of the Company Shareholder Meeting. Any election
to receive Cash Consideration contemplated by Section 2.01(c) hereof shall
have been properly made only if the Exchange Agent has received at its
designated office or offices, by 5:00 p.m., New York City time, on the last
Trading Day preceding the date of the initial convening of the Company
Shareholder Meeting, a Form of Election properly completed and accompanied
by certificates representing the Shares to which such Form of Election
relates, duly endorsed in blank or otherwise acceptable for transfer on the
books of the Company (or an appropriate guarantee of delivery), as set
forth in such Form of Election. An election to receive Cash Consideration
may be revoked only by written notice received by the Exchange Agent prior
to 5:00 p.m., New York City time, on the last business day preceding the
date of the initial convening of the Company Shareholder Meeting. In
addition, all elections to receive Cash Consideration will automatically be
revoked if the Exchange Agent is notified in writing by Patriot and Company
that the Merger has been abandoned. If an election to receive Cash
Consideration is so revoked, the Certificates (or guarantees of delivery,
as appropriate) for the Shares to which such election to receive Cash
Consideration relates will be promptly returned to the person submitting
the same to the Exchange Agent.
(f) Limitations on Cash Payments. Anything in this Article II to the
contrary notwithstanding and subject to Section 6.03(d), holders of
Electing Shares will not be entitled to, and Patriot will not be obligated
in implementing Section 2.01(c) to pay, the Maximum Cash Consideration Per
Share in respect of the number of Electing Shares that exceeds 14,168,500
Shares minus the number of Shares equal to the number of Dissenting Shares,
if any, in excess of 100,000. The maximum number of Electing Shares
entitled to the Maximum Cash Consideration Per Share pursuant to this
Section 2.01(f) is hereinafter referred to as the "Maximum Cash Shares,"
and the amount of cash equal to the Maximum Cash Consideration Per Share
times the Maximum Cash Shares is hereinafter referred to as the "Total Cash
Consideration."
(g) Proration of Electing Shares. In the event that the aggregate number
of Electing Shares exceeds the Maximum Cash Shares, all Electing Shares
will at the Effective Time be converted into the right to receive Merger
Consideration in the following manner:
(i) The number of Electing Shares covered by each Form of Election to
be converted into the right to receive the Cash Consideration will be
determined by multiplying the number of Electing Shares covered by such
Form of Election by a fraction, the numerator of which is the Maximum
Cash Shares and the denominator of which is the total number of
Electing Shares, rounded down to the nearest whole Share; and
(ii) Each Electing Share not converted into the right to receive the
Cash Consideration in accordance with Section 2.01(g)(i) will be
converted into the right to receive the Stock Consideration and no
longer considered to be an Electing Share.
(h) Minimum Cash Consideration for Non-Electing Shares. In the event that
the aggregate number of Electing Shares is less than the Maximum Cash
Shares, each Non-Electing Share will be converted at the Effective Time
into the right to receive:
(i) Cash in an amount (the "Minimum Cash Consideration Per Share")
equal to (A) (1) the Total Cash Consideration minus (2) the product of
the Maximum Cash Consideration Per Share times the aggregate number of
Electing Shares, divided by (B) the aggregate number of Non-Electing
Shares; and
(ii) The number of Paired Shares equal to the product of (A) the
Exchange Ratio times (B) a fraction (the "Share Fraction"), the
numerator of which is 37.50 minus the Minimum Cash Consideration Per
Share, and the denominator of which is 37.50.
A-4
<PAGE>
If this Section 2.01(h) is applicable, then (A) the Minimum Cash
Consideration Per Share with respect to Non-Electing Shares pursuant to clause
(i) hereof will be deemed to be the "Cash Consideration" for such shares, (B)
the stock consideration with respect to Non-Electing Shares pursuant to clause
(ii) hereof will be deemed to be the "Stock Consideration" for such shares,
and (C) such Cash Consideration and Stock Consideration, together, will be
deemed to be the "Merger Consideration" for such shares.
2.02. Exchange of Certificates. (a) Prior to the Effective Time, Patriot and
OPCO will enter into an agreement with American Stock Transfer and Trust
Company ("AST&T") or such other bank or trust company as may be designated by
Patriot, OPCO and the Company (the "Exchange Agent"), such agreement to
provide that as of the Effective Time (i) Patriot will deposit, or will cause
to be deposited, with the Exchange Agent, for the benefit of the holders of
Shares, for exchange in accordance with this Article II, through the Exchange
Agent, a certificate representing the shares of Patriot Common Stock issuable
pursuant to Section 2.01 in exchange for outstanding Shares, and
simultaneously (ii) OPCO will deposit, or will cause to be deposited, with the
Exchange Agent, for exchange in accordance with this Article II, through the
Exchange Agent, a certificate representing the Subscribed Shares, to be paired
with the shares of Patriot Common Stock described in clause (i) above. The
certificates for shares of Patriot Common Stock and Subscribed Shares,
together with any dividends or distributions with respect thereto with a
record date after the Effective Time, any Excess Shares and any cash
(including cash proceeds from the sale of the Excess Shares) in lieu of any
fractional Paired Shares and Cash Consideration, are hereinafter referred to
as the "Exchange Fund."
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent will mail or otherwise make available to
each holder of record of a Certificate which immediately prior to the
Effective Time represented outstanding Shares converted into the right to
receive the Merger Consideration pursuant to Section 2.01: (i) a letter of
transmittal (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon delivery of the
Certificates to the Exchange Agent and will be in such form and have such
other provisions as Patriot may specify consistent with this Agreement) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate will be entitled to receive in
exchange therefor the Merger Consideration and cash, if any, which such holder
has the right to receive pursuant to the provisions of this Article II, and
the Certificate so surrendered will forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the transfer
records of the Company, the Merger Consideration may be issued or paid to a
Person other than the Person in whose name the Certificate so surrendered is
registered if such Certificate is properly endorsed or otherwise in proper
form for transfer and the Person requesting such issuance or payment pays any
transfer or other taxes required by reason of the issuance or payment of the
Merger Consideration to a Person other than the registered holder of such
Certificate or establishes to the satisfaction of Patriot that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.02, each Certificate will be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration which the holder thereof has the right to receive in respect of
such Certificate pursuant to the provisions of this Article II. No interest
will be paid or will accrue on any cash payable to holders of Certificates
pursuant to the provisions of this Article II, but all payments of cash, if
any, which holders have the right to receive pursuant to the provisions of the
Article II will be made in immediately available funds. Certificates
surrendered for exchange by any person who is an "affiliate" of the Company
for purposes of Rule 145, as such rule may be amended from time to time, under
the Securities Act, will not be exchanged until Patriot has received an
agreement substantially in the form of Schedule 5.09(a) from such person.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Patriot Common Stock or OPCO Common Stock with a
record date after the Effective Time and no cash payment in lieu of fractional
shares will be paid pursuant to Section 2.02(e) to the holder of any
unsurrendered Certificate with respect to the Paired Shares represented
thereby, and all such dividends, other distributions and cash in lieu of
fractional Paired Shares will be paid by Patriot or OPCO to the Exchange Agent
promptly after
A-5
<PAGE>
the Effective Time and will be included in the Exchange Fund, in each case in
accordance with this Article II. Subject to the effect of applicable escheat
or similar Laws, following surrender of any Certificate in accordance herewith
there will be paid to the holder of the certificates representing whole Paired
Shares issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole Paired
Shares and the amount of any cash payable in lieu of fractional Paired Shares
to which such holder is entitled pursuant to Section 2.02(e) and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
Paired Shares.
(d) No Further Ownership Rights in Shares. All Paired Shares issued and all
cash paid upon the surrender for exchange of Certificates in accordance with
the terms of this Article II will be deemed to have been issued and paid in
full satisfaction of all rights pertaining to the Shares theretofore
represented by such Certificates. If, after the Effective Time, Certificates
are presented to Patriot, the Surviving Corporation or the Exchange Agent for
any reason, they will be canceled and exchanged as provided in this Article
II.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional Paired Shares will be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Patriot will relate to such
fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
Patriot.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent will determine the excess of (A) the number of whole Paired Shares
delivered to the Exchange Agent by Patriot and OPCO pursuant to Section
2.02(a) over (B) the aggregate number of whole Paired Shares to be distributed
to holders of Shares pursuant to Section 2.02(b) (such excess being herein
called the "Excess Shares"). Subject to Section 2.01(e)(iv), following the
Effective Time, the Exchange Agent will sell the Excess Shares, all in the
manner provided in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be executed
on the NYSE through one or more member firms of the NYSE and will be executed
in round lots to the extent practicable. The Exchange Agent will use all
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in
light of prevailing market conditions. Until the net proceeds of such sale or
sales have been distributed to the prior holders of Shares, the Exchange Agent
will hold such proceeds in trust for such holders entitled thereto (the
"Shares Trust"). The Surviving Corporation will pay out of the Shares Trust
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent will
determine the portion of the Shares Trust to which each holder of Shares is
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Shares Trust by a fraction, the numerator of which is the
amount of the fractional share interest to which such holder of Shares is
entitled (after taking into account all Shares held at the Effective Time by
such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Shares are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii),
Patriot may elect at its option, exercised prior to the Effective Time, in
lieu of the issuance and sale of Excess Shares and the making of the payments
hereinabove contemplated, to cause to be paid to each holder of Shares an
amount in cash equal to the product obtained by multiplying (A) the fractional
share interest to which such holder (after taking into account all Shares held
at the Effective Time by such holder) would otherwise be entitled by (B) the
average closing price for a Paired Share as reported on the NYSE Composite
Transactions Tape (as reported in the Wall Street Journal, or, if not reported
thereby, any other authoritative source) for the 20 consecutive Trading Days
ending on the Trading Day immediately prior to the Closing Date and, in such
case, all references herein to the cash proceeds of the sale of the Excess
Shares and similar references will be deemed to mean and refer to the payments
calculated as set forth in this Section 2.02(e)(iv). In no event will Patriot
be required to cause such payment to be funded prior to the Effective Time.
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(v) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Shares with respect to any fractional share
interests, the Exchange Agent will make available such amounts to such holders
of Shares subject to and in accordance with the terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time will be delivered to Patriot and OPCO, in accordance with
Patriot's instructions, upon demand, and any holders of the Certificates who
have not theretofore complied with this Article II will thereafter look only
to Patriot for payment of their claim for Merger Consideration, any cash in
lieu of fractional Paired Shares and any dividends or distributions with
respect to Paired Shares.
(g) No Liability. None of Patriot, the Company or the Exchange Agent will be
liable to any Person in respect of any Paired Shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar Law. If any Certificate has not been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier date on which
any Merger Consideration, any cash in lieu of fractional Paired Shares or any
dividends or distributions payable to the holder of such Certificate would
otherwise escheat to or become the property of any Governmental Entity), any
such Merger Consideration, cash, dividends or distributions in respect of such
Certificate will become the property of the Surviving Corporation (subject to
the Subscription Agreement), free and clear of all claims or interest of any
Person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent will invest any cash
included in the Exchange Fund in one or more bank accounts or in high-quality,
short-term investments, as directed by Patriot, on a daily basis. Any interest
and other income resulting from such investments will be paid to Patriot (or
OPCO to the extent of OPCO's cash contributions, if any, to the Exchange
Fund).
(i) Lost Certificates. If any Certificate is lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration and, if applicable, any cash in lieu of fractional shares, and
unpaid dividends and distributions on Paired Shares or deliverable in respect
thereof, pursuant to this Agreement.
(j) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, no Share, the holder of which has properly complied with the
provisions of Subchapter D of Chapter 15 of the PBCL as to appraisal rights
(including without limitation any Share the holder of which has given notice
of his or her intention to demand that such holder be paid the fair value of
such Shares as provided in Section 1575 of Subchapter D of Chapter 15 of the
PBCL) (a "Dissenting Share"), will be deemed to be converted into and to
represent the right to receive the Merger Consideration hereunder and the
holders of Dissenting Shares, if any, will be entitled to payment, solely from
the Surviving Corporation, of the appraised value of such Dissenting Shares to
the extent permitted by and in accordance with the provisions of Subchapter D
of Chapter 15 of the PBCL; provided, however, that (i) if any such holder
fails to establish his or her entitlement to rights to payment as provided in
such Subchapter or (ii) if neither the holder of Dissenting Shares nor the
Surviving Corporation has instituted a proceeding to determine the rights of
holders of Dissenting Shares and to fix the fair value of Dissenting Shares in
any of the circumstances described in Section 1579 of Subchapter D of Chapter
15 within the time provided in such Section, such holder will forfeit such
right to payment for such Dissenting Shares pursuant to such Subchapter D of
Chapter 15 and, as of the later of the Effective Time or the occurrence of
such event, each such Share shall no longer be deemed a Dissenting Share and
shall be deemed to be a Non-Electing Share, subject to Section 2.01(h), and
such holder's Certificate formerly representing shares of Company Common Stock
will automatically be converted into and represent only the right to receive
the Merger Consideration as a Non-Electing Share pursuant to Section 2.01,
including Section 2.01(h), without any interest thereon, upon surrender of the
Certificate or Certificates formerly representing such shares of Company
Common Stock. The Company
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will give Patriot (A) prompt notice of any written demands for appraisal of
any Dissenting Shares and any other instruments received by the Company
relating to shareholders' rights of appraisal, (B) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under the PBCL, and (C) the right to approve any settlement of any
such demand.
(k) Exchange of Certificates for Cash Consideration. Without limiting the
generality or effect of any other provision hereof, the Exchange Agent will
have discretion to determine whether or not elections to receive Cash
Consideration have been properly made or revoked pursuant to this Article II
with respect to Shares and when elections and revocations were received by it.
If the Exchange Agent determines that any election to receive Cash
Consideration was not properly made with respect to Shares, absent manifest
error, such Shares will be treated by the Exchange Agent as, and for all
purposes of this Agreement will be deemed to be, Non-Electing Shares at the
Effective Time, and such Shares will be converted in the Merger into Stock
Consideration pursuant to Section 2.01(d), subject to Section 2.01(h). The
Exchange Agent will also make computations as to the allocation, proration and
equitable adjustments contemplated by this Article II and any such computation
will be, absent manifest error, conclusive and binding on the holders of
Electing Shares pursuant to this Article II. The Exchange Agent may, with the
mutual agreement of Patriot and the Company, make such equitable changes in
the procedures set forth herein for the implementation of the cash elections
provided for in this Article II as it determines to be necessary or desirable
to effect fully such elections.
2.03. Company Stock Plans. (a) The Company will take all actions necessary
to provide that, upon the Effective Time, (i) each outstanding option (each,
an "Option") to purchase Company Common Stock under the Company's Equity
Incentive Plan (the "Equity Incentive Plan") or Stock Option Plan for Non-
Employee Directors (the "Director Plan"), (ii) each outstanding stock
appreciation right, deferred share, performance share or performance unit
granted under the Company's Equity Incentive Plan (each, an "Incentive Plan
Award"), and (iii) each outstanding share of restricted Company Common Stock
issued under the Company's Equity Incentive Plan or Management Bonus Plan
("Restricted Shares" and, together with Options and Incentive Plan Awards,
"Awards"), whether or not then exercisable or vested, all of which Awards are
listed in Section 2.03(a) of the Company Disclosure Schedule (as defined in
Section 3.01), will become fully exercisable and vested.
(b) As soon as practicable after the date hereof, the Company will deliver
to holders of Awards appropriate notices setting forth such holders' rights
pursuant to the respective Company Stock Plans, the agreements evidencing the
grants of such Awards and this Agreement. Holders of Options identified on
Section 2.03(b) of the Company Disclosure Schedule will be entitled, at their
election, to have any or all of their Options (i) assumed by Patriot pursuant
to and in accordance with Section 2.03(c) or (ii) canceled or repurchased
pursuant to and in accordance with Section 2.03(d). All other Options will be
canceled or repurchased pursuant to and in accordance with Section 2.03(d).
(c) At the Effective Time, the Company's obligations with respect to each
Option for which the holder thereof has elected pursuant to the second
sentence of Section 2.03(b) to be assumed by Patriot (an "Assumed Option"),
will be assumed by Patriot. The Assumed Options will continue to have, and be
subject to, the same terms and conditions as set forth in the Company's Equity
Incentive Plan or Director Plan (as the case may be) and related option
agreements (as in effect immediately prior to the Effective Time) pursuant to
which the Assumed Options were issued, provided that (i) all references to the
Company will be deemed to be references to Patriot, and all references to the
Company Common Stock will be deemed to be references to Paired Shares, (ii)
each Assumed Option will be exercisable for that number of whole Paired Shares
equal to the product of the number of shares of the Company Common Stock
covered by the Assumed Option immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded to the nearest whole number of
Paired Shares, and (iii) the exercise price per share of Paired Shares under
each Assumed Option will be equal to the exercise price per share of the
Company Common Stock under the Assumed Option immediately prior to the
Effective Time divided by the Exchange Ratio, rounded to the nearest cent.
Pursuant to this Agreement and in accordance with the Subscription Agreement,
Patriot will (A) reserve for issuance or hold the number of Paired Shares that
will become issuable upon the exercise of such Assumed Options pursuant to
this Section 2.03(b) and (B)
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promptly after the Effective Time issue to each holder of an outstanding
Assumed Option a document evidencing the assumption by Patriot of the
Company's obligations with respect thereto under this Section 2.03(b).
(d) Immediately prior to the Effective Time, each Option which is not an
Assumed Option will be canceled or repurchased, as appropriate, and in
consideration of such cancellation or repurchase, as the case may be, the
Company will pay to the holder of each such Option an amount in respect
thereof equal to the product of (i) the Applicable Amount, multiplied by (ii)
the number of shares of Company Common Stock subject thereto (such payment to
be net of applicable withholding taxes). The term "Applicable Amount" means
the excess of (1) $37.50 over (2) the exercise price of each such Option.
III. REPRESENTATIONS AND WARRANTIES
3.01. Representations and Warranties of the Company. Except as disclosed in
the Company Filed SEC Documents or as set forth on the Disclosure Schedule
delivered by the Company to Patriot prior to the execution of this Agreement
(the "Company Disclosure Schedule"), the Company represents and warrants to
Patriot and OPCO as follows:
(a) Organization, Standing and Corporate Power. The Company and each of
its Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the Laws of the
jurisdiction in which it is organized and has the requisite corporate,
partnership or limited liability company power, as the case may be, and
authority to carry on its business as now being conducted. The Company and
each of its Significant Subsidiaries is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions in
which the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate could not be reasonably expected to have a
material adverse effect on the business, financial condition or results of
operations of the Company and each of its Subsidiaries, taken as a whole,
or on the ability of the Company to perform any of its obligations under
this Agreement (any such effect, a "Company MAE"). The Company has
delivered to Patriot prior to the execution of this Agreement complete and
correct copies of its articles of incorporation and bylaws and has made
available to Patriot the certificate of incorporation and bylaws (or
comparable organizational documents) of each of its Subsidiaries, in each
case as amended to date.
(b) Subsidiaries. Exhibit 21.1 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1996 includes all of the
Significant Subsidiaries of the Company. All the outstanding shares of
capital stock of, or other equity interests in, each such Subsidiary have
been validly issued and are fully paid and nonassessable and are owned
directly or indirectly by the Company, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of the Company
consists of 75,000,000 Shares and 25,000,000 shares of preferred stock of
the Company ("Company Preferred Shares"). At the close of business on the
last business day immediately preceding the date hereof (the
"Representation Date"), (i) 35,421,478 Shares were issued and outstanding,
(ii) no Shares were held by the Company in its treasury, (iii) 3,039,933
Shares were reserved for issuance pursuant to the Equity Incentive Plan,
the Director Plan, the Management Bonus Plan and the employee stock
purchase plan (collectively, the "Company Stock Plans"), and (iv) no
Company Preferred Shares have been designated or issued. Except as set
forth above, at the close of business on the Representation Date, no shares
of capital stock or other voting securities of the Company were issued,
reserved for issuance or outstanding. At the close of business on the
Representation Date, there were no outstanding stock options, stock
appreciation rights or rights (other than employee stock option or other
rights ("Company Stock Options") to purchase or receive Company Common
Stock granted under the Company Stock Plans) to receive shares of Company
Common Stock on
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a deferred basis granted under the Company Stock Plans or otherwise. The
Company Disclosure Schedule sets forth a complete and correct list, as of
the Representation Date, of the number of shares of Company Common Stock
subject to Company Stock Options. All outstanding shares of capital stock
of the Company are, and all shares which may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
are not subject to preemptive rights. As of the close of business on the
Representation Date, there were no bonds, debentures, notes, other
indebtedness or securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except as set
forth above, as of the close of business on the Representation Date, there
were no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
the Company or any of its Subsidiaries is a party or by which any of them
is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of the Company or of any
of its Subsidiaries or obligating the Company or any of its Subsidiaries to
issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. Except for
agreements entered into with respect to the Company Stock Plans, as of the
close of business on the Representation Date, there were no outstanding
contractual obligations of the Company or any of its Subsidiaries to issue,
repurchase, redeem, exchange or otherwise acquire any shares of capital
stock of the Company or any of its Subsidiaries. As of the close of
business on the Representation Date, there were no outstanding contractual
obligations of the Company to vote or to dispose of any shares of the
capital stock of any of its Subsidiaries.
(d) Authority; Noncontravention. The Company has all requisite corporate
power and authority to enter into this Agreement, and, subject to the
Company Shareholder Approval, to consummate the transactions contemplated
hereby. On or prior to the date hereof, the Board of Directors of the
Company approved this Agreement, the Merger and the other transactions
contemplated by this Agreement and resolved to recommend that the holders
of Company Common Stock adopt this Agreement. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to Company Shareholder
Approval. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and compliance with the provisions
hereof will not, conflict with, breach or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of the Company or any of
its Significant Subsidiaries under, (i) assuming Company Shareholder
Approval, the articles of incorporation or by-laws of the Company or the
comparable organizational documents of any of its Subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to the Company or any of its Significant Subsidiaries or their respective
properties or assets, or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order or
decree ("Order"), or statute, law, ordinance, rule or regulation ("Law")
applicable to the Company or any of its Subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, breaches, violations, defaults, rights, losses or Liens
that individually or in the aggregate could not be reasonably expected to
have a Company MAE. No Order, consent, approval or authorization of, or
registration, declaration or filing with, any federal, state, local or
foreign government or any court, administrative or regulatory agency or
commission or other governmental authority, agency or instrumentality (a
"Governmental Entity") is required by or with respect to the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby except for (1) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (2) the
filing with the Securities and Exchange
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Commission (the "SEC") of (A) a proxy statement relating to the Company
Shareholder Meeting (such proxy statement, together with the proxy
statement relating to the Patriot/OPCO Shareholder Meetings, in each case
as amended or supplemented from time to time, the "Joint Proxy Statement")
and (B) such reports under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as may be required in connection with this Agreement
and the transactions contemplated hereby; (3) the filing of Articles of
Merger with the Pennsylvania Department of State and appropriate documents
with the relevant authorities of other states in which the Company is
qualified to do business and such filings with Governmental Entities to
satisfy the applicable requirements of state securities or "blue sky" laws;
(4) the filing of a Certificate of Merger with the Secretary of State of
Delaware; and (5) such consents, approvals, Orders, authorizations,
registrations, declarations or filings, the failure of which to be made or
obtained, individually or in the aggregate, could not reasonably be
expected to have a Company MAE.
(e) SEC Documents; Undisclosed Liabilities. The Company has timely filed
all required reports, schedules, forms, statements and other documents with
the SEC (the "Company SEC Documents"). As of their respective dates, the
Company SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company
SEC Documents, and none of the Company SEC Documents when filed contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any Company
SEC Document has been revised or superseded by a later Company Filed SEC
Document, as of the date hereof, none of the Company SEC Documents contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Company
SEC Documents comply as to form, as of their respective dates of filing
with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to year-
end adjustments). Except (i) as reflected in such financial statements or
in the notes thereto, (ii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby, and (iii) for
liabilities and obligations incurred since September 30, 1997 in the
ordinary course of business consistent with past practice, neither the
Company nor any of its Subsidiaries has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise), including
liabilities arising under any Laws relating to the protection of health,
safety or the environment ("Environmental Laws"), which are required by
generally accepted accounting principles to be reflected in a consolidated
balance sheet of the Company and its consolidated Subsidiaries and which,
individually or in the aggregate, could reasonably be expected to have a
Company MAE.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with
the SEC by Patriot in connection with the issuance of Patriot Common Stock
in the Merger (the "Form S-4"), at the time the Form S-4 is filed with the
SEC or at the time it becomes effective under the Securities Act, or (ii)
the Joint Proxy Statement, at the date it is first mailed to the Company's
shareholders or at the time of the Company Shareholder Meeting, will
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Joint Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation or warranty
is made by the Company with respect to statements made or incorporated by
reference therein based on information supplied by Patriot specifically
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for inclusion or incorporation by reference in the Joint Proxy Statement or
contained in any Patriot Filed SEC Documents incorporated by reference in
the Form S-4 or the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as disclosed in the
Company SEC Documents filed and publicly available prior to the date of
this Agreement (as amended to the date of this Agreement, the "Company
Filed SEC Documents"), (ii) for the transactions provided for herein or
permitted by Section 4.01(a), and (iii) for liabilities incurred in
connection with or as a result of this Agreement, since September 30, 1997,
the Company has conducted its business only in the ordinary course, and
there has not been (1) any Company MAE, (2) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company stock, (3) any split,
combination or reclassification of any of the Company's capital stock or
any issuance or the authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of the Company's
capital stock, (4) any granting by the Company or any of its Subsidiaries
to any director, executive officer or other key employee of the Company of
any increase in compensation, (5) any granting by the Company or any of its
Subsidiaries to any such director, executive officer or key employee of any
increase in severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of the date of
the most recent financial statements included in the Company Filed SEC
Documents, (6) any entry by the Company or any of its Subsidiaries into any
employment, severance or termination agreement with any such director,
executive officer or key employee, or (7) except insofar as may be required
by a change in generally accepted accounting principles, any change in
accounting methods, principles or practices by the Company. For purposes of
this Agreement, "key employee" means any employee (other than an employee
whose responsibilities relate principally to a single hotel) whose current
salary and targeted bonus exceeds $200,000 per annum. Section 3.01(g) of
the Company Disclosure Schedule contains a true and complete list of all
agreements or plans providing for termination or severance pay to any key
employee.
(h) Litigation. There are no suits, actions or proceedings pending or, to
the Knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries or, to the Knowledge of the Company, any of its
directors, officers or other employees in their capacities as such, that
individually or in the aggregate could reasonably be expected to have a
Company MAE, nor are there any Orders of any Governmental Entity or
arbitrator outstanding against the Company or any of its Subsidiaries or,
to the Knowledge of the Company, any of its directors, officers or other
employees in their capacities as such, having, or which, individually or in
the aggregate, could reasonably be expected to have a Company MAE.
(i) Voting Requirements. The affirmative vote of a majority of the votes
cast by all shareholders entitled to vote thereon at the Company
Shareholder Meeting, which shall be a duly convened meeting at which a
quorum was present and acting throughout (the "Company Shareholder
Approval"), to adopt this Agreement is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve and
adopt this Agreement and the transactions contemplated hereby.
(j) State Takeover Statutes. The Company Board has approved this
Agreement, the Merger, the other transactions contemplated hereby and the
Shareholders Agreement. Such approval constitutes approval of the Merger
and the other transactions contemplated hereby by the Company Board under,
and the Company Board has taken all other action necessary or advisable, so
as to render inoperative with respect to the Merger, the other transactions
contemplated hereby and the Shareholders Agreement, the provisions of
Section 2538 and Subchapters 25F, G, H, I and J of the PBCL. No other
Pennsylvania takeover statutes are applicable to the Merger, this Agreement
or the transactions contemplated hereby.
(k) Brokers. No broker, investment banker, financial advisor or other
Person, other than Merrill Lynch & Co. ("Merrill Lynch") and Blackstone
Real Estate Advisors, L.P., the fees and expenses of which will be paid by
the Company, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of the Company. The Company has furnished to Patriot true and complete
copies of all agreements under which any such fees or expenses are payable
and all indemnification and other agreements related to the engagement of
the Persons to whom such fees are payable.
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(l) Opinion of Financial Advisor. The Company has received the opinion of
Merrill Lynch to the effect that, as of the date thereof, the Merger
Consideration is fair to the Company's shareholders from a financial point
of view.
(m) Ownership of Paired Shares. Neither the Company nor, to its
Knowledge, any of its subsidiaries, directors or executive officers
beneficially owns (as such term is defined in Rule 13d-3 under the Exchange
Act) any Paired Shares.
(n) Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any Order or any Law applicable to the
Company or any of its Subsidiaries or any of their respective properties or
assets, except for such of the foregoing as, individually or in the
aggregate, could not be reasonably expected to have a Company MAE. The
Company and its Subsidiaries have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now
conducted, where the failure to obtain any such license, permit or
authorization or to take any such action, individually or in the aggregate,
could reasonably be expected to have a Company MAE.
(o) Tax Matters. Except as, individually or in the aggregate, could not
be reasonably expected to have a Company MAE (other than with respect to
subsection (vi) below):
(i) The Company and each of its Subsidiaries has paid or caused to be
paid all federal, state, local, foreign and other taxes, including
without limitation, income taxes, estimated taxes, alternative minimum
taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross
receipts taxes, franchise taxes, capital stock taxes, employment and
payroll-related taxes, withholding taxes, stamp taxes, transfer taxes,
windfall profit taxes, environmental taxes and real and personal
property taxes, whether or not measured in whole or in part by net
income, and all deficiencies, or other additions to tax, interest,
fines and penalties (collectively, "Taxes"), required to be so paid
prior to the date hereof and has made provision, in accordance with
generally accepted accounting principles, for all Taxes owed or accrued
through the date hereof;
(ii) The Company and each of its Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by
any of them through the date hereof, and all such returns completely
and accurately set forth the amount of any Taxes relating to the
applicable period;
(iii) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting by written notice to the
Company or any of its Subsidiaries or, to the Knowledge of the Company,
threatening to assert against the Company or any of its Subsidiaries
any deficiency or claim for additional Taxes. No written claim has been
made since July 1, 1996 by a taxing authority in a jurisdiction where
the Company does not file reports and returns that the Company is or
may be subject to taxation by that jurisdiction. There are no security
interests on any of the assets of the Company or any of its
Subsidiaries that arose in connection with any failure (or alleged
failure) to pay any Taxes. The Company has not since July 1, 1996
entered into a closing agreement pursuant to Section 7121 of the Code;
(iv) The Company has not received written notice of any audit of any
tax return filed by the Company, and the Company has not been notified
in writing by any tax authority that any such audit is contemplated or
pending. Neither the Company nor any of its Subsidiaries has executed
or filed with the IRS or any other taxing authority any agreement now
in effect extending the period for assessment or collection of any
income or other Taxes, and no extension of time with respect to any
date on which a tax return was or is to be filed by the Company is in
force. True, correct and complete copies of all federal, state and
local income or franchise tax returns filed by the Company and each of
the Company's Subsidiaries since January 1, 1994 and all communications
relating thereto since that date have been delivered to Patriot or made
available to representatives of Patriot;
(v) The Company and each of its Subsidiaries has withheld and paid
all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other party; and
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(vi) The Company estimates that as of December 31, 1996, the
accumulated and current earnings and profits ("E&P") of the Company (as
determined for federal income tax purposes) was not in excess of $12.0
million.
(p) Employee Benefit Plans. With respect to all the employee benefit
plans, programs and arrangements maintained for the benefit of any current
or former employee, officer or director of the Company or any of its
Subsidiaries (the "Company Benefit Plans"), except for such matters as,
individually or in the aggregate, could not be reasonably expected to have
a Company MAE, (a) each Company Benefit Plan and any related trust intended
to be qualified under Sections 401(a) and 501(a) of the Code has received a
favorable determination letter from the IRS that it is so qualified and
nothing has occurred since the date of such letter that could reasonably be
expected to materially adversely affect the qualified status of such
Company Benefit Plan or related trust, (b) each Company Benefit Plan has
been operated in all material respects in accordance with the terms and
requirements of applicable law and all required returns and filings for
each Company Benefit Plan have been timely made, (c) neither the Company
nor any of its Subsidiaries has incurred any direct or indirect material
liability under, arising out of or by operation of Title I or Title IV of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
in connection with any Company Benefit Plan or other retirement plan or
arrangement, and no fact or event exists that could reasonably be expected
to give rise to any such material liability, (d) all material contributions
due and payable on or before the date hereof in respect of each Company
Benefit Plan have been made in full and in proper form, (e) neither the
Company nor any of its Subsidiaries have ever sponsored or been obligated
to contribute to any "multiemployer plan" (as defined in Section 3(37) of
ERISA), "multiple employer plan" (as defined in Section 413 of the Code) or
"defined benefit plan" (as defined in Section 3(35) of ERISA), (f) except
as otherwise required under ERISA, the Code and applicable state laws, no
Company Benefit Plan currently or previously maintained by the Company or
any of its Subsidiaries provides any post-retirement health or life
insurance benefits, and neither the Company nor any of its Subsidiaries
maintains any obligations to provide post-retirement health or life
insurance benefits in the future, (g) all material reporting and disclosure
obligations imposed under ERISA and the Code have been satisfied with
respect to each Company Benefit Plan, and (h) no benefit or amount payable
or which may become payable by the Company or any of its Subsidiaries
pursuant to any Company Benefit Plan, agreement or contract with any
employee, shall constitute an "excess parachute payment," within the
meaning of Section 280G of the Code, which is or may be subject to the
imposition of any excise tax under Section 4999 of the Code or which would
not be deductible by reason of Section 280G of the Code.
(q) Properties. All of the real estate properties owned or leased by the
Company and each of its Subsidiaries as of the date hereof are listed in
Section 3.01(q) of the Company Disclosure Schedule. The Company has no
direct or indirect ownership interest in any real property as of the date
hereof other than the properties owned by the Company and its Subsidiaries
and set forth in Sections 3.01(s) and 3.01(q) of the Company Disclosure
Schedule. The Company and each of its Subsidiaries own fee simple or
leasehold title (each as indicated in Section 3.01(q) of the Company
Disclosure Schedule) to each of the real properties identified in Section
3.01(q) of the Company Disclosure Schedule (the "Company Properties"), free
and clear of liens, mortgages or deeds of trust, claims against title,
charges which are liens, security interests or other encumbrances on title
(collectively, "Encumbrances"), except for such Encumbrances as,
individually and in the aggregate, could not be reasonably expected to have
a Company MAE. Except for such of the following as, individually and in the
aggregate, could not be reasonably expected to have a Company MAE, the
Company Properties are not subject to any easements, rights of way,
covenants, conditions, restrictions or other written agreements, laws,
ordinances and regulations affecting building use or occupancy, or
reservations of an interest in title (collectively, "Property
Restrictions"), except for (i) Encumbrances and Property Restrictions, (ii)
Property Restrictions imposed or promulgated by Law or any governmental
body or authority with respect to real property, including zoning
regulations, that do not adversely affect the current use of the property,
materially detract from the value of or materially interfere with the
present use of the property, (iii) Encumbrances and Property Restrictions
disclosed on existing title policies, commitments (and the documents listed
as exceptions therein), reports, certificates of title, title opinions or
current surveys (in each case copies of which title policies, commitments
(and the documents listed as
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exceptions therein), reports and surveys have been delivered or made
available to Patriot and are listed in Section 3.01(q) of the Company
Disclosure Schedule), and (iv) mechanics', carriers', supplier's workmen's
or repairmen's liens and other Encumbrances, Property Restrictions and
other limitations of any kind, if any, which, individually or in the
aggregate, are not material in amount, do not materially detract from the
value of or materially interfere with the present use of any of the Company
Properties subject thereto or affected thereby, and do not otherwise
materially impair business operations conducted by the Company and its
Subsidiaries and which have arisen or been incurred only in the ordinary
course of business. Except for such of the following as, individually and
in the aggregate, could not be reasonably expected to have a Company MAE,
valid policies of title insurance have been issued insuring the Company's
or its applicable Subsidiary's fee simple (or leasehold to the extent
disclosed in Section 3.01(q) of the Company Disclosure Schedule) title to
each of the Company Properties in amounts at least equal to the purchase
price thereof or, if acquired through merger, the stipulated value thereof,
and such policies are, at the date hereof, in full force and effect and no
claim has been made against any such policy and the Company has no
knowledge of any facts or circumstances which would constitute the basis
for such a claim. Except for such of the following as, individually and in
the aggregate, could not be reasonably expected to have a Company MAE, to
the Knowledge of the Company, (A) no certificate, permit or license from
any governmental authority having jurisdiction over any of the Company
Properties or any agreement, easement or other right which is necessary to
permit the lawful use and operation of the buildings and improvements on
any of the Company Properties as currently operated or which is necessary
to permit the lawful use and operation of all driveways, roads and other
means of egress and ingress to and from any of the Company Properties (a
"REA Agreement") has not been obtained and is not in full force and effect,
and there is no pending threat of modification or cancellation of any of
same nor is the Company or any of its Subsidiaries currently in default
under any REA Agreement and the Company Properties are in full compliance
with all governmental permits, licenses and certificates, except for such
defaults which or where such noncompliance could not reasonably be expected
to have a Company MAE; (B) no written notice of any violation of any
federal, state or municipal law, ordinance, order, regulation or
requirement affecting any portion of any of the Company Properties has been
issued by any governmental authority; (C) there are no material structural
defects relating to any of the Company Properties; (D) there is no Company
Property whose building systems are not in working order in any material
respect; (E) there is no physical damage to any Company Property in excess
of $500,000 for which there is no insurance in effect (other than
reasonable and customary deductibles) covering the full cost of the
restoration; and (F) there is no current renovation or restoration or
tenant improvements to any Company Property or any portion thereof in
process or committed to be performed, the cost of which exceeds $500,000.
Except for such of the following as, individually and in the aggregate,
could not be reasonably expected to have a Company MAE, the use and
occupancy of each of the Company Properties complies in all material
respects with all applicable codes and zoning laws and regulations, and the
Company has no knowledge of any pending or threatened proceeding or action
that will in any manner affect the size of, use of, improvements on,
construction on, or access to any of the Company Properties, with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such Company Properties. Except for such of the
following as, individually and in the aggregate, could not be reasonably
expected to have a Company MAE, neither the Company nor any of its
Subsidiaries has received any written notice to the effect that (x) any
betterment assessments have been levied against, or any condemnation or
rezoning proceedings are pending or threatened with respect to any of the
Company Properties or (y) any zoning, building or similar law, code,
ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any
of the Company Properties or by the continued maintenance, operation or use
of the parking areas. Except for such of the following as, individually and
in the aggregate, could not be reasonably expected to have a Company MAE,
following a casualty, each of the Company Properties could be reconstructed
and used for hotel purposes under applicable zoning laws and regulations,
except that in certain circumstances such reconstruction would have to
comply with the dimensional requirements of applicable zoning laws and
regulations in effect at the time of reconstruction. Except as otherwise
could not be reasonably expected to have a Company MAE, there are no
outstanding abatement proceedings or appeals with respect to the assessment
of any Company Property for the purpose of real property taxes, and there
are no agreements
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with any governmental authority with respect to such assessments or tax
rates on any Company Property. None of the Company Properties is subject to
any contractual restriction on the sale or other disposition thereof or on
the financing or release of financing thereon.
(r) Other Interests. Except for such Other Interests of the Company or
any of its Subsidiaries that, individually or in the aggregate, could not
be reasonably expected to have a Company MAE, neither the Company nor any
of its Subsidiaries owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or other entity (other than investments in short-term
investment securities) (collectively "Other Interests").
(s) Related Party Transactions. The Company Filed SEC Documents and/or
the Company Disclosure Schedule disclose all arrangements, agreements and
contracts entered into by the Company or any of its Subsidiaries (which are
or will be in effect as of or after the date of this Agreement) involving
payments in excess of $60,000 with any person who is an officer or director
of the Company, any member of the immediate family, spouse, grandchild or,
to the Knowledge of the Company, any other relative of any of the foregoing
or any entity of which any of the foregoing is an Affiliate. Copies of all
such documents have previously been provided or made available to Patriot
and its counsel.
3.02. Representations and Warranties of Patriot and OPCO. Except as
disclosed in the Patriot Filed SEC Documents, or as set forth on the
Disclosure Schedule delivered by the Patriot Companies to the Company prior to
the execution of this Agreement (the "Patriot Disclosure Schedule"), the
Patriot Companies jointly and severally represent and warrant to the Company
as follows:
(a) Organization, Standing and Corporate Power. Each of the Patriot
Companies and each of their respective Significant Subsidiaries is a
corporation or other legal entity duly organized, validly existing and in
good standing (with respect to jurisdictions which recognize such concept)
under the Laws of the jurisdiction in which it is organized and has the
requisite corporate or other power, as the case may be, and authority to
carry on its business as now being conducted. The Patriot Companies and
each of their respective Significant Subsidiaries are duly qualified or
licensed to do business and in good standing (with respect to jurisdictions
which recognize such concept) in each jurisdiction in which the nature of
their respective businesses or the ownership or leasing of their respective
properties makes such qualification or licensing necessary, other than in
such jurisdictions in which the failure to be so qualified or licensed or
to be in good standing individually or in the aggregate could not be
reasonably expected to have a material adverse effect on the business,
financial condition or results of operations of the Patriot Companies and
their respective Subsidiaries, taken as a whole, or on the ability of the
Patriot Companies to perform any of their obligations under this Agreement
(any such effect, a "Patriot MAE"). The Patriot Companies have delivered to
the Company prior to the execution of this Agreement complete and correct
copies of their respective articles of incorporation and bylaws, in each
case as amended to date and have made available to the Company the articles
of incorporation and bylaws (or comparable organizational documents) of
each of their respective Subsidiaries, in each case as amended to date.
(b) Subsidiaries. Exhibit 21.1 to Patriot's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 and Section 3.02 of the Patriot
Disclosure Schedule list all of the Significant Subsidiaries of the Patriot
Companies as of the date hereof.
(c) Capital Structure. The authorized capital stock of Patriot consists
of 1.5 billion shares of capital stock including (i) 650 million shares of
Patriot Common Stock, (ii) 100 million shares of preferred stock, par value
$.01 per share ("Patriot Preferred Stock"), and (iii) 750 million shares of
excess stock, par value $.01 per share ("Patriot Excess Stock"). The
authorized capital stock of OPCO consists of 1.5 billion shares of capital
stock including (x) 650 million shares of OPCO Common Stock, (y) 100
million shares of preferred stock, par value $.01 per share ("OPCO
Preferred Stock"), and (z) 750 million shares of excess stock, par value
$.01 per share ("OPCO Excess Stock"). At the close of business on the
Representation Date, (i) 70,120,137 shares of Patriot Common Stock and
70,120,137 shares of OPCO Common Stock were issued and outstanding, (ii) no
shares of Patriot Preferred Stock and no shares of OPCO Preferred Stock
were issued and outstanding, (iii) no shares of Patriot Excess Stock and no
shares of OPCO Excess Stock
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were issued and outstanding, (iv) no shares of Patriot Common Stock and no
shares of OPCO Common Stock were held by Patriot or OPCO in their
respective treasuries, (v) 7,975,970 shares of Patriot Common Stock and
7,975,970 shares of OPCO Common Stock (plus 10% of the net increase in the
total number of outstanding shares of Patriot Common Stock and OPCO Common
Stock since October 1, 1997) were reserved for issuance pursuant to equity
plans filed in the Patriot Filed SEC Documents (collectively, the "Patriot
Stock Plans"), and (vi) 780,000 shares of Patriot Common Stock and 780,000
shares of OPCO Common Stock were reserved for issuance upon the exercise of
options granted outside the Patriot Stock Plans, and (vii) 12,795,851
shares of Patriot Common Stock and 12,795,851 shares of OPCO Common Stock
were reserved for issuance upon Patriot's election to acquire in exchange
for Paired Shares units of limited partnership interest in Patriot American
Hospitality Partnership, L.P. and Patriot American Hospitality Operating
Partnership, L.P. tendered by redeeming unit holders. Except as set forth
above, at the close of business on the Representation Date, no shares of
capital stock or other voting securities of the Patriot Companies were
issued, reserved for issuance or outstanding. At the close of business on
the Representation Date, there were no outstanding stock options, stock
appreciation rights or rights (other than employee stock options or other
rights ("Patriot Employee Stock Options") to purchase or receive Patriot
Common Stock granted under the Patriot Stock Plans) to receive shares of
Patriot Common Stock on a deferred basis granted under the Patriot Stock
Plans or otherwise. Section 3.02(c) of the Patriot Disclosure Schedule sets
forth a complete and correct list, as of the Representation Date, of the
number of Paired Shares subject to Patriot Employee Stock Options. All
outstanding shares of capital stock of the Patriot Companies are, and all
shares which may be issued, including shares to be issued pursuant to this
Agreement, will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. As of the
close of business on the Representation Date, there were no bonds,
debentures, notes or other indebtedness or securities of the Patriot
Companies having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
shareholders of Patriot and OPCO may vote. Except as set forth above, as of
the close of business on the Representation Date, there were no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Patriot Companies or
any of their respective Subsidiaries is a party or by which any of them is
bound obligating the Patriot Companies or any of their respective
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of the
Patriot Companies or of any of their respective Subsidiaries or obligating
the Patriot Companies or any of their respective Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. Except for
agreements entered into with respect to the Patriot Stock Plans, as of the
close of business on the Representation Date, and except as would not be
required to be disclosed pursuant to the Patriot Filed SEC Documents, there
were no outstanding contractual obligations of the Patriot Companies or any
of their respective Subsidiaries to issue, repurchase, redeem or otherwise
acquire any shares of capital stock of the Patriot Companies or any of
their respective Subsidiaries. As of the close of business on the
Representation Date, there were no outstanding contractual obligations of
the Patriot Companies to vote or to dispose of any shares of the capital
stock of any of their respective Subsidiaries.
(d) Authority; Noncontravention. Patriot and OPCO have all requisite
corporate power and authority to enter into this Agreement and, subject to
the Patriot/OPCO Shareholder Approvals, to consummate the transactions
contemplated by this Agreement. On or prior to the date hereof, the Board
of Directors of each of Patriot and OPCO approved this Agreement and the
other transactions contemplated by this Agreement and resolved to recommend
that the holders of Patriot/OPCO Common Stock adopt this Agreement, and the
Board of Directors of Patriot has approved the Merger. The execution and
delivery of this Agreement by Patriot and OPCO and the consummation by
Patriot and OPCO of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action on the part of
Patriot and OPCO, subject, in the case of the adoption of this Agreement,
to Patriot/OPCO Shareholder Approvals as defined below. This Agreement has
been duly executed and delivered by Patriot and OPCO and constitutes valid
and binding obligations of Patriot and OPCO, enforceable against each of
them in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions
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contemplated hereby and compliance with the provisions hereof will not,
conflict with, breach, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Patriot Companies or any of their
respective Significant Subsidiaries under, (i) assuming Patriot/OPCO
Shareholder Approvals, the articles of incorporation or bylaws of the
Patriot Companies or the comparable organizational documents of any of
their respective Subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Patriot Companies or any
of their respective Significant Subsidiaries or their respective properties
or assets, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any Order or Law applicable to the
Patriot Companies or any of their respective Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, breaches, violations, defaults, rights,
losses or Liens that individually or in the aggregate could not be
reasonably expected to have a Patriot MAE. No Order, consent, approval or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to the Patriot Companies
or any of their respective Subsidiaries in connection with the execution
and delivery of this Agreement by Patriot and OPCO or the consummation by
Patriot and OPCO of the transactions contemplated hereby, except for (1)
the filing of a premerger notification and report form by the Patriot
Companies under the HSR Act; (2) the filing with the SEC of (A) the Joint
Proxy Statement relating to the Patriot/OPCO Shareholder Meetings, (B) the
Form S-4, and (C) such reports under the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby;
(3) the filing of Articles of Merger with the Pennsylvania Department of
State and appropriate documents with the relevant authorities of other
states in which the Patriot Companies are qualified to do business and such
filings with Governmental Entities to satisfy the applicable requirements
of state securities or "blue sky" laws; (4) the filing of a Certificate of
Merger with the Secretary of State of Delaware; (5) such filings with and
approvals of the NYSE to permit the Paired Shares that are to be issued in
the Merger to be listed or quoted for trading thereon; (6) such other
filings and consents as may be required under any Environmental Law
pertaining to any notification, disclosure or required approval
necessitated by the Merger or the transactions contemplated by this
Agreement; and (7) such consents, approvals, Orders or authorizations the
failure of which to be made or obtained, individually or in the aggregate,
could not reasonably be expected to have a Patriot MAE.
(e) SEC Documents; Undisclosed Liabilities. Patriot and OPCO have filed
all required reports, schedules, forms, statements and other documents with
the SEC since January 1, 1996 (the "Patriot SEC Documents"). As of their
respective dates, the Patriot SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Patriot SEC Documents, and none of the
Patriot SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except to the
extent that information contained in any Patriot SEC Document has been
revised or superseded by a later Patriot Filed SEC Document, as of the date
hereof none of the Patriot SEC Documents contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of Patriot and OPCO included in the Patriot SEC Documents comply
as to form, as of their respective dates of filing with the SEC, in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
the consolidated financial position of Patriot and OPCO and their
respective consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as reflected in such
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financial statements or in the notes thereto, (ii) as contemplated
hereunder, (iii) for liabilities incurred in connection with this Agreement
or the transactions contemplated hereby (including without limitation
financing relating to the transactions contemplated hereby), and (iv) for
liabilities and obligations incurred since September 30, 1997 in the
ordinary course of business consistent with past practice, neither Patriot,
OPCO nor any of their respective Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise), including liabilities arising under any Environmental Laws,
required by generally accepted accounting principles to be reflected in a
consolidated balance sheet of Patriot and OPCO and their respective
consolidated Subsidiaries and which, individually or in the aggregate,
could reasonably be expected to have a Patriot MAE.
(f) Information Supplied. None of the information supplied or to be
supplied by the Patriot Companies specifically for inclusion or
incorporation by reference in (i) the Form S-4, at the time the Form S-4 is
filed with the SEC or at the time it becomes effective under the Securities
Act or (ii) the Joint Proxy Statement, at the date it is first mailed to
the shareholders of Patriot and OPCO or at the time of the Patriot/OPCO
Shareholder Meetings will contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement and the Form S-4 will comply as to form in all material respects
with the requirements of the Exchange Act and the Securities Act,
respectively, and the rules and regulations thereunder, except that no
representation or warranty is made by Patriot or OPCO with respect to
statements made or incorporated by reference therein based on information
supplied by the Company specifically for inclusion or incorporation by
reference in the Joint Proxy Statement or the Form S-4 or contained in any
Company Filed SEC Documents incorporated by reference in the Joint Proxy
Statement or the Form S-4.
(g) Absence of Certain Events. Except (i) as disclosed in the Patriot SEC
Documents filed and publicly available prior to the date of this Agreement
(as amended to the date of this Agreement, the "Patriot Filed SEC
Documents"), (ii) for the transactions provided for herein or permitted by
Section 4.01(b), and (iii) for liabilities incurred in connection with or
as a result of this Agreement, since September 30, 1997, the Patriot
Companies have conducted their respective business only in the ordinary
course, and there has not been (1) any Patriot MAE, (2) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of Patriot's or OPCO's capital
stock, other than regular quarterly cash dividends at the rate in effect
for the three quarters of 1997, as increased by the Board of Directors of
Patriot and OPCO in the ordinary course ("Regular Patriot Quarterly
Dividends"), (3) any split, combination or reclassification of any of
Patriot's or OPCO's capital stock or any issuance or the authorization of
any issuance of any other securities in respect of, in lieu of or in
substitution for shares of Patriot's or OPCO's capital stock, or (4) except
insofar as may be required by a change in generally accepted accounting
principles, any change in accounting methods, principles or practices by
the Patriot Companies.
(h) Litigation. There are no suits, actions or proceedings pending or, to
the Knowledge of Patriot or OPCO, threatened against or affecting the
Patriot Companies or any of their respective Subsidiaries or, to the
Knowledge of Patriot or OPCO, any of their respective directors, officers
or other employees in their capacities as such, that individually or in the
aggregate could reasonably be expected to have a Patriot MAE, nor are there
any Orders of any Governmental Entity or arbitrator outstanding against
Patriot or OPCO or any of their respective Subsidiaries or, to the
Knowledge of Patriot or OPCO, any of their respective directors, officers
or other employees in their capacities as such, having, or which,
individually or in the aggregate, could reasonably be expected to have a
Patriot MAE.
(i) Voting Requirements. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of (x) Patriot
Common Stock, voting as a single class, at the Patriot Shareholder Meeting,
which shall be a duly convened meeting at which a quorum was present and
acting throughout (the "Patriot Shareholder Approval"), to adopt this
Agreement and approve the issuance of Patriot Common Stock in connection
with the Merger and (y) OPCO Common Stock, voting as a single class, at the
OPCO Shareholder Meeting, which shall be a duly convened meeting at which a
quorum was present and acting
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throughout (the "OPCO Shareholder Approval" and together with the Patriot
Shareholder Approval, the "Patriot/OPCO Shareholder Approvals"), to approve
the issuance of OPCO Common Stock in connection with the Merger are the
only votes of the holders of any class or series of Patriot's or OPCO's
capital stock necessary to approve and adopt this Agreement, the
Subscription Agreement and the transactions contemplated hereby and
thereby.
(j) Brokers. No broker, investment banker, financial advisor or other
Person, other than Paine Webber Incorporated ("Paine Webber"), the fees and
expenses of which will be paid by the Patriot Companies or, if the Merger
occurs, the Surviving Corporation, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Patriot Companies. Patriot has furnished to the
Company true and complete copies of all agreements under which any such
fees or expenses are payable and all indemnification and other agreements
related to the engagement of the Persons to whom such fees are payable.
(k) Opinion of Financial Advisor. The Patriot Companies have received the
opinion of Paine Webber to the effect that, as of the date hereof, the
Merger Consideration is fair to the shareholders of the Patriot Companies
from a financial point of view.
(l) Ownership of Company Common Stock. Patriot, OPCO and, to their
Knowledge, their respective Affiliates (excluding for purposes hereof any
director of Patriot or OPCO other than Unaffiliated Directors) beneficially
own (as such term is defined in Rule 13d-3 under the Exchange Act)
collectively less than 25,000 shares of the capital stock of the Company.
Except for the shareholder agreements, dated as of the date hereof, among
Patriot, OPCO and certain shareholders of the Company entered into in
contemplation of the execution and delivery of this Agreement, neither
Patriot nor OPCO nor, to their knowledge, any of their respective
Affiliates (excluding for purposes hereof any director of Patriot or OPCO
other than Unaffiliated Directors) is a party to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing
of shares of capital stock of the Company.
(m) Tax Matters. The Patriot Companies have no plan or intention to take
any action that could reasonably be expected to cause the Merger not to
qualify and continue to qualify as a reorganization under Section 368(a) of
the Code.
(n) Pairing Agreement. The agreement pursuant to which the shares of
Patriot Common Stock and OPCO Common Stock are paired (the "Pairing
Agreement") is duly and validly authorized and is a valid and binding
agreement, enforceable against the Patriot Companies in accordance with its
terms. The Patriot Common Stock is paired with the OPCO Common Stock
pursuant to the Pairing Agreement; such pairing does not cause the
activities of OPCO to be attributed to Patriot pursuant to Section
269B(a)(3) of the Code.
(o) Wyndham Approval. The execution and delivery of this Agreement by the
Patriot Companies and the performance of their obligations hereunder have
been approved by the Interim Transactions Committee (as defined in the
Agreement and Plan of Merger, dated April 14, 1997 (the "Wyndham
Agreement"), between Patriot and Wyndham Hotel Corporation ("Wyndham")) in
accordance with Section 8.2(f) of the Wyndham Agreement.
(p) Post-Merger Transfer of Assets. The Patriot Companies have no plan or
intention following the Merger of selling or otherwise disposing of any of
the assets held by the Company at the Effective Time, except for (i)
dispositions of such assets in the ordinary course of business, (ii)
transfers that are consistent with Section 368(a)(2)(C) of the Code, (iii)
liquidations or similar dispositions of interests in subsidiary entities of
the Company, (iv) transfers to "qualified REIT subsidiaries" within the
meaning of Section 856 of the Code, or (v) transfers other than those
described above that do not in the aggregate result in the transfer of
assets which had a value at the Effective Time in excess of 25% of the
value of all assets held by the Company at the Effective Time.
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IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01. Conduct of Business. (a) Conduct of Business by the Company. Except as
set forth in Section 4.01(a) of the Company Disclosure Schedule, during the
period from the date of this Agreement to the Effective Time, the Company
will, and will cause its Significant Subsidiaries to, carry on their
respective businesses in all material respects in the ordinary course thereof
in substantially the same manner as heretofore conducted and in compliance in
all material respects with all applicable Laws and, to the extent consistent
therewith, use all reasonable efforts to preserve intact their current
business organizations, use all reasonable efforts to keep available the
services of their current officers and other key employees and preserve their
relationships with those Persons having business dealings with them to the end
that their goodwill and ongoing businesses will be unimpaired at the Effective
Time. Except as set forth in Section 4.01(a) of the Company Disclosure
Schedule, without limiting the generality or effect of the foregoing, during
the period from the date of this Agreement to the Effective Time, the Company
will not, and will not permit any of its Subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of the
Company to its parent, or by a Subsidiary that is partially owned by the
Company or any of its Subsidiaries, provided that the Company or any such
Subsidiary receives or is to receive its proportionate share thereof, (A)
declare, set aside or pay any dividends on, or make any other distributions
in respect of, any of its capital stock, (B) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (C) other than pursuant to Awards outstanding as of the
date hereof, purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(ii) other than pursuant to Awards outstanding as of the date hereof,
issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities;
(iii) amend its articles of incorporation, bylaws or other comparable
organizational documents;
(iv) except for (a) such transactions as are permitted by Section 5.14,
(b) pending transactions disclosed in the Company Filed SEC Documents, and
(c) the purchase of equipment, supplies and similar items in the ordinary
course of business, acquire any assets of, or acquire by merging or
consolidating with, or by any other manner, any business or any
corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof
("Transactions") involving a purchase price (determined in accordance with
generally accepted accounting principles and inclusive of any indebtedness
to be assumed in connection therewith) that, when taken together with all
previous Transactions entered into by the Company and not described in
clauses (a), (b) or (c) of this clause (iv), (A) after the date of this
Agreement and on or before February 28, 1998, would exceed $50,000,000 or
(B) after February 28, 1998 and before the Effective Time would exceed
$50,000,000;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, other
than (i) in the ordinary course of business consistent with past practice,
(ii) (A) in the case of any real property, in a transaction that is the
subject of a binding contract in existence on the date of this Agreement
and disclosed in Section 4.01(a)(v) of the Company Disclosure Schedule or
(B) in the case of personal property or intangible property, in a
transaction that is not material individually or in the aggregate, or (iii)
any Lien incurred pursuant to the Existing Credit Agreement;
(vi) (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its Subsidiaries, guarantee any debt securities of another Person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except (1) for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, (2) as permitted under the Company's existing credit facility
with Credit Lyonnais, as Administrative Agent (the "Existing Credit
Agreement"), after giving effect to subordinated indebtedness contemplated
by clause (3) hereof but not in
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excess of $100,000,000, to the extent used for purposes which are not
otherwise prohibited under this Agreement, or (3) up to $100,000,000 of
subordinated indebtedness contemplated by Credit Lyonnais' letter, dated
November 19, 1997 (the "Credit Lyonnais Letter"), to the Company (a copy of
which has been provided to Patriot) to the extent used for purposes which
are not otherwise prohibited under this Agreement; or (B) make any loans,
advances or capital contributions to, or investments in, any other Person,
other than to the Company or any Subsidiary of the Company or to officers
and employees of the Company or any of its Subsidiaries for travel,
business, relocation or similar costs and expenses in the ordinary course
of business;
(vii) make or agree to make any capital expenditure or capital
expenditures, other than (A) in accordance with the capital budgets
previously furnished to the Patriot Companies, provided that the amount of
such capital expenditures may exceed budgeted amounts by not more than, as
to any specifically budgeted matter, 10% or, as to all such capital
expenditures, 5% or (B) as permitted by Section 4.01(a)(iv);
(viii) make any change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles;
(ix) except as required by Law or contemplated hereby, enter into, adopt
or amend in any material respect or terminate any Company employee benefit
plan or any other agreement, plan or policy involving the Company or any of
its Subsidiaries and one or more of their directors, officers or employees,
or materially change any actuarial or other assumptions used to calculate
funding obligations with respect to any Company pension plans, or change
the manner in which contributions to any Company pension plans are made or
the basis on which such contributions are determined;
(x) except as disclosed in Sections 4.01(a) and 5.06 of the Company
Disclosure Schedule, increase the compensation of any director, officer or
other employee of the Company or any of its Subsidiaries earning more than
$50,000 per annum or enter into or amend any employment agreement with any
such Person, or pay any benefit or amount not required by a plan or
arrangement as in effect on the date of this Agreement to any such Person;
(xi) settle any shareholder derivative or class action claims arising out
of or in connection with any of the transactions contemplated by this
Agreement;
(xii) modify or amend (1) any agreement with any franchisor with respect
to any real property assets owned or leased by the Company or any of its
Subsidiaries in any respect which is material with respect to any one or
more hotel assets, or extend the term thereof, or (2) any agreements under
which the Company or any of its Subsidiaries provides hotel management
services, without in the case of clause (2) the prior consent of Patriot,
which consent will not be unreasonably withheld or delayed;
(xiii) enter into any agreement with any franchisor with respect to any
real property assets owned or leased by the Company or any of its
Subsidiaries or any agreement under which the Company or any of its
Subsidiaries would provide hotel management services, without the prior
consent of Patriot, which consent will not be unreasonably withheld or
delayed; or
(xiv) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Conduct of Business by Patriot. Except as set forth in Section 4.01(b)
of the Patriot Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, the Patriot Companies will, and will cause
their respective Significant Subsidiaries to, carry on their respective
businesses in all material respects in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted and in compliance in
all material respects with all applicable Laws and, to the extent consistent
therewith, use all reasonable efforts to preserve intact their current
business organizations, use all reasonable efforts to keep available the
services of their current officers and other key employees and preserve their
relationships with those Persons having business dealings with them to the end
that their goodwill and ongoing businesses will be unimpaired at the Effective
Time. Except as set forth in Section 4.01(b) of the Patriot Disclosure
Schedule, without limiting the generality or effect of the foregoing, during
the period from the date of this Agreement to the Effective Time, the Patriot
Companies will not, and will not permit any of their respective Subsidiaries
to:
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(i) other than (A) dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of Patriot
or OPCO to its parent, or by a Subsidiary that is partially owned by
Patriot or OPCO or any of their respective Subsidiaries, provided that
Patriot, OPCO or any such Subsidiary receives or is to receive its
proportionate share thereof, (B) dividends required in the reasonable
judgment of Patriot in order to preserve Patriot's status as a REIT or to
avoid federal income or excise taxes on its undistributed income, (C)
Regular Patriot Quarterly Dividends, and (D) special dividends and
distributions which the Board of Directors of each of Patriot and OPCO
determines are in the best interests of the Patriot Companies, their
shareholders and, assuming the consummation of the Merger, the Company's
shareholders, (1) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (2) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (3) purchase or offer to
purchase any capital stock of either of the Patriot Companies, other than
purchases (w) made in the open market in accordance with Regulation M under
the Exchange Act, (x) in accordance with any agreement filed or matter
described in the Patriot Filed SEC Documents, (y) by either of the Patriot
Companies of its capital stock held by the other Patriot Company, and (z)
by either of the Patriot Companies of newly issued common stock of the
other Patriot Company for the purposes of pairing shares of Patriot Common
Stock and OPCO Common Stock;
(ii) incur or guarantee any Indebtedness, issue or sell any debt
securities or warrants or other rights to acquire any debt securities or
enter into any arrangement having the economic effect of any of the
foregoing (any such event, an "Incurrence"), such that the consolidated
Indebtedness of Patriot and OPCO, giving effect to such Incurrence, would
exceed an amount equal to 50% of the combined market capitalization of the
Patriot Companies. (For purposes of this Agreement, "Indebtedness" means,
with respect to any Person, all obligations of such Person (including the
current portion thereof) that would be required to be reflected as
indebtedness on a consolidated balance sheet for such Person prepared in
accordance with generally accepted accounting principles.);
(iii) directly or indirectly through a Subsidiary enter into any
agreement, or participate in active negotiations with any third party,
relating to any tender or exchange offer, merger, consolidation, sale of
all or substantially all of the capital stock or assets of Patriot or OPCO
or other form of business transaction the reasonably foreseeable effect of
which would be (A) to delay the Effective Time beyond May 31, 1998 or to
prevent the Effective Time from occurring, or (B) result in the Merger not
being treated as a tax-free reorganization for federal income tax purposes;
(iv) take any action or fail to take any action which could reasonably be
expected to terminate Patriot's status as a REIT; or
(v) authorize, or commit or agree to take, any of the foregoing actions.
(c) Other Actions. Except as required by Law, neither the Company, on the
one hand, nor Patriot or OPCO, on the other hand, will, nor will they permit
any of their respective Subsidiaries to, voluntarily take any action that
could reasonably be expected to result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect, or (iii)
any of the conditions to the Merger set forth in Article VII not being
satisfied.
(d) Advice of Changes. The Company and Patriot will promptly advise the
other party orally and in writing of (i) any representation or warranty made
by it or, in the case of Patriot, OPCO contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue
or inaccurate in any material respect, (ii) the failure by it or, in the case
of Patriot, OPCO to comply in any material respect with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, or (iii) any change or event having, or
which, insofar as can reasonably be foreseen, could reasonably be expected to
have, a material adverse effect on such party or on the truth of their
respective representations and warranties or the ability of the conditions set
forth in Article VII to be satisfied; provided, however, that no such
notification
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will affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
4.02. No Solicitation by the Company. (a) The Company represents and
warrants that, as of the date hereof, it has terminated any discussions or
negotiations relating to, or that may reasonably be expected to lead to, any
Company Takeover Proposal (as defined below). The Company will not, nor will
it permit any of its Subsidiaries to, nor will it authorize or permit any of
its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its Subsidiaries to, directly or indirectly through another Person, (i)
solicit, initiate or encourage the submission of any proposal which
constitutes a Company Takeover Proposal or (ii) participate in any substantive
discussions or negotiations regarding, or furnish to any Person any
information with respect to, or take any other action, for the purpose of
facilitating the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Company Takeover Proposal; provided, however, that,
prior to the meeting of the Company's shareholders that is to be convened
pursuant to Section 5.01(b), the Company may, in response to a Company
Takeover Proposal not solicited by any such Person in breach of this Agreement
(an "Unsolicited Company Takeover Proposal"), if the Company Board determines
(after consultation with the Company's financial advisors) that the failure to
take such action would result in a breach of the Company Board's fiduciary
duties under applicable law, (A) furnish information with respect to the
Company and each of its Subsidiaries to any Person pursuant to a customary
confidentiality agreement (as determined by the Company after consultation
with its outside counsel) and (B) participate in discussions or negotiations
regarding such Company Takeover Proposal. For purposes of this Agreement,
"Company Takeover Proposal" means any inquiry, proposal or offer from any
Person, other than a proposal or offer by Patriot or OPCO, relating to a
merger, consolidation, business combination or other similar transaction
involving the Company or any of its Significant Subsidiaries or any proposal
or offer (including without limitation any proposal or offer to shareholders
of the Company), other than a proposal or offer by Patriot or OPCO, to acquire
in any manner, directly or indirectly, more than a 10% equity interest in any
voting securities of the Company or a substantial portion of the assets of the
Company and its Subsidiaries, taken as a whole.
(b) Neither the Company Board nor any committee thereof may (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
Patriot or OPCO, the approval or recommendation by the Company Board or such
committee of the Merger or this Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Company Takeover Proposal, or
(iii) authorize or otherwise cause the Company to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any Company Takeover Proposal (each, a "Company
Acquisition Agreement"). Notwithstanding the foregoing, in response to an
Unsolicited Company Takeover Proposal, if the Company Board determines (after
consultation with the Company's financial advisors) that (i) such Unsolicited
Company Takeover Proposal is reasonably likely to be, involve or result in a
Company Takeover Proposal that is reasonably capable of being completed on the
terms proposed and would, if consummated, result in a transaction more
favorable to the Company's shareholders than the transactions contemplated by
this Agreement (a "Superior Proposal"), and (ii) the failure to take such
action would result in a breach of the Company Board's fiduciary duties under
applicable law, the Company Board may withdraw or modify its approval or
recommendation of the Merger or this Agreement, approve or recommend such
Superior Proposal, authorize or otherwise cause the Company to enter into a
Company Acquisition Agreement or terminate this Agreement pursuant to Section
7.01(f).
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.02, the Company will as promptly as practicable
(i) advise Patriot orally and in writing of any Company Takeover Proposal or
any inquiry with respect to or which could reasonably be expected to lead to
any Company Takeover Proposal, including without limitation any request for
information, and the material terms and conditions of such Company Takeover
Proposal or inquiry and the identity of the Person making such Company
Takeover Proposal or inquiry and (ii) keep Patriot fully informed of the
status of any such Company Takeover Proposal or inquiry.
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(d) Nothing contained in this Section 4.02 will prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if the Company Board determines that such disclosure is
necessary in order to comply with the Company Board's fiduciary duties under
applicable Law; provided, however, that neither the Company nor the Company
Board nor any committee thereof may, except in accordance with Section
4.02(b), withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to this Agreement or the Merger or approve or recommend,
or propose publicly to approve or recommend, a Company Takeover Proposal.
4.03. The Company's Accumulated and Current Earnings and Profits. At the
Closing, the Company shall deliver to Patriot (i) a statement of accumulated
and current earnings and profits ("E&P") of the Company (as determined for
federal income tax purposes) as of a date not more than 30 days prior to the
Closing Date, together with evidence of such accumulated and current E&P of
the Company (as determined for federal income tax purposes) from Coopers &
Lybrand LLP in a form reasonably satisfactory to Patriot and (ii) a statement
of estimated accumulated and current E&P of the Company (as determined for
federal income tax purposes) as of the Closing Date. The Company further
agrees that, prior to the Closing Date, it will cooperate in Patriot's efforts
to obtain from Coopers & Lybrand LLP such firm's computation, or confirmation
of the Company's computation, of accumulated and current E&P of the Company
(as determined for federal income tax purposes) at the Effective Time.
V. ADDITIONAL COVENANTS
5.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Shareholders Meetings. (a) As soon as practicable following the date of this
Agreement, the Company, Patriot and OPCO will prepare and file with the SEC
the Joint Proxy Statement. Patriot will prepare and file, not later than
promptly after the Joint Proxy Statement has been cleared by the SEC, with the
SEC the Form S-4, in which the Joint Proxy Statement will be included as a
prospectus. Each of the Company and Patriot will use all reasonable efforts to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The Company will use all reasonable efforts to
cause the Joint Proxy Statement to be mailed to the Company's shareholders,
and Patriot and OPCO will use all reasonable efforts to cause the Joint Proxy
Statement to be mailed to Patriot's and OPCO's shareholders, in each case as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Patriot and OPCO will also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or to file a general consent to service of process) required to be
taken under any applicable state securities Laws in connection with the
issuance of Paired Shares in the Merger and under the Company Stock Plans and
Patriot Stock Plans and the Company will furnish all information concerning
the Company and the holders of Company Common Stock as may be reasonably
requested in connection with any such action.
(b) Subject to its rights to terminate this Agreement pursuant to the
applicable provisions of Section 7.01, the Company will as soon as practicable
following the date of this Agreement, duly call, give notice of, convene and
hold a meeting of its shareholders (the "Company Shareholder Meeting") for the
purpose of obtaining the Company Shareholder Approval and, through the Company
Board, subject to the provisions of Section 4.02 recommend to Shareholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby. Without limiting the generality or effect of the
foregoing but subject to the Company's right to terminate this Agreement
pursuant to Section 4.02, the Company's obligations pursuant to the first
sentence of this Section 5.01(b) will not be affected by the commencement,
public proposal, public disclosure or communication to the Company of any
Company Takeover Proposal.
(c) Subject to its rights to terminate this Agreement under the applicable
provisions of Section 7.01, each of Patriot and OPCO will, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of its shareholders (the "Patriot/OPCO Shareholder
Meetings") for the purpose of obtaining the Patriot/OPCO Shareholder Approvals
and, through Patriot's Board of Directors, recommend that its shareholders
approve the adoption of this Agreement and the approval of the issuance of
Paired Shares pursuant to the Merger.
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(d) Patriot, OPCO and the Company will use reasonable efforts to hold the
Patriot/OPCO Shareholder Meetings and the Company Shareholder Meeting on the
same date and as soon as practicable after the date hereof.
5.02. Access to Information; Confidentiality. Each of the Company, Patriot
and OPCO will, and will cause each of its respective Subsidiaries to, afford
to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of the Company, Patriot
and OPCO will, and will cause each of its respective Subsidiaries to, furnish
promptly to the other parties (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities Laws and (b) all
other information concerning its business, financial condition, results of
operations, properties and personnel as such other parties may reasonably
request. Subject to the requirements of applicable Law, and except for such
actions as are necessary to disseminate any documents necessary to consummate
the Merger, the parties will, and will instruct each of their respective
Affiliates, associates, partners, employees, agents and advisors to, hold in
confidence all such information as is confidential or proprietary, will use
such information only in connection with the Merger and, if this Agreement is
terminated in accordance with its terms, will deliver promptly to the others
(or destroy and certify to the other the destruction of) all copies of such
information (and any copies, compilations or extracts thereof or based
thereon) then in their possession or under their control.
5.03. Regulatory Filings. (a) Within 20 calendar days after the date hereof,
Patriot, OPCO and the Company will make such filings, if any, as may be
required by the HSR Act with respect to the consummation of the transactions
contemplated by this Agreement. Thereafter, Patriot, OPCO and the Company will
file or cause to be filed as promptly as practicable with the United States
Federal Trade Commission (the "FTC") and the United States Department of
Justice (the "DOJ") supplemental information, if any, which may be required or
requested by the FTC or the DOJ pursuant to the HSR Act. All filings referred
to in this Section 5.03(a) will comply in all material respects with the
requirements of the respective Laws pursuant to which they are made.
(b) Without limiting the generality or effect of Section 5.03(a), each of
the parties will (i) use their respective reasonable efforts to comply as
expeditiously as possible with all lawful requests of Governmental Entities
for additional information and documents pursuant to the HSR Act, if
applicable, (ii) not (A) extend any waiting period under the HSR Act or (B)
enter into any agreement with any Governmental Entity not to consummate the
transactions contemplated by this Agreement, except with the prior consent of
each of the other parties hereto, and (iii) cooperate with each other and use
reasonable efforts to prevent the entry of, and to cause the lifting or
removal of any temporary restraining order, preliminary injunction or other
judicial or administrative order which may be entered into in connection with
the transactions contemplated by this Agreement, including without limitation
the execution, delivery and performance by the appropriate entity of such
divestiture agreements or other actions, as the case may be, as may be
necessary to secure the expiration or termination of the applicable waiting
periods under the HSR Act or the removal, dissolution, stay or dismissal of
any temporary restraining order, preliminary injunction or other judicial or
administrative order which prevents the consummation of the transactions
contemplated hereby or requires as a condition thereto that all or any part of
the Business be held separate and, prior to or after the Closing, pursue the
underlying litigation or administrative proceeding diligently and in good
faith.
5.04. Reasonable Efforts and Cooperation. (a) Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties will use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including without limitation, (i) obtaining
all necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and making all necessary registrations and filings
(including filings with Governmental Entities) and taking all reasonable steps
as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity,
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(ii) obtaining all necessary consents, approvals or waivers from third parties
prior to the Effective Time, (iii) defending any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any adverse Order entered by any court or other Governmental Entity
vacated or reversed, and (iv) executing and delivering any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In addition, and without
limiting the generality of the foregoing: (a) the Company will cooperate with
Patriot to ensure that Patriot continues to qualify as a REIT following the
Effective Time, including by taking actions and engaging in transactions
reasonably requested by Patriot if such actions or transactions would have no
material impact on the Company or adversely affect its shareholders and (b)
the Company will use its reasonable best efforts to obtain for the benefit of
Patriot or OPCO, as the case may be, and to cooperate with Patriot and OPCO in
obtaining, prior to the Effective Time, all consents, approvals, waivers and
agreements as may be necessary from third parties in order to enable the
Patriot Companies to hold the Company's assets and to operate its business in
a manner which, in Patriot's reasonable judgment, preserves Patriot's status
as a REIT, maximizes the tax efficiencies associated with the Patriot
Companies' paired share REIT structure, and enables the Patriot Companies to
implement their respective long-term business strategies; provided, however,
that in connection with obtaining (or assisting Patriot or OPCO in obtaining)
any such consent, approval, waiver or agreement, the Company will not be
required (1) to incur under this Agreement any out-of-pocket costs and
expenses (except for insignificant costs incident to compliance with this
covenant) unless Patriot shall have first agreed in writing to cause the
Company to be reimbursed therefor, or (2) to enter into or amend any
management or franchise agreement or other contract or incur any liability in
a manner that the Company reasonably determines is adverse to it or its
Subsidiaries. Nothing set forth in this Section 5.04(a) will limit or affect
actions permitted to be taken pursuant to Section 4.01 or 4.02.
(b) Without limiting the generality or effect of any provision of Sections
5.03, 5.04(a) or Article VI, if any Governmental Entity having jurisdiction
over any party issues or otherwise promulgates any injunction, decree or
similar order prior to the Closing which prohibits the consummation of the
transactions contemplated hereby, the parties will use their respective
reasonable efforts to have such injunction dissolved or otherwise eliminated
as promptly as possible and, prior to or after the Closing, to pursue the
underlying litigation diligently and in good faith.
(c) In connection with and without limiting the foregoing, the Company,
Patriot and OPCO will (i) take all action available to them to ensure that no
state takeover statute or similar statute or regulation is or becomes
applicable to the Merger or any of the other transactions contemplated hereby,
and (ii) if any state takeover statute or similar statute or regulation
becomes applicable thereto, take all action available to them to ensure that
the Merger and such other transactions may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise to minimize the
effect of such statute or regulation thereon.
5.05. Employee Benefit Matters. (a) With respect to each Patriot or OPCO
"employee benefit plan," as defined in Section 3(3) of ERISA, including plans
or policies providing severance benefits and vacation entitlement
(collectively, the "Patriot Plans"), if the Effective Time occurs, service
with the Company will be treated as service with the Patriot Companies for
purposes of determining eligibility to participate, vesting and entitlement to
benefits (other than the accrual of benefits under any defined benefit pension
plan); provided, however, that such service will not be recognized to the
extent that such recognition would result in a duplication of benefits. Such
service also will apply for purposes of satisfying any waiting periods,
evidence of insurability requirements or the application of any preexisting
condition limitations under any Patriot Plan. Employees of the Company will be
given credit under any Patriot Plan in which they are eligible to participate
for amounts paid under a corresponding Company benefit plan during the same
period for purposes of applying deductibles, copayments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of the Patriot Plans.
(b) Following the Effective Time, Patriot will cause the Surviving
Corporation to honor in accordance with their terms all employment, severance
and other compensation agreements and arrangements, including but not
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limited to severance benefit plans, the existence or terms of which do not
involve any material breach of any representation, warranty or covenant of the
Company hereunder.
5.06. Certain Employee and Other Matters. Each of the parties will take the
actions specified to be taken or caused to be taken by it in Section 5.06 of
the Company Disclosure Schedule.
5.07. Fees and Expenses. (a) Except as otherwise set forth in this Section
5.07, all fees and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated thereby and hereby will be paid by
the party incurring such fees or expenses, whether or not the Merger is
consummated, except that each of Patriot and the Company will bear and pay
one-half of the costs and expenses incurred in connection with the filing,
printing and mailing of the Joint Proxy Statement (excluding SEC filing fees).
(b) (i) In the event that this Agreement is terminated by the Company
pursuant to Section 7.01(f), the Company will deposit into escrow for the
benefit of Patriot, by wire transfer of same day funds, an amount in cash
equal to $50.0 million (the "Company Termination Fee") with an escrow agent
selected by Patriot (the "Escrow Agent") and on such terms (subject to Section
5.07(c)), as shall be agreed upon by Patriot and the Escrow Agent (the "Escrow
Agreement").
(ii) In the event that (A) a Company Takeover Proposal is made public, or
any Person publicly announces an intention (whether or not conditional) to
make a Company Takeover Proposal, after the date of this Agreement and
thereafter (x) this Agreement is terminated by either Patriot or the Company
pursuant to Section 7.01(b)(i) or 7.01(b)(ii) and (y) prior to the date that
is 12 months after the date of such termination the Company enters into a
Company Acquisition Agreement or an Alternative Transaction (as defined below)
occurs, or (B) this Agreement is terminated by Patriot pursuant to Section
7.01(c), the Company will deposit with the Escrow Agent pursuant to the Escrow
Agreement for benefit of Patriot by wire transfer of same-day funds, an amount
in cash equal to the Company Termination Fee.
(iii) As used in this Agreement, (A) "Alternative Transaction" means: (x) a
transaction other than a Private Transaction pursuant to which any Third Party
(as defined below) acquires more than 25% of the shares of Company Common
Stock pursuant to a tender offer or exchange offer or otherwise, (y) a merger
or other business combination involving the Company or any of its Affiliates
pursuant to which any Third Party acquires more than 25% of the shares (after
giving effect to such business combination) of Company Common Stock or of the
entity surviving such merger or business combination, or (z) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the equity securities of Subsidiaries of the
Company and the entity surviving any merger or business combination including
any of them) of the Company having a fair market value equal to more than 25%
of the fair market value of all the assets of the Company and its
Subsidiaries, taken as a whole, immediately prior to such transaction, (B)
"Third Party" means any Person other than Patriot, OPCO or an Affiliate of
either of them, and (C) "Private Transaction" means a single privately
negotiated sale (directly or indirectly) by a Company shareholder to a Third
Party of shares aggregating in excess of 25% of the shares of Company Common
Stock which shares were beneficially owned by such shareholder on the date of
this Agreement.
(iv) If any termination described in Section 5.07(b)(i) occurs, the Company
Termination Fee will be deposited immediately prior to and as a condition to
the effectiveness of such termination. If any termination described in Section
5.07(b)(ii)(B) occurs, the Company Termination Fee will be deposited
immediately after such termination. If any termination described in Section
5.07(b)(ii)(A) occurs, the Company Termination Fee will thereafter be
deposited immediately prior to the first to occur of the entry by the Company
into a Company Acquisition Agreement or an Alternative Transaction (in either
case within 12 months after the date of such termination).
(v) The Company acknowledges that the agreements contained in this Section
5.07(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Patriot and OPCO would not
enter into this Agreement; accordingly, if the Company fails promptly to
deposit the amount due pursuant to
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this Section 5.07(b), and, in order to obtain such payment, Patriot or OPCO
commences a suit which results in a judgment against the Company for the fee
set forth in this Section 5.07(b), the Company will pay to Patriot and OPCO
their costs and expenses (including reasonable attorneys' fees and expenses)
in connection with such suit, together with interest on the amount of the fee
at the prime rate of Citibank N.A. in effect on the date such payment was
required to be made, provided that payment of such costs, expenses and
interest shall be subject to the limitations of Section 5.07(c) (determined as
if such expenses were included in the Company Termination Fee).
(c) In the event that the Company is obligated to deposit with the Escrow
Agent the Company Termination Fee as provided in Section 5.07(b), the Escrow
Agent will pay to Patriot from the Company Termination Fee deposited into
escrow an amount equal to the lesser of (i) the Company Termination Fee and
(ii) the sum of (A) the maximum amount that can be paid to Patriot without
causing Patriot to fail to meet the requirements of Sections 856(c)(2) and (3)
of the Code determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(i) of the Code
("Qualifying Income"), as determined by Patriot's certified public accountant,
plus (B) in the event Patriot receives either (1) a letter from Patriot's
counsel indicating that Patriot has received a ruling from the IRS as
described below or (2) an opinion from Patriot's counsel as described below,
an amount equal to the Company Termination Fee less the amount payable under
clause (A) above. The Escrow Agreement will provide that the Company
Termination Fee in escrow or any portion thereof shall not be released to
Patriot unless the Escrow Agent receives any one or combination of the
following: (x) a letter from Patriot's certified public accountants indicating
the maximum amount that can be paid by the Escrow Agent to Patriot without
causing Patriot to fail to meet the requirements of Sections 856(c)(2) and (3)
of the Code determined as if the payment of such amount did not constitute
Qualifying Income or a subsequent letter from Patriot's accountants revising
that amount, in which case the Escrow Agent will release such amount to
Patriot, or (y) a letter from Patriot's counsel indicating that Patriot
received a ruling from the IRS holding that the receipt by Patriot of the
Company Termination Fee would either constitute Qualifying Income or would be
excluded from gross income within the meaning of Section 856(c)(2) and (3) of
the Code (or alternatively, Patriot's legal counsel has rendered a legal
opinion to Patriot to the effect that the receipt by Patriot of the Company
Termination Fee would either constitute Qualifying Income or would be excluded
from gross income within the meaning of Sections 856(c)(2) and (3) of the
Code), in which case the Escrow Agent will release the remainder of the
Company Termination Fee to Patriot. The Company agrees to amend this Section
5.07 at the request of Patriot as may reasonably be necessary (and without
substantial cost or burden to the Company) in order to (I) maximize the
portion of the Company Termination Fee that may be distributed to Patriot
hereunder without causing Patriot to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code, (II) improve Patriot's chances of securing a
favorable ruling described in this Section 5.07(c), or (III) assist Patriot in
obtaining a favorable legal opinion from its counsel as described in this
Section 5.07(c); provided that Patriot's legal counsel has rendered a legal
opinion to Patriot to the effect that such amendment would not cause Patriot
to fail to meet the requirements of Section 856(c)(2) or (3) of the Code. The
Escrow Agreement will also provide that any portion of the Company Termination
Fee held in escrow for 15 years will be released by the Escrow Agent to the
Company. The Company will not bear any cost of or have liability resulting
from the Escrow Agreement.
(d) In the event that this Agreement is terminated by the Company pursuant
to Section 7.01(d), Patriot will promptly, but in no event later than two
business days after the date of such termination, pay the Company a fee equal
to $50.0 million payable by wire transfer of same-day funds. In the event that
this Agreement is terminated by the Company or Patriot pursuant to Section
7.01(b)(iii) then Patriot will pay the Company an amount in cash equal to the
Company's documented out-of-pocket fees and expenses ("Expenses") actually
incurred by it prior to such termination in connection with this Agreement and
the transactions contemplated hereby, including without limitation reasonable
fees and expenses of accountants, attorneys and investment bankers; provided
that the aggregate amount of Expenses required to be reimbursed pursuant to
this Section 5.07(d) will not exceed $9,000,000 and, provided, further, that
in the case of such a termination by the Company or Patriot, such amount will
be payable only if the Company is not in material breach at the time of
termination of this Agreement (which breach has continued for more than 30
days after notice or cannot reasonably be expected to be cured within
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such period (unless such breach was caused by or resulted from a breach of
this Agreement by Patriot or OPCO)). Patriot acknowledges that the agreements
contained in this Section 5.07(d) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, the
Company would not enter into this Agreement; accordingly, if Patriot fails
promptly to pay the amount due pursuant to this Section 5.07(d), and, in order
to obtain such payment, the Company commences a suit which results in a
judgment against Patriot or OPCO for the fee set forth in this Section
5.07(d), Patriot will pay to the Company its costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such suit,
together with interest on the amount of the fee at the prime rate of Citibank
N.A. in effect on the date such payment was required to be made.
5.08. Public Announcements. Patriot and the Company will consult with each
other before issuing, and provide each other the opportunity to review,
comment upon and concur with, any press release or other public statements
with respect to the transactions contemplated by this Agreement, and will not
issue any such press release or make any such public statement prior to such
consultation, except as either party may determine is required by applicable
Law, court process or by obligations pursuant to any listing agreement with
any national securities exchange. The parties agree that the initial press
release to be issued with respect to the transactions contemplated by this
Agreement will be in the form heretofore agreed to by the parties.
5.09. Affiliates; Etc. (a) Prior to the Closing Date, the Company will
deliver to Patriot a letter identifying all Persons who are, at the time this
Agreement is submitted for adoption by to the shareholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company will use all reasonable efforts to cause each such Person to
deliver to Patriot on or prior to the Closing Date a written agreement
substantially in the form attached as Schedule 5.09(a) hereto.
(b) Registration Rights. Effective as of the Effective Time, Patriot and
OPCO will cause the actions specified in Schedule 5.09(b) to be taken with
respect to the registration rights agreements specified thereon.
5.10. Listing of Paired Shares. Each of Patriot and OPCO will use all
reasonable efforts to cause the Paired Shares to be issued in the Merger and
under the Company Stock Plans to be approved prior to the Effective Time for
listing on the NYSE, subject to official notice of issuance.
5.11. Shareholder Litigation. Each of the Company, Patriot and OPCO will
give the other the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company, Patriot or OPCO, as applicable, or
their respective directors relating to the transactions contemplated by this
Agreement.
5.12. Tax Treatment. Each of Patriot, the Company and OPCO will use
reasonable efforts to cause the Merger to qualify as a reorganization under
the provisions of Section 368 of the Code.
5.13. Indemnification, Exculpation and Insurance. (a) All rights to
indemnification and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time existing in favor of the current
or former directors or officers of the Company or each of its Subsidiaries as
provided in their respective certificates of incorporation or bylaws (or
comparable organizational documents) and existing indemnity contracts will be
assumed by Patriot and Patriot will be directly responsible for such
indemnification, without further action, as of the Effective Time and will
continue in full force and effect in accordance with their respective terms
for a period not less than six years from the Effective Time. In addition,
from and after the Effective Time, directors and officers of the Company who
become or remain directors or officers of Patriot, OPCO or any Subsidiary
thereof will be entitled to the same indemnity rights and protections
(including those provided by directors' and officers' liability insurance) as
are afforded to directors and officers of Patriot, OPCO or such Subsidiary, as
the case may be. Notwithstanding any other provision hereof, the provisions of
this Section 5.13 (i) are intended to be for the benefit of, and will be
enforceable by, each indemnified party, his or her heirs and his or her
representatives and (ii) are in addition to, and not in substitution for, any
other rights to indemnification or contribution that any such person may have
by contract or otherwise.
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(b) Patriot will maintain in effect for not less than six years after the
Effective Time one or more policies of directors' and officers' liability
insurance that provide coverage for the current directors and officers of the
Company that is substantially similar to that provided by the policies
maintained by or on behalf of the Company and its Subsidiaries on the date
hereof with respect to matters existing or occurring at or prior to the
Effective Time; provided, however, that if the aggregate annual premiums for
such insurance at any time during such period exceed 150% of the per annum
rate of premium currently paid by the Company and its Subsidiaries for such
insurance on the date of this Agreement, then Patriot will cause the Surviving
Corporation to, and the Surviving Corporation will, provide the maximum
coverage that will then be available at an annual premium equal to 150% of
such rate.
5.14. Interim Transactions. (a) Pending Transactions. Notwithstanding any
other provisions to the contrary contained in this Agreement, including
without limitation Section 4.01(a), the Company or any directly or indirectly
wholly owned Subsidiary of the Company may enter into an agreement regarding,
and consummate, an acquisition transaction or business combination involving
the businesses and/or assets set forth in Section 4.01(a) of the Company
Disclosure Schedule on substantially the terms set forth therein.
(b) Interim Transactions Committee. Promptly following the execution of this
Agreement, Patriot and the Company will constitute and establish a committee
which will evaluate and consider proposed Transactions by the Company or any
of its Subsidiaries between the date hereof and the Effective Time (the
"Interim Transactions Committee"). The Interim Transactions Committee will
consist of two individuals selected by Patriot who are reasonably satisfactory
to the Company and two individuals selected by the Company who are reasonably
acceptable to Patriot and will act only by the vote of at least three of the
four members thereof. For purposes hereof, the Chairman, Chief Operating
Officer and Chief Financial Officer of each of the Company and Patriot will be
deemed to be satisfactory to the other. The Interim Transactions Committee
will be abolished at the Effective Time. The Interim Transactions Committee
will have the power to make all of the determinations contemplated to be made
by it pursuant to this Agreement.
5.15. Ownership Restrictions. The Company will cooperate with Patriot to
determine whether the issuance of Paired Shares pursuant to the Merger will
violate the provisions in Patriot's or OPCO's Amended and Restated Certificate
of Incorporation restricting the amount of Patriot Common Stock or OPCO Common
Stock, as the case may be, that may be held (directly, indirectly or by
attribution) by any Person.
5.16. Termination of Stock Purchase Plan. The Company will cause the
Interstate Hotels Company Employee Stock Purchase Plan to be terminated on or
prior to the Closing Date.
VI. CONDITIONS PRECEDENT
6.01. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein is subject to the satisfaction or waiver on
or prior to the Closing Date of the following conditions, any or all of which
may be waived, in whole or in part by the parties hereto, to the extent
permitted by applicable law:
(a) Shareholder Approval. Each of the Company Shareholder Approval and
the Patriot/OPCO Shareholder Approvals shall have been obtained;
(b) No Injunctions or Restraints. No Order or Law enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction or
other Governmental Entity or other legal restraint or prohibition
(collectively, "Restraints") preventing the consummation of the Merger
shall be in effect;
(c) HSR Act. Any waiting period under the HSR Act applicable to the
Merger shall have expired or been terminated;
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order;
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(e) Tax Opinion. Goodwin, Procter & Hoar LLP, counsel to the Patriot
Companies, shall have delivered to Patriot and the Company an unqualified
opinion, or Jones, Day, Reavis & Pogue, counsel to the Company, shall have
so delivered such an opinion, dated as of the Closing Date, to the effect
that, based upon representations, assumptions and conditions customary for
transactions such as the Merger, the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and that Patriot and the Company will each be a party to
such reorganization within the meaning of Section 368(b) of the Code.
(f) Listing of Paired Shares. The Paired Shares issuable to the Company's
shareholders pursuant to this Agreement and under the Company Stock Plans
shall have been approved for listing on the NYSE, subject to official
notice of issuance; and
(g) Change in Tax Laws. There shall not have been any federal legislative
or regulatory change that would cause Patriot to cease to qualify as a
"real estate investment trust" for federal income tax purposes.
6.02. Conditions to Obligations of Patriot and OPCO. The obligation of
Patriot and OPCO to effect the Merger is further subject to satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company in Section 3.01 that are qualified as to materiality shall be
true and correct, and the representations and warranties of the Company in
Section 3.01 that are not so qualified shall be true and correct in all
material respects, in each case as of the Closing Date as if made anew on
such date, except for representations and warranties made as of a specified
date (which shall be true and correct in all material respects (except for
those qualified as to materiality, which shall be true and correct) as of
such specified date);
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Patriot
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to
such effect;
(c) No Company Material Adverse Effect. At any time after the date of
this Agreement there shall not have occurred any event which, individually
or when considered with any other such event, could reasonably be expected
to result in a Company MAE;
(d) Letters from Company Affiliates. Patriot shall have received from
each person named in the letter referred to in Section 5.09(a) an executed
copy of an agreement substantially in the form of Schedule 5.09(a) hereto;
(e) Dissenting Shares. There shall be no more than 1,600,000 Dissenting
Shares in the aggregate;
(f) Certain Consents. The Company shall have received to Patriot's
reasonable satisfaction the consents specified in Schedule 6.02(f); and
(g) E&P Statement. Coopers & Lybrand LLP or Ernst & Young L.L.P. (i)
shall have delivered to Patriot, at or prior to the Closing, a statement of
accumulated and current E&P of the Company (as determined for federal
income tax purposes) as of a then-recent date and (ii) shall have confirmed
to Patriot that Patriot shall be entitled to rely on such statement for
purposes of preparing and filing its federal, state, local and foreign tax
returns required to be filed by it, determining the amount of dividends to
be paid to stockholders and paying any Taxes owed by it.
6.03. Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to satisfaction or waiver on or prior
to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Patriot in Section 3.02 that are qualified as to materiality shall be true
and correct, and the representations and warranties of the Patriot
Companies in Section 3.02 that are not so qualified shall be true and
correct in all material respects, in each case as of the Closing Date as if
made anew on such date, except for representations and warranties made as
of a specified date (which shall be true and correct in all material
respects (except for those qualified as to materiality, which shall be true
and correct) as of such specified date); provided, however,
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that the obligation of the Company to effect the Merger shall not be
subject to the continued accuracy of the representation set forth in
Section 3.02(p) if prior to the Effective Time, Patriot has received a
private letter ruling from the Internal Revenue Service holding that such
transfer will not cause the Merger to fail to qualify as a tax-free
reorganization under Section 368(a) of the Code or the proposed Treasury
Regulation Sections 1.368-1(d) and (f) are finalized in substantially their
current form but with an effective date that causes them to apply to the
Merger.
(b) Performance of Obligations of Patriot and OPCO. Patriot and OPCO
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date,
and the Company shall have received a certificate signed on behalf of
Patriot by the chief executive officer and the chief financial officer of
Patriot to such effect;
(c) No Patriot Material Adverse Effect. At any time after the date of
this Agreement there shall not have occurred any event which, individually
or when considered with any other such event, could reasonably be expected
to result in a Patriot MAE; and
(d) Dissenting Shares. There shall be no more than 3,542,131 Dissenting
Shares in the aggregate; provided, however, that the Company may not rely
on the failure of such condition to be satisfied if, prior to the Closing,
Patriot has given the Company written notice that, notwithstanding Section
2.01(f), the number of Dissenting Shares in excess of 3,542,131 will not be
subtracted in calculating the Maximum Cash Shares pursuant to Section
2.01(f).
6.04. Frustration of Closing Conditions. Neither Patriot nor the Company may
rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03,
as the case may be, to be satisfied if such failure was caused by such party's
failure to use reasonable efforts to commence or complete the Merger and the
other transactions contemplated by this Agreement, as required by and subject
to Section 6.03.
VII. TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after Company Shareholder Approval or
Patriot/OPCO Shareholder Approvals:
(a) by mutual written consent of Patriot and the Company;
(b) by either Patriot or the Company:
(i) if the Merger has not been consummated by May 31, 1998; provided,
however, that the right to terminate this Agreement pursuant to this
Section 7.01(b)(i) will not be available to any party whose failure to
perform any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the Company Shareholder Approval shall not have been obtained
at a Company Shareholder Meeting duly convened therefor or at any
adjournment or postponement thereof;
(iii) if the Patriot/OPCO Shareholder Approvals shall not have been
obtained at Patriot/OPCO Shareholder Meetings duly convened therefor or
at any adjournment or postponement thereof; or
(iv) if any Governmental Entity shall have issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger or any of the other
transactions contemplated by this Agreement and such Restraint or other
action shall have become final and nonappealable;
(c) by Patriot, if the Company Board or any committee thereof shall have
(i) withdrawn, modified or amended in a manner adverse to Patriot its
approval or recommendation of the Merger or this Agreement, (ii) failed to
include such recommendation in the Joint Proxy Statement, (iii) approved or
recommended, or proposed publicly to approve or recommend, any Company
Takeover Proposal other than the Merger, (iv) caused the Company to enter
into a Company Acquisition Agreement, or (v) resolved to take any of the
foregoing actions;
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(d) by the Company, if the Patriot Board or the OPCO Board or any
committee of either of them thereof shall have (i) withdrawn, modified or
amended in a manner adverse to the Company its approval or recommendation
of the Merger or this Agreement, (ii) failed to include such recommendation
in the Joint Proxy Statement, or (iii) resolved to take any of the
foregoing actions;
(e) by the Company, if Patriot or OPCO shall have breached or failed to
perform in any material respect any of its representations, warranties or
covenants required to be performed by them under this Agreement, which
breach or failure to perform cannot be or has not been cured within 30 days
after the giving of written notice to Patriot and OPCO of such breach
(provided that the Company is not then in material breach of any
representation, warranty, covenant or other agreement contained in this
Agreement that cannot or has not been cured within 30 days after giving
notice to the Company of such breach);
(f) by the Company in accordance with Section 4.02(b), provided that it
has complied with all provisions of Section 4.02;
(g) by the Company, in accordance with and subject to Section 2.01(d), if
the Meeting Date Price is less than $26.416 (as may be adjusted pursuant to
Section 2.01(d)); and
(h) by Patriot, if the Company shall have breached or failed to perform
in any material respect any of its representations, warranties or covenants
required to be performed by it under this Agreement, which breach or
failure to perform cannot be or has not been cured within 30 days after the
giving of written notice to the Company of such breach (provided that
neither Patriot nor OPCO is then in material breach of any representation,
warranty, covenant or other agreement contained in this Agreement that
cannot or has not been cured within 30 days after giving notice to Patriot
of such breach).
7.02. Effect of Termination. In the event of termination of this Agreement
by either the Company or Patriot as provided in Section 7.01, this Agreement,
other than the provisions of Section 3.01(k), Section 3.02(j), Section 5.02,
Section 5.07, this Section 7.02 and Article VIII, will forthwith become void
and have no effect, without any liability or obligation on the part of
Patriot, the Company or OPCO, except to the extent that such termination
results from the willful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
7.03. Amendment. This Agreement may be amended by the parties at any time
before or after the Company Shareholder Approval or the Patriot/OPCO
Shareholder Approvals; provided, however, that, after any such approval, there
may not be made any amendment that by Law requires further approval by the
shareholders of the Company, Patriot or OPCO without the further approval of
such shareholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
7.04. Extension; Waiver. At any time prior to the Effective Time, a party
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties of the other parties contained in this Agreements or in any
document delivered pursuant to this Agreement, or (c) subject to the proviso
of Section 7.03, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver will be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this
Agreement or otherwise will not constitute a waiver of such rights.
7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 will, in order to be effective, require, in the case of Patriot,
OPCO or the Company, action by its Board of Directors or a duly authorized
committee thereof.
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<PAGE>
VIII. GENERAL PROVISIONS
8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement will survive the Effective Time. This
Section 8.01 will not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement will be in writing and will be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as specified by like
notice):
(a) if to Patriot, to:
Patriot American Hospitality, Inc.
Tri-West Plaza
303 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C. and
Martin Carmichael III, P.C.
(b) if to OPCO, to:
Patriot American Hospitality Operating Company
Tri-West Plaza
303 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C. and
Martin Carmichael III, P.C.
(c) if to the Company, to:
Interstate Hotels Company
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, PA 15220
Attn: W. Thomas Parrington, Jr.
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue, 30th Floor
New York, New York 10022
Fax No.: (212) 755-7306
Attn: Robert A. Profusek, Esq.
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<PAGE>
8.03. Certain Definitions. For purposes of this Agreement:
(a) An "Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first Person;
(b) a "Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first Person. A "Significant Subsidiary" means any
subsidiary of the Company or Patriot, as the case may be, that would
constitute a "significant subsidiary" of such party within the meaning of
Rule 1-02 of Regulation S-X of the SEC;
(c) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(d) "Knowledge" of any Person which is not an individual means the
knowledge of any of such Person's executive officers (as listed in the last
proxy statement or registration statement of such Person filed with the SEC
or, if any such listed officer is no longer employed by such Person, the
successor to such officer's responsibilities) after reasonable inquiry.
8.04. Interpretation. When a reference is made in this Agreement to an
Article, Section, Annex or Exhibit, such reference will be to an Article or
Section of, or an Annex or Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement will refer to this
Agreement as a whole and not to any particular provision of this Agreement.
All terms used herein with initial capital letters have the meanings ascribed
to them herein and all terms defined in this Agreement will have such defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained in
this Agreement are applicable to the singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders
of such term. Any agreement, instrument or statute defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver
or consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments
incorporated therein. References to a Person are also to its permitted
successors and assigns.
8.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
8.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein), and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement and (b) except
for the provisions of Article II and Sections 5.05, 5.06 and 5.13 are not
intended to confer upon any Person other than the parties any rights or
remedies.
8.07. Governing Law. This Agreement will be governed by, and construed in
accordance with, the Laws of the Commonwealth of Pennsylvania regardless of
the Laws that might otherwise govern under applicable principles of conflict
of Laws thereof.
8.08. Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned, in whole or in part, by
operation of law or otherwise by either of the parties hereto without the
prior written consent of the other party. Any assignment in violation of the
preceding sentence will
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<PAGE>
be void. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
8.09. Enforcement. The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any federal court of the Western District of
Pennsylvania or in Pennsylvania state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any federal court located in the Western District of
Pennsylvania or any Pennsylvania state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal court sitting in the Western District of Pennsylvania or a
Pennsylvania state court.
IN WITNESS WHEREOF, Patriot, OPCO and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ William W. Evans
---------------------------------
Name: William W. Evans
Title: Office of the Chairman
PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
By: /s/ Leslie Ng
---------------------------------
Name: Leslie Ng
Title: Senior Vice President
INTERSTATE HOTELS COMPANY
By: /s/ Milton Fine
---------------------------------
Name: Milton Fine
Title: Chairman of the Board
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<PAGE>
REAL ESTATE INVESTMENT BANKING
PaineWebber Incorporated
1285 Avenue of the Americas ANNEX B
New York, NY 10019
212 713-4020
212 713-7949 Fax
Terrence E. Fancher
Managing Director
[LOGO OF PAINEWEBBER APPEARS HERE]
December 2, 1997
Board of Directors
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Board of Directors
Patriot American Hospitality Operating Company
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Ladies and Gentlemen:
We understand that Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot"), and Patriot American Hospitality Operating Company, a
Delaware corporation (the "Operating Company", and together with Patriot, the
"Companies"), are parties to that certain Agreement and Plan of Merger dated
as of December 2, 1997 (the "Merger Agreement") with Interstate Hotels Company
("Interstate"), pursuant to which Interstate has agreed to merge with and into
Patriot, with Patriot surviving (the "Proposed Merger"). We understand that
Patriot, as successor by merger to Patriot American Hospitality, Inc., a
Virginia corporation ("Old Patriot"), is a party to that certain Agreement and
Plan of Merger dated as of April 14, 1997 (as amended, the "Wyndham Merger
Agreement") with Wyndham Hotel Corporation, a Delaware corporation
("Wyndham"), pursuant to which Wyndham has agreed to merge with and into
Patriot, with Patriot surviving (the "Wyndham Merger"). We understand that
pursuant to the Merger Agreement, upon consummation of the Proposed Merger,
approximately sixty percent of the issued and outstanding shares of common
stock of Interstate will be converted into the right to receive shares (the
"Paired Shares") of common stock of Patriot, which are paired and trade as a
unit with shares of the Operating Company, in accordance with the exchange
ratio (the "Exchange Ratio") set forth in the Merger Agreement, and
approximately forty percent of the issued and outstanding shares of common
stock of Interstate will be converted into the right to receive $37.50 per
share in cash. All capitalized terms not otherwise defined herein shall have
the meanings set forth in the Merger Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration to shareholders of the Companies.
We understand that the Proposed Merger will be accounted for under the
purchase method of accounting.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Old Patriot's Annual Report, Forms 10-K and related
financial information for the fiscal years ended December 31, 1995 and
December 31, 1996 and the Companies' Form 10-Q and the related unaudited
financial information for the quarterly period ended September 30, 1997;
(2) Reviewed the joint proxy statement and prospectus on Form S-4 dated
May 30, 1997 regarding the merger of Old Patriot with and into California
Jockey Club;
(3) Reviewed the joint proxy statement and prospectus on Form S-4 dated
November 10, 1997 regarding the Wyndham Merger and the transactions
contemplated thereby;
(4) Reviewed Wyndham's Registration Statements related to the concurrent
initial public offering of Wyndham common stock and Wyndham Senior
Subordinated Notes in May 1996, Form 10-K and the related financial
information for the fiscal year ended December 31, 1996 and Form 10-Q and
the related unaudited financial information for the quarterly period ended
September 30, 1997;
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<PAGE>
PAINEWEBBER
Boards of Directors
Page 2
December 2, 1997
(5) Reviewed Interstate's Registration Statement dated June 19, 1996
related to the initial public offering of Interstate common stock, Form 10-
K and the related financial information for the fiscal year ended December
31, 1996 and Form 10-Q and the related unaudited financial information for
the quarterly period ended September 30, 1997;
(6) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Companies
and Interstate, furnished to us by the Companies and Interstate,
respectively, with certain information and forecasts supplied by the
Companies having assumed completion of the Wyndham Merger and related
transactions, the acquisition of certain assets owned by partnerships
affiliated with members of the Trammell Crow family to be acquired by
certain operating partnerships of the Companies (the "Crow Assets
Acquisition") and certain other acquisitions;
(7) Conducted discussions with members of senior management of the
Companies and Interstate, concerning their respective businesses and
prospects;
(8) Compared the results of operations of Interstate with those of
certain companies which we deemed to be reasonably similar to Interstate;
(9) Compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the actual or proposed financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(10) Considered the pro forma effect of the Proposed Merger on the
Companies' funds from operations and certain other financial measures,
taking into account the Wyndham Merger and related transactions, the Crow
Assets Acquisition and certain other acquisitions;
(11) Reviewed the financial terms of the Merger Agreement;
(12) Reviewed the historical market prices of Old Patriot common stock,
the Paired Shares and Interstate common stock and compared them to each
other and to certain indices we deemed relevant; and
(13) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was either publicly available or supplied, communicated
or otherwise made available to us by or on behalf of the Companies, Wyndham
and Interstate, and we have not assumed any responsibility to independently
verify such information, conduct a physical inspection of the properties and
facilities of the Companies, Wyndham or Interstate or undertake an independent
appraisal of the assets of the Companies, Wyndham or Interstate. With respect
to the financial forecasts examined by us, we have assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the respective managements of the Companies and
Interstate as to the future performance of the Companies and Interstate,
respectively, and their respective assets, including with respect to the
Companies, assets to be acquired in the Wyndham Merger, the Crow Assets
Acquisition and certain other acquisitions. At the Companies' direction, we
have assumed that the Wyndham Merger will be consummated in accordance with
the terms of the Wyndham Merger Agreement prior to the effectiveness of the
Proposed Merger, that Patriot is not and, after the Proposed Merger, will not
be, subject to Section 269B(a)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), that Patriot will qualify to be treated as a "real
estate investment trust" within the meaning of the Code before and after
giving effect to the Proposed Merger, that the representations and warranties
of each of the parties to the Merger Agreement were true and correct as of the
date of the Merger Agreement or as of such other date or dates specified
therein and will be true and correct at the closing of the Merger to the
extent required to be true and correct on such date under the terms of the
Merger Agreement, and that the Merger will be treated as a tax-free
reorganization for federal income tax purposes. We have further assumed that
the Proposed Merger will be consummated in accordance with the terms described
in the Merger Agreement. With your consent, our analyses assumed the
conversion or exchange for Paired Shares of all equity securities convertible
or exchangeable for Paired Shares, including OP Units, but excluding
outstanding stock options. Our opinion is based upon regulatory, economic,
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<PAGE>
PAINEWEBBER
Boards of Directors
Page 3
December 2, 1997
monetary and market conditions existing on the date hereof. We have assumed,
with your consent, that all material assets and liabilities (contingent or
otherwise, known or unknown) of the Companies, Wyndham and Interstate are as
set forth in their respective consolidated financial statements.
This opinion does not address the business decision of the Boards of
Directors of the Companies to engage in the Proposed Merger or the relative
merits of the Proposed Merger and any other transactions or business
strategies discussed by the respective Boards of Directors of the Companies as
alternatives to the Proposed Merger, or constitute a recommendation to any of
the Companies' shareholders as to how any such shareholders should vote on the
Proposed Merger. No opinion is expressed herein as to the price or trading
range at which the Companies' stock may trade at any time.
This opinion has been prepared for your use and shall not be reproduced,
summarized, described or referred to, or given to any other person or
otherwise made public, without the prior written consent of PaineWebber
Incorporated; provided, however, that this opinion may be reproduced in full
in a proxy statement/prospectus relating to the Proposed Merger and a proxy
statement/prospectus supplement relating to the Wyndham Merger, but any
reference to or summary of this opinion is subject to our approval, which
shall not be unreasonably withheld.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration is fair to shareholders of the
Companies from a financial point of view.
We bring to your attention that, as you are aware, PaineWebber Incorporated
is currently acting as financial advisor to the Companies and will receive a
fee for rendering this opinion and will receive an additional fee upon
consummation of the Proposed Merger. In addition, as you are aware,
PaineWebber Incorporated is rendering an opinion to the Board of Directors of
Wyndham confirming that for the purposes of this opinion the shareholders of
the Companies includes those shareholders of the Companies who will become
such as a result of the Wyndham Merger, and PaineWebber Incorporated will
receive a fee from Wyndham for rendering such opinion. PaineWebber
Incorporated has provided financial advisory services and investment banking
services to the Companies (including acting as an underwriter for the
Companies and Old Patriot), has acted as a lender to Old Patriot, and has
acted and continues to act as a lender to the Companies and certain of its
affiliates or related entities. PaineWebber may provide financial advisory and
investment banking services to, may act as an underwriter or placement agent
for, and may act as a lender to, the Companies in the future. In the ordinary
course of our business, we trade the equity and debt securities of the
Companies, Wyndham and Interstate for our own account and for the accounts of
our customers and, accordingly, we may at any time hold short or long
positions in such securities. In addition to our regular trading activities,
we currently own approximately 1.0 million Paired Shares which we purchased
from the Companies on November 13, 1997. As you are also aware, an affiliate
of ours has recently acquired certain land in San Mateo, California from
Patriot and is leasing the land back to a subsidiary of Patriot.
Very truly yours,
PaineWebber Incorporated
By: /s/ Terrence E. Fancher
______________________________________
B-3
<PAGE>
ANNEX C
INVESTMENT BANKING
Corporate and Institutional
Client Group
World Financial Center
North Tower
New York, New York 10281-1320
212 449 1000
[LOGO OF MERRILL LYNCH APPEARS HERE]
December 2, 1997
Board of Directors
Interstate Hotels Company
680 Anderson Drive
Foster Plaza Ten
Pittsburgh, PA 15220
Members of the Board of Directors:
Interstate Hotels Company (the "Company"), Patriot American Hospitality,
Inc. ("Patriot") and Patriot American Hospitality Operating Company (together
with Patriot, the "Acquiror"), propose to enter into an Agreement and Plan of
Merger (the "Agreement") pursuant to which the Company would be merged with
and into Patriot in a transaction (the "Merger") in which the Company's common
stock, par value $0.01 per share (the "Company Shares"), would be converted
into the right to receive the consideration described below (the
"Consideration"). Pursuant to the Agreement, the Consideration to be received
by the shareholders of the Company in the Merger for each Company Share owned
by such shareholder consists of the right to receive (a) with respect to each
Company Share with respect to which a Form of Election to receive cash has
been properly made and not withdrawn (an "Electing Share"), $37.50 in cash
payable at the closing of the Merger and (b) with respect to each Share other
than an Electing Share (subject to certain exceptions as provided in the
Agreement) (a "Non-Electing Share") the number of paired shares of common
stock of Acquiror ("Acquiror Shares") determined in accordance with the
Exchange Ratio (as defined in, and calculated pursuant to, Section 2.01(d) of
the Agreement) issuable at the closing of the Merger. In the event that the
amount of Electing Shares exceeds 14,168,500 Company Shares (less certain
Company Shares as provided in the Agreement) (the "Maximum Cash Shares"), then
the Electing Shares will be converted into the right to receive cash and
Acquiror Shares in accordance with the formula set forth in Section 2.01(g) of
the Agreement. In the event that the aggregate number of Electing Shares is
less than the Maximum Cash Shares, then the Non-Electing Shares will be
converted into the right to receive cash and Acquiror Shares in accordance
with the formula set forth in Section 2.01(h) of the Agreement.
You have asked us whether, in our opinion, the proposed Consideration to be
received by the shareholders of the Company pursuant to the Merger is fair
from a financial point of view to such shareholders.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's initial public offering Prospectus, dated June
19, 1996, the follow-on Company share offering prospectus, dated
December 10, 1996, the Company's Annual Report to shareholders and
Annual Report on Form 10-K and related financial information for the
fiscal year ended December 31, 1996 and the Company's Quarterly Reports
on Form 10-Q and the related unaudited financial information for the
quarterly periods ending March 31, 1997, June 30, 1997 and September
30, 1997;
(2) Reviewed the Acquiror's initial public offering Prospectus, dated
September 27, 1995, the Acquiror's Annual Reports to shareholders and
Annual Report on Form 10-K and related financial information for
C-1
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
the year ended December 31, 1996, the Acquiror's Quarterly Reports on
Form 10-Q and the related unaudited financial information for the
quarterly periods ending March 31, 1997, June 30, 1997 and September 30,
1997 and the Acquiror's Current Reports on Form 8-K, dated July 22, 1997
and September 30, 1997;
(3) Reviewed certain information, including financial forecasts relating to
the business, earnings, cash flow, assets, liabilities and prospects of
the Company and the Acquiror, including the Acquiror's pending
acquisition of Wyndham Hotel Corporation (the "Wyndham Transaction"),
furnished to us or discussed with us by the Company and the Acquiror,
respectively;
(4) Conducted discussions with members of senior management of the Company
and the Acquiror concerning their respective businesses and prospects
before and after giving effect to the Merger and the Wyndham
Transaction;
(5) Reviewed the historical market prices, valuation multiples and trading
activity for the Company Shares and the Acquiror Shares and compared
them with those of certain publicly traded companies that we deemed
reasonably similar to the Company and the Acquiror, respectively;
(6) Performed a discounted cash flow analysis based upon information
provided by both the Company and the Acquiror;
(7) Performed a pre-tax asset sale analysis based upon information provided
by the Company;
(8) Reviewed the results of operations and certain financial information of
the Company and the Acquiror and compared them with those of certain
publicly traded companies that we deemed to be relevant;
(9) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(10) Reviewed the potential pro forma impact of the Merger and the Wyndham
Transaction on the combined entity's pro forma operating results and
financial condition, as well as its pro forma capitalization and funds
from operations;
(11) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their respective
financial and legal advisors;
(12) Reviewed a draft of the Agreement, dated December 1, 1997, in the form
proposed to be entered into; and
(13) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
C-2
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
In preparing our opinion, we have assumed and relied, with your consent, on
the accuracy and completeness, in all material respects, of all information
supplied or otherwise made available to us, or discussed with or reviewed by or
for us, by the Company and the Acquiror, or otherwise publicly available, and
we have not assumed any responsibility for independently verifying such
information or undertaken an independent evaluation or appraisal of any of the
assets or liabilities of the Company or the Acquiror. In addition, we have not
assumed any obligation to conduct, nor have we conducted, any physical
inspection of the properties or facilities of the Company or the Acquiror. With
respect to the financial forecast information furnished to or discussed with us
by the Company or the Acquiror, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of the
Company's or the Acquiror's management as to the expected future financial
performance of the Company or the Acquiror, as the case may be. We have further
assumed, at the Company's direction, that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. We have also assumed that
the final form of the Agreement will be in the form of the last draft reviewed
by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities
arising out of our engagement. We have, in the past, provided financial
advisory and financing services to the Company and to the Acquiror on unrelated
matters and have received customary compensation for the rendering of such
services. We may continue to provide such services in the future and may
receive fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the Company Shares and other
securities of the Company, as well as the Acquiror Shares and other securities
of the Acquiror, for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote or otherwise act in
respect of the Merger.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Consideration to be received by the holders of the
Company Shares pursuant to the Merger is fair from a financial point of view to
the holders of the Company Shares.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner & Smith
Incorporated
______________________________________________
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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ANNEX D
SECTIONS 1930(A) AND 1571-80 (SUBCHAPTER D OF CHAPTER 15) OF THE PENNSYLVANIA
BUSINESS CORPORATION LAW
Section 1930. Dissenters Rights
(a) General Rule.--If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of
merger or consolidation objects to the plan of merger or consolidation and
complies with the provisions of Subchapter D of Chapter 15 (relating to
dissenters rights), the shareholder shall be entitled to the rights and
remedies of dissenting shareholders therein provided, if any. See also section
1906(c) (relating to dissenters rights upon special treatment).
CHAPTER 15
Subchapter D.--Dissenters Rights
Section 1571. Application and Effect of Subchapter
(a) General Rule.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special exchanges).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to determine
the shareholders entitled to notice of and to vote at the meeting at which a
plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be
voted on, are either:
(i) listing on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders; shall not have the
right to obtain payment of the fair value of any such shares under this
subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights be available
without regard to the exception provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or solely
into such shares and money in lieu of fractional shares.
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(ii) Shares of any preferred or special class unless the articles, the plan
or the terms of the transaction entitle all shareholders of the class to
vote thereon and required for the adoption of the plan or the effectuation
of the transaction the affirmative vote of a majority of the votes cast by
all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c) (relating
to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that
the acquisition was accomplished by the issuance of voting shares of the
corporation to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
(c) Grant of Optional Dissenters Rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of Dissenters Rights--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other Statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain Provisions of Articles Ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross References.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to a de facto transaction doctrine
abolished) and 2512 (relating to dissenters rights procedure).
Section 1572. Definitions
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a
division shall have sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.
"Fair Value." The fair value of shares immediately before the
effectuation of the corporation action to which the dissenter objects,
taking into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
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"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
the circumstances, taking into account all relevant factors, including the
average rate currently paid by the corporation on its principal bank loans.
Section 1573. Record and Beneficial Holders and Owners
(a) Record Holders of Shares--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial Owners of Shares--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the
corporation not later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not dissent with
respect to some but less than all shares of the same class or series owned by
the owner, whether or not the shares so owned by him are registered in his
name.
Section 1574. Notice of Intention to Dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect
no change in the beneficial ownership of his shares from the date of such
filing continuously through the effective date of the proposed action and must
refrain from voting his shares in approval of such action. A dissenter who
fails in any respect shall not acquire any right to payment of the fair value
of his shares under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice required by this
section.
Section 1575. Notice to Demand Payment
(a) General Rule.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of
the plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for Receipt of Demand for Payment.--The time set for receipt of
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
Section 1576. Failure to Comply with Notice to Demand Payment, etc.
(a) Effect of Failure of Shareholder to Act.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
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(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on Uncertificated Shares.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights Retained by Shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
Section 1577. Release of Restrictions or Payment for Shares
(a) Failure to Effectuate Corporate Action.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of Notice to Demand Payment.--When the uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of Fair Value of Shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance or
notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to Make Payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated
shares shall bear a similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such shares shall
not acquire by such transfer any rights in the corporation other than those
that the original dissenter had after making demand for payment of their fair
value.
Section 1578. Estimate by Dissenter of Fair Value of Shares
(a) General Rule.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
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(b) Effect of Failure to File Estimate.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
Section 1579. Valuation Proceedings Generally
(a) General Rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) Mandatory Joinder of Dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served
on each such dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the Court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of Recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of Corporation's Failure to File Application.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the
corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file
an application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not
previously remitted.
Section 1580. Costs and Expenses of Valuation Proceedings
(a) General Rule.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, vexatious or in bad faith.
(b) Assessment of Counsel Fees and Expert Fees Where Lack of Good Faith
Appear.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
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other party, if the court finds that the party against whom the fees and
expenses are assessed acted in bad faith or in a dilatory, obdurate, arbitrary
or vexatious manner in respect to the rights provided by this subchapter.
(c) Award of Fees for Benefits to Other Dissenters.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefitted.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the DGCL, the Patriot Charter and the Wyndham
International Charter contain provisions which eliminate a director's personal
liability to Patriot or Wyndham International, as the case may be, and to the
stockholders of the relevant company, for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to Patriot or Wyndham International, as the case may
be, or to the stockholders of the relevant company, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) in connection with certain unlawful dividend payments
or stock redemptions or repurchases or (iv) for any transaction from which such
director derived an improper personal benefit. In addition, the Patriot Charter
and the Wyndham International Charter each provide that if the DGCL is amended
to authorize the further elimination or limitation of the personal liability of
directors, then the liability of a director of Patriot or Wyndham International
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Article VII of each of the Patriot Bylaws and the Wyndham International
Bylaws provides for indemnification by Patriot or Wyndham International, as the
case may be, of their respective officers and directors and the officers and
directors of their respective subsidiaries to the fullest extent permitted by
Section 145 of the DGCL, as amended from time to time, and Patriot and Wyndham
International may, by action of their respective Boards of Directors, indemnify
all other persons Patriot or Wyndham International may indemnify under the
DGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) The following exhibits are filed as part of this Registration Statement
or incorporated herein by reference:
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EXHIBIT DESCRIPTION
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*2.1 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot American Hospitality, Inc.
and Wyndham International, Inc. (f/k/a Patriot American Hospitality
Operating Company) (Annex A to the Joint Proxy Statement/Prospectus).
*2.2 Form of Subscription Agreement by and among Wyndham International,
Inc., Patriot American Hospitality, Inc. and Interstate Hotels
Company.
*3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc.
**3.2 Amended and Restated Bylaws of Patriot American Hospitality, Inc.
*3.3 Amended and Restated Certificate of Incorporation of Wyndham
International, Inc.
**3.4 Amended and Restated Bylaws of Wyndham International, Inc.
4.1 Agreement (the "Pairing Agreement"), dated February 15, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company and
California Jockey Club (f/k/a Bay Meadows Realty Enterprises, Inc.),
as amended, incorporated by reference to Exhibit 4.3 to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-2, and to Exhibit
4.2 to Cal Jockey's and Bay Meadows' Annual Report on Form 10-K for
the year ended December 31, 1987 (Nos. 001-09319 and 001-09320).
4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference to
Exhibit 4.2 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
**4.3 Amendment No. 3 to the Pairing Agreement.
**4.4 Cooperation Agreement dated December 18, 1997, between Patriot
American Hospitality, Inc. and Wyndham International, Inc.
**5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered by Patriot American Hospitality, Inc.
**5.2 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered by Wyndham International, Inc.
</TABLE>
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**8.1 Opinion of Goodwin, Procter & Hoar llp regarding (i) tax
consequences of the Merger, (ii) Patriot's qualification as a REIT
for periods prior to the Merger and (iii) Patriot's ability to
qualify as a REIT following the Merger.
10.1 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot American Hospitality, Inc., Wyndham International, Inc., the
shareholders of Interstate Hotels Company named on the signature
pages thereto, and Interstate Hotels Company, incorporated by
reference to Exhibit 10.1 to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s Current Report on Form 8-K dated
December 2, 1997 (filed December 4, 1997) (Nos. 001-09319, 001-
09320).
*10.2 Amended and Restated Credit Agreement, dated as of December 16,
1997, among Patriot American Hospitality, Inc., Patriot American
Hospitality Partnership, L.P., The Chase Manhattan Bank, PaineWebber
Real Estate Securities, Inc. and various lenders identified therein.
*10.3 Term Loan Agreement, dated as of December 16, 1997, among Patriot
American Hospitality, Inc., Patriot American Hospitality
Partnership, L.P., The Chase Manhattan Bank, PaineWebber Real Estate
Securities, Inc. and various lenders identified therein.
10.4(1) Second Amended and Restated Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P., incorporated by
reference to Exhibit 10.1(1) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
10.4(2) First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(2) to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-4 (No. 333-28085).
10.4(3) Second Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(3) to Patriot
American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-39875).
10.4(4) Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(4) to Patriot American
Hospitality, Inc.'s and Wyndham International, Inc.'s Registration
Statement on Form S-4 (No. 333-39875).
10.4(5) Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(5) to Patriot American
Hospitality, Inc.'s and Wyndham International, Inc.'s Registration
Statement on Form S-4 (No. 333-39875).
10.5(l) Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P., incorporated by reference to Exhibit
10.2(l) to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
10.5(2) First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership L.P., incorporated by
reference to Exhibit 10.2(2) to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.5(3) Second Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P., incorporated by
reference to Exhibit 10.2(3) to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s Registration Statement on Form S-4
(No. 333-39875).
**10.6 Registration Rights Agreement, dated as of January 5, 1998, by and
between Patriot American Hospitality, Inc., Wyndham International,
Inc., and each of the parties signatory thereto.
10.7 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Exhibit 10.10 to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s, Registration Statement on Form S-
4. (No. 333-39875).
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10.8 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Paul A. Nussbaum, incorporated by
reference to Exhibit 10.11 to Patriot American Hospitality, Inc.'s and
Wyndham International Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.9 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and William W. Evans III, incorporated by
reference to Exhibit 10.12 to Patriot American Hospitality, Inc.'s and
Wyndham International Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.10 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.13 to Patriot American Hospitality, Inc.'s and
Wyndham International Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.11 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and James D. Carreker, incorporated by
reference to Exhibit 10.14 to Patriot American Hospitality, Inc.'s and
Wyndham International Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.12 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated by
reference to Exhibit 10.15 to Patriot American Hospitality, Inc.'s and
Wyndham International Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.13 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to Exhibit 10.16 to Patriot American Hospitality, Inc.'s and
Wyndham International Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.14 Letter Agreement, dated as of April 14, 1997, by and between Patriot
American Hospitality, Inc. and Wynopt Investment Partnership, L.P.,
incorporated by reference to Exhibit 10. 19 to Patriot American
Hospitality, Inc.'s and Wyndham International, Inc.'s Registration
Statement on Form S-4 (No. 333-39875).
10.15 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and James D. Carreker, incorporated
by reference to Exhibit 10.20 to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.16 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to Exhibit 10.21 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.17 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.22 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.18 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated by
reference to Exhibit 10.23 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.19 Harlan R. Crow Letter Agreement, dated as of April 14, 1997, re:
Management Agreement between Anatole Hotel Investors, L.P. and Wyndham
Hotel Company, Ltd., incorporated by reference to Exhibit 10.38 to
Patriot American Hospitality, Inc.'s and Wyndham International Inc.'s
Registration Statement on Form S-4 (No. 333-39875).
10.20 Executive Employment Agreement made as of September 30, 1997, by and
among Wyndham International, Inc., Williams Hospitality Group, Inc.
and Louis J. Nicastro, incorporated by reference to Exhibit 10.40 to
Patriot American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-40041).
</TABLE>
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10.21 Voting and Option Agreement dated as of September 30, 1997, among
Wyndham International, Inc., Patriot American Hospitality Operating
Company Acquisition Subsidiary, Patriot American Hospitality, Inc. and
Louis J. Nicastro, incorporated by reference to Exhibit 10.41 to
Patriot American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-40041).
10.22 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Wyndham International Inc., Patriot American Hospitality, Inc.
and CHC International, Inc., incorporated by reference to Exhibit
10.40 to Patriot American Hospitality, Inc.'s and Wyndham
International Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
10.23 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American
Hospitality Operating Partnership, L.P. and certain subsidiaries of
CHC International, Inc., incorporated by reference to Exhibit 10.42 to
Patriot American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-39875).
10.24 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among WHG Resorts & Casinos Inc., Patriot American Hospitality, Inc.,
Patriot American Hospitality Operating Company Acquisition Company and
Wyndham International, Inc., incorporated by reference to Exhibit 2.1
to Patriot American Hospitality, Inc.'s and Wyndham International,
Inc.'s Registration Statement on Form S-4 (No. 333-40041).
**10.25 Form of Registration Rights Agreement by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and the other parties
identified therein.
*10.26 Purchase Agreement, dated as of December 31, 1997, by and among
Patriot American Hospitality, Inc., Wyndham International, Inc., UBS
Limited and Union Bank of Switzerland, London Branch.
10.27 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
**21.1 Subsidiaries of Patriot American Hospitality, Inc.
**21.2 Subsidiaries of Wyndham International, Inc.
*23.1 Consent of Deloitte & Touche LLP (San Francisco, California).
*23.2 Consent of Deloitte & Touche LLP (Houston, Texas).
*23.3 Consent of Ernst & Young LLP (Dallas, Texas).
*23.4 Consent of Ernst & Young LLP (Seattle, Washington).
*23.5 Consent of Ernst & Young LLP (Phoenix, Arizona).
*23.6 Consent of Ernst & Young LLP (Miami, Florida).
*23.7 Consent of Ernst & Young LLP (Kansas City, Missouri).
*23.8 Consent of Ernst & Young LLP (San Juan, Puerto Rico).
*23.9 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
*23.10 Consent of Coopers & Lybrand L.L.P. (Pittsburgh, Pennsylvania).
*23.11 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.12 Consent of Coopers & Lybrand L.L.P. (Newport Beach, California).
*23.13 Consent of Coopers & Lybrand L.L.P. (Phoenix, Arizona).
</TABLE>
II-4
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*23.14 Consent of Coopers & Lybrand L.L.P. (Tampa, Florida).
*23.15 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
*23.16 Consent of Price Waterhouse LLP (Miami, Florida).
*23.17 Consent of Arthur Andersen LLP (Dallas, Texas).
*23.18 Consent of Mayer Hoffman McCann L.C.
**23.19 Consent of Goodwin, Procter & Hoar llp (in opinions filed as Exhibits
5.1 and 5.2).
**23.20 Consent of Goodwin, Procter & Hoar llp (in opinion filed as Exhibit
8.1).
*23.21 Consent of PaineWebber Incorporated (included in Annex B to the Joint
Proxy Statement/Prospectus).
*23.22 Consent of Merrill Lynch & Co. (included in Annex C to the Joint Proxy
Statement/Prospectus).
*24.1 Powers of Attorney (contained on signature pages hereto).
*99.1 Opinion of PaineWebber Incorporated as to the fairness of the
transaction to stockholders of Patriot & Wyndham International (Annex
B to the Joint Proxy Statement/Prospectus).
*99.2 Opinion of Merrill Lynch & Co. as to the fairness of the transaction
to stockholders of Interstate (Annex C to the Joint Proxy
Statement/Prospectus).
**99.3 Form of Patriot & Wyndham International Proxy.
**99.4 Form of Interstate Proxy.
</TABLE>
- --------
*Filed herewith.
**To be filed by amendment.
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21 (b) of this Form.
(c) The Opinion of PaineWebber Incorporated is included as Annex B to the
Joint Proxy Statement/ Prospectus included in this Registration Statement. The
Opinion of Merrill Lynch & Co. is included as Annex C to the Joint Proxy
Statement/Prospectus included in this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
II-5
<PAGE>
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bonafide offering thereof, and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bonafide offering
thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH OF THE
REGISTRANTS HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS,
STATE OF TEXAS, ON JANUARY 9, 1998.
Patriot American Hospitality, Inc. Wyndham International, Inc.
/s/ Anne L. Raymond /s/ Rex E. Stewart
By: _________________________________ By: _________________________________
ANNE L. RAYMOND, EXECUTIVE VICE REX E. STEWART, EXECUTIVE VICE
PRESIDENT PRESIDENT
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Paul A. Nussbaum, Rex E. Stewart and
Anne L. Raymond such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
(or any Registration Statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that any said attorney-in-fact
and agent, or any substitute or substitutes of any of them, may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Paul A. Nussbaum Chairman of the January 9, 1998
- ------------------------------------- Board of Directors
PAUL A. NUSSBAUM and Chief Executive
Officer, Patriot
American
Hospitality, Inc.
(Principal
Executive Officer)
/s/ Anne L. Raymond Chief Financial January 9, 1998
- ------------------------------------- Officer, Executive
ANNE L. RAYMOND Vice President and
Treasurer, Patriot
American
Hospitality, Inc.
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ William W. Evans III President and January 9, 1998
- ------------------------------------- Director, Patriot
WILLIAM W. EVANS III American
Hospitality, Inc.
II-7
<PAGE>
SIGNATURE TITLE DATE
/s/ James D. Carreker Director, Patriot January 9, 1998
- ------------------------------------- American
JAMES D. CARREKER Hospitality, Inc.
/s/ Harlan R. Crow Director, Patriot January 9, 1998
- ------------------------------------- American
HARLAN R. CROW Hospitality, Inc.
Director, Patriot January 9, 1998
- ------------------------------------- American
JOHN H. DANIELS Hospitality, Inc.
Director, Patriot January 9, 1998
- ------------------------------------- American
JOHN C. DETERDING Hospitality, Inc.
Director, Patriot January 9, 1998
- ------------------------------------- American
GREGORY R. DILLON Hospitality, Inc.
/s/ Arch K. Jacobson Director, Patriot January 9, 1998
- ------------------------------------- American
ARCH K. JACOBSON Hospitality, Inc.
/s/ Philip J. Ward Director, Patriot January 9, 1998
- ------------------------------------- American
PHILIP J. WARD Hospitality, Inc.
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<PAGE>
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Paul A. Nussbaum, Rex E. Stewart and
Anne L. Raymond such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
(or any Registration Statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that any said attorney-in-fact
and agent, or any substitute or substitutes of any of them, may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
/s/ James D. Carreker Chairman of the January 9, 1998
- ------------------------------------- Board of Directors
JAMES D. CARREKER and Chief Executive
Officer, Wyndham
International, Inc.
(Principal
Executive Officer)
/s/ Karim Alibhai President, Chief January 9, 1998
- ------------------------------------- Operating Officer
KARIM ALIBHAI and Director,
Wyndham
International, Inc.
/s/ Rex E. Stewart Chief Financial January 9, 1998
- ------------------------------------- Officer, Executive
REX E. STEWART Vice President and
Treasurer, Wyndham
International, Inc.
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Leonard Boxer Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
LEONARD BOXER
Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
BURTON C. EINSPRUCH
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<PAGE>
SIGNATURE TITLE DATE
/s/ Susan T. Groenteman Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
SUSAN T. GROENTEMAN
/s/ Arch K. Jacobson Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
ARCH K. JACOBSON
/s/ James C. Leslie Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
JAMES C. LESLIE
Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
RUSS LYON, JR.
/s/ Paul A. Nussbaum Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
PAUL A. NUSSBAUM
Director, Wyndham January 9, 1998
- ------------------------------------- International, Inc.
SHERWOOD WEISER
II-10
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EXHIBIT INDEX
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*2.1 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot American Hospitality, Inc.
and Wyndham International, Inc. (f/k/a Patriot American Hospitality
Operating Company) (Annex A to the Joint Proxy Statement/Prospectus).
*2.2 Form of Subscription Agreement by and among Wyndham International,
Inc., Patriot American Hospitality, Inc. and Interstate Hotels
Company.
*3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc.
**3.2 Amended and Restated Bylaws of Patriot American Hospitality, Inc.
*3.3 Amended and Restated Certificate of Incorporation of Wyndham
International, Inc.
**3.4 Amended and Restated Bylaws of Wyndham International, Inc.
4.1 Agreement (the "Pairing Agreement"), dated February 15, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company and
California Jockey Club (f/k/a Bay Meadows Realty Enterprises, Inc.),
as amended, incorporated by reference to Exhibit 4.3 to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-2, and to Exhibit
4.2 to Cal Jockey's and Bay Meadows' Annual Report on Form 10-K for
the year ended December 31, 1987 (Nos. 001-09319 and 001-09320).
4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference
to Exhibit 4.2 to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
**4.3 Amendment No. 3 to the Pairing Agreement.
**4.4 Cooperation Agreement dated December 18, 1997, between Patriot
American Hospitality, Inc. and Wyndham International, Inc.
**5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered by Patriot American Hospitality, Inc.
**5.2 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered by Wyndham International, Inc.
**8.1 Opinion of Goodwin, Procter & Hoar llp regarding (i) tax consequences
of the Merger, (ii) Patriot's qualification as a REIT for periods
prior to the Merger and (iii) Patriot's ability to qualify as a REIT
following the Merger.
10.1 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot American Hospitality, Inc., Wyndham International, Inc., the
shareholders of Interstate Hotels Company named on the signature
pages thereto, and Interstate Hotels Company, incorporated by
reference to Exhibit 10.1 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Current Report on Form 8-K dated
December 2, 1997 (filed December 4, 1997) (Nos. 001-09319, 001-
09320).
*10.2 Amended and Restated Credit Agreement, dated as of December 16, 1997,
among Patriot American Hospitality, Inc., Patriot American
Hospitality Partnership, L.P., The Chase Manhattan Bank, PaineWebber
Real Estate Securities, Inc. and various lenders identified therein.
*10.3 Term Loan Agreement, dated as of December 16, 1997, among Patriot
American Hospitality, Inc., Patriot American Hospitality Partnership,
L.P., The Chase Manhattan Bank, PaineWebber Real Estate Securities,
Inc. and various lenders identified therein.
10.4(1) Second Amended and Restated Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P., incorporated by
reference to Exhibit 10.1(1) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
</TABLE>
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10.4(2) First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(2) to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-4 (No. 333-28085).
10.4(3) Second Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(3) to Patriot
American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-39875).
10.4(4) Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(4) to Patriot American
Hospitality, Inc.'s and Wyndham International, Inc.'s Registration
Statement on Form S-4 (No. 333-39875).
10.4(5) Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.,
incorporated by reference to Exhibit 10.1(5) to Patriot American
Hospitality, Inc.'s and Wyndham International, Inc.'s Registration
Statement on Form S-4 (No. 333-39875).
10.5(l) Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P., incorporated by reference to Exhibit
10.2(l) to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
10.5(2) First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership L.P., incorporated by
reference to Exhibit 10.2(2) to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.5(3) Second Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P., incorporated by
reference to Exhibit 10.2(3) to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s Registration Statement on Form S-4
(No. 333-39875).
**10.6 Registration Rights Agreement, dated as of January 5, 1998, by and
between Patriot American Hospitality, Inc., Wyndham International,
Inc., and each of the parties signatory thereto.
10.7 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Exhibit 10.10 to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s, Registration Statement on Form S-
4. (No. 333-39875).
10.8 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Paul A. Nussbaum, incorporated by
reference to Exhibit 10.11 to Patriot American Hospitality, Inc.'s
and Wyndham International Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.9 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and William W. Evans III, incorporated by
reference to Exhibit 10.12 to Patriot American Hospitality, Inc.'s
and Wyndham International Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.10 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.13 to Patriot American Hospitality, Inc.'s
and Wyndham International Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.11 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and James D. Carreker, incorporated by
reference to Exhibit 10.14 to Patriot American Hospitality, Inc.'s
and Wyndham International Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.12 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated
by reference to Exhibit 10.15 to Patriot American Hospitality,
Inc.'s and Wyndham International Inc.'s Registration Statement on
Form S-4 (No. 333-39875).
</TABLE>
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10.13 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to Exhibit 10.16 to Patriot American Hospitality, Inc.'s and
Wyndham International Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.14 Letter Agreement, dated as of April 14, 1997, by and between Patriot
American Hospitality, Inc. and Wynopt Investment Partnership, L.P.,
incorporated by reference to Exhibit 10. 19 to Patriot American
Hospitality, Inc.'s and Wyndham International, Inc.'s Registration
Statement on Form S-4 (No. 333-39875).
10.15 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and James D. Carreker, incorporated
by reference to Exhibit 10.20 to Patriot American Hospitality, Inc.'s
and Wyndham International, Inc.'s Registration Statement on Form S-4
(No. 333-39875).
10.16 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Anne L. Raymond, incorporated by
reference to Exhibit 10.21 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.17 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Leslie V. Bentley, incorporated by
reference to Exhibit 10.22 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.18 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr., incorporated by
reference to Exhibit 10.23 to Patriot American Hospitality, Inc.'s and
Wyndham International, Inc.'s Registration Statement on Form S-4 (No.
333-39875).
10.19 Harlan R. Crow Letter Agreement, dated as of April 14, 1997, re:
Management Agreement between Anatole Hotel Investors, L.P. and Wyndham
Hotel Company, Ltd., incorporated by reference to Exhibit 10.38 to
Patriot American Hospitality, Inc.'s and Wyndham International Inc.'s
Registration Statement on Form S-4 (No. 333-39875).
10.20 Executive Employment Agreement made as of September 30, 1997, by and
among Wyndham International, Inc., Williams Hospitality Group, Inc.
and Louis J. Nicastro, incorporated by reference to Exhibit 10.40 to
Patriot American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-40041).
10.21 Voting and Option Agreement dated as of September 30, 1997, among
Wyndham International, Inc., Patriot American Hospitality Operating
Company Acquisition Subsidiary, Patriot American Hospitality, Inc. and
Louis J. Nicastro, incorporated by reference to Exhibit 10.41 to
Patriot American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-40041).
10.22 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Wyndham International Inc., Patriot American Hospitality, Inc.
and CHC International, Inc., incorporated by reference to Exhibit
10.40 to Patriot American Hospitality, Inc.'s and Wyndham
International Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
10.23 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American
Hospitality Operating Partnership, L.P. and certain subsidiaries of
CHC International, Inc., incorporated by reference to Exhibit 10.42 to
Patriot American Hospitality, Inc.'s and Wyndham International, Inc.'s
Registration Statement on Form S-4 (No. 333-39875).
10.24 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among WHG Resorts & Casinos Inc., Patriot American Hospitality, Inc.,
Patriot American Hospitality Operating Company Acquisition Company and
Wyndham International, Inc., incorporated by reference to Exhibit 2.1
to Patriot American Hospitality, Inc.'s and Wyndham International,
Inc.'s Registration Statement on Form S-4 (No. 333-40041).
</TABLE>
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<TABLE>
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EXHIBIT DESCRIPTION
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<C> <S>
**10.25 Form of Registration Rights Agreement by and among Patriot American
Hospitality, Inc., Wyndham International, Inc. and the other parties
identified therein.
*10.26 Purchase Agreement, dated as of December 31, 1997, by and among
Patriot American Hospitality, Inc., Wyndham International, Inc., UBS
Limited and Union Bank of Switzerland, London Branch.
10.27 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P., incorporated by
reference to Patriot American Hospitality, Inc.'s and Wyndham
International, Inc.'s Registration Statement on Form S-4 (No. 333-
39875).
**21.1 Subsidiaries of Patriot American Hospitality, Inc.
**21.2 Subsidiaries of Wyndham International, Inc.
*23.1 Consent of Deloitte & Touche LLP (San Francisco, California).
*23.2 Consent of Deloitte & Touche LLP (Houston, Texas).
*23.3 Consent of Ernst & Young LLP (Dallas, Texas).
*23.4 Consent of Ernst & Young LLP (Seattle, Washington).
*23.5 Consent of Ernst & Young LLP (Phoenix, Arizona).
*23.6 Consent of Ernst & Young LLP (Miami, Florida).
*23.7 Consent of Ernst & Young LLP (Kansas City, Missouri).
*23.8 Consent of Ernst & Young LLP (San Juan, Puerto Rico).
*23.9 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
*23.10 Consent of Coopers & Lybrand L.L.P. (Pittsburgh, Pennsylvania).
*23.11 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.12 Consent of Coopers & Lybrand L.L.P. (Newport Beach, California).
*23.13 Consent of Coopers & Lybrand L.L.P. (Phoenix, Arizona).
*23.14 Consent of Coopers & Lybrand L.L.P. (Tampa, Florida).
*23.15 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
*23.16 Consent of Price Waterhouse LLP (Miami, Florida).
*23.17 Consent of Arthur Andersen LLP (Dallas, Texas).
*23.18 Consent of Mayer Hoffman McCann L.C.
**23.19 Consent of Goodwin, Procter & Hoar llp (in opinions filed as Exhibits
5.1 and 5.2).
**23.20 Consent of Goodwin, Procter & Hoar llp (in opinion filed as Exhibit
8.1).
*23.21 Consent of PaineWebber Incorporated (included in Annex B to the Joint
Proxy Statement/Prospectus).
*23.22 Consent of Merrill Lynch & Co. (included in Annex C to the Joint Proxy
Statement/Prospectus).
*24.1 Powers of Attorney (contained on signature pages hereto).
*99.1 Opinion of PaineWebber Incorporated as to the fairness of the
transaction to stockholders of Patriot & Wyndham International (Annex
B to the Joint Proxy Statement/Prospectus).
*99.2 Opinion of Merrill Lynch & Co. as to the fairness of the transaction
to stockholders of Interstate (Annex C to the Joint Proxy
Statement/Prospectus).
**99.3 Form of Patriot & Wyndham International Proxy.
**99.4 Form of Interstate Proxy.
</TABLE>
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*Filed herewith.
**To be filed by amendment.
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EXHIBIT 2.2
FORM OF
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement"), dated as of _________ __,
1997, is entered into by and among Interstate Hotels Company, a Pennsylvania
corporation ("IHC"), Patriot American Hospitality Operating Company, a Delaware
corporation ("OPCO"), and Patriot American Hospitality, Inc., a Delaware
corporation ("Parent").
W I T N E S S E T H:
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WHEREAS, the shares of common stock, par value $.01 per share, of OPCO (the
"OPCO Stock") and the shares of common stock, par value $.01 per share (the
"Parent Stock"), of Parent are paired and trade as a single unit on the New York
Stock Exchange (the "Paired Shares");
WHEREAS, IHC, OPCO and Parent entered into an Agreement and Plan of Merger
dated as of December 2, 1997 (the "Merger Agreement");
WHEREAS, the Merger Agreement provides for the merger of IHC with and into
Parent (the "Merger") with Parent being the surviving corporation, and provides
that the stockholders of IHC will be entitled to receive Paired Shares pursuant
to the terms and subject to the conditions set forth therein;
WHEREAS, to maintain the paired share structure of Parent and OPCO, IHC
wishes to contract for the issuance to its stockholders as part of the Paired
Shares to be issued to the stockholders of IHC pursuant to the Merger, of, and
OPCO wishes to issue, an aggregate number of whole shares of OPCO Stock (each an
"Issuable Share" and collectively the "Issuable Shares") that will be equal to,
and paired with, the number of whole shares of Parent Stock to be issued to the
stockholders of IHC pursuant to the Merger, upon the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, to effect a distribution to the stockholders of IHC, IHC and
Parent desire to have OPCO issue the Issuable Shares directly to the
stockholders of IHC.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties hereto agree as follows:
1. Issuance of Shares.
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(a) Subject to the satisfaction or waiver of the conditions set
forth in Article VI of the Merger Agreement, IHC (or at Parent's option, Parent)
hereby agrees to pay or deliver to OPCO, immediately prior to the consummation
of the Merger, the aggregate Purchase Price (as defined below) for the Issuable
Shares. Subject to the satisfaction or waiver of the conditions set forth in
Article VI of the Merger Agreement, OPCO hereby agrees to issue the Issuable
Shares directly to the stockholders of IHC (the "Designees") in accordance with
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Sections 1(b) and 2 below. The purchase price (the "Purchase Price") for the
Issuable Shares shall be paid by IHC (or at Parent's option, Parent) in cash or
property and per Issuable Share shall be equal to, or in the case of property
have a value of, the product of (x) the Fair Market Value (as hereinafter
defined) of a Paired Share, multiplied by (y) the relative value of a share of
OPCO Stock as compared to a share of Parent Stock, which relative value shall be
determined by the parties to this Agreement. For purposes of this Agreement, the
term "Fair Market Value" shall mean the average per share closing price for a
Paired Share on the NYSE Composite Transactions Tape (as reported in the Wall
----
Street Journal or, if not reported therein, by another authoritative source)
- --------------
over the 20 consecutive trading day period ending on the trading date
immediately preceding the Closing Date.
(b) The parties hereto acknowledge and agree that the Issuable Shares
will be issued directly to the stockholders of IHC in connection with the Merger
and will be paired with the Parent Stock issued in the Merger and neither IHC
nor Parent will at any time become a stockholder of OPCO or have any right to
receive OPCO Stock.
2. Payment and Issuance of Issuable Shares.
---------------------------------------
(a) Subject to the terms and conditions of this Agreement and
subject to the satisfaction or waiver of the conditions set forth in Article VI
of the Merger Agreement, IHC (or at Parent's option, Parent) shall, immediately
prior to the consummation of the Merger, cause to be paid to OPCO the aggregate
Purchase Price for the Issuable Shares by check or wire transfer in immediately
available funds, if payment is to be made in cash, or delivered to OPCO as
evidenced by appropriate documentation conveying title to OPCO, if, at Parent's
option and after agreement of the parties to this Agreement as to relative value
of such property, payment is to be made by delivering property. Simultaneously
with the payment or delivery of the aggregate Purchase Price, the Designees
shall be identified as the recipients of the Issuable Shares.
(b) Immediately following payment or delivery of the aggregate
Purchase Price and the identification of the Designees pursuant to clause (a)
above, OPCO shall cause the Issuable Shares to be deposited with the Exchange
Agent pursuant to and in accordance with Section 2.02 of the Merger Agreement
for issuance in accordance with Sections 2.01(d) and (g) of the Merger
Agreement.
(c) No fractional Issuable Shares will be issued to any Designee
hereunder. In lieu thereof, payment, if any, will be made pursuant to, and in
accordance with, Section 2.02(e) of the Merger Agreement.
3. Authorization and Reservation. OPCO shall take all actions necessary
-----------------------------
to authorize and reserve for issuance the Issuable Shares pursuant to this
Agreement.
4. Representations and Warranties of OPCO. OPCO hereby represents and
--------------------------------------
warrants to IHC as follows:
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(a) OPCO has all necessary corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by OPCO has been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of OPCO are necessary to authorize this Agreement or to consummate
the transactions hereunder. This Agreement has been duly and validly executed
and delivered by OPCO and, assuming the due authorization, execution and
delivery hereof by IHC, constitutes the legal, valid and binding obligation of
OPCO, enforceable against it in accordance with its terms.
(b) The Issuable Shares, when issued, sold and delivered in
accordance with this Agreement, will be validly issued, outstanding, fully paid
and nonassessable, and free and clear of any and all liens, pledges,
encumbrances, charges or claims created by OPCO, and not subject to preemptive
or any other similar rights.
(c) The execution and delivery of this Agreement by OPCO does not,
and the performance of its obligations hereunder and the consummation of the
subscription by it will not, (A) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of OPCO or any of
its subsidiaries, (B) subject to the making of the filings and obtaining the
approvals identified herein or in the Merger Agreement, conflict with or violate
any Laws applicable to OPCO or any of its subsidiaries or by which any property
or asset of OPCO or any of its subsidiaries is bound or affected, or (C)
conflict with or result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, result
in the loss or modification in a manner materially adverse to OPCO or its
subsidiaries of any material right or benefit under, or give to others any right
of termination, amendment, acceleration, repurchase or repayment, increased
payments or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of OPCO or any of its subsidiaries pursuant
to, any contract to which OPCO or any of its subsidiaries is a party or by which
OPCO or any of its subsidiaries or any property or asset of OPCO or any
subsidiary is bound or affected, except, in the case of clauses (B) and (C) for
any such conflicts or violations which would not prevent or delay in any
material respect consummation of the Merger, or otherwise, individually or in
the aggregate, prevent OPCO from performing its obligations under this Agreement
in any material respect, and would not, individually or in the aggregate, have a
Parent MAE.
(d) The execution and delivery of this Agreement by OPCO does not,
and the performance of its obligations hereunder and the consummation of the
subscription by it will not, other than the Regulatory Filings, require any
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority except where the failure to
obtain any such consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority could not reasonably
be expected to have a Parent MAE.
5. Representations and Warranties of IHC. IHC hereby represents and
-------------------------------------
warrants to OPCO as follows:
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(a) IHC has all necessary power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement by IHC and the performance by it of its
obligations hereunder have been duly and validly authorized by all necessary
action and no other proceedings on the part of IHC are necessary to authorize
this Agreement or to consummate the transactions hereunder. This Agreement has
been duly and validly executed and delivered by IHC and, assuming the due
authorization, execution and delivery hereof by OPCO, constitutes the legal,
valid and binding obligation of IHC, enforceable against it in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally and by
equitable principles to which the remedies of specific performance and
injunctive and similar forms of relief are subject.
(b) The execution and delivery by IHC of this Agreement does not,
and the consummation by IHC of the transactions contemplated hereby will not,
(i) violate any provision of, or result in a breach, default or acceleration of
any obligation under any contract, agreement or other instrument to which IHC is
a party or by which IHC is bound or (ii) require any consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not have a IHC Material Adverse
Effect.
6. Termination. This Agreement shall terminate effective upon
-----------
termination of the Merger Agreement pursuant to Article VII thereof.
7. Effect on Cooperation Agreement. Nothing contained in this
-------------------------------
Agreement, shall alter, limit, amend or restrict any of Parent's rights pursuant
to that certain Cooperation Agreement, dated ________ __, 1997, between Parent
and OPCO.
8. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware.
9. Assignment; Binding Effect; Benefit. This Agreement shall be binding
-----------------------------------
upon, and inure to the benefit of, the parties hereto and their respective
successors. This Agreement may not be assigned by either party without prior
written consent of the other party.
10. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
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12. Capitalized Terms. Capitalized terms used herein without definition
-----------------
shall have the respective meanings ascribed to such terms in the Merger
Agreement
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IN WITNESS WHEREOF the parties hereto have executed this Subscription
Agreement as of the date first set forth above.
PATRIOT AMERICAN HOSPITALITY, INC.
By:
---------------------------------
Name:
Title:
PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
By:
---------------------------------
Name:
Title:
INTERSTATE HOTELS COMPANY
By:
---------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATRIOT AMERICAN HOSPITALITY, INC.
Patriot American Hospitality, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The name of the Corporation is Patriot American Hospitality, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was January 27, 1983 (the
"Original Certificate of Incorporation"). The name under which the
Corporation filed the Original Certificate of Incorporation was Bay Meadows
Realty Enterprises, Inc. The name of the Corporation was changed to
California Jockey Club on March 31, 1983, by way of amendment to the
Original Certificate of Incorporation. An Amended and Restated Certificate
of Incorporation (the "Second Certificate") was filed with the Secretary of
State of the State of Delaware on July 1, 1997, pursuant to which, among
other things, the name of the Corporation was changed to Patriot American
Hospitality, Inc.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Second
Certificate, was duly adopted by the Board of Directors of the Corporation
in accordance with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law, as amended from time to time (the "DGCL"), and was
duly adopted by the stockholders of the Corporation in accordance with the
applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Second Certificate, as amended to date, is hereby
amended and restated in its entirety to provide as herein set forth in
full.
I.
Name
The name of the corporation is Patriot American Hospitality, Inc.
II.
Purposes
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
Capital Stock
The Corporation shall have the authority to issue 650,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), 750,000,000
shares of excess stock, par value $.01 per share (the "Excess
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Stock"), and 100,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one vote
on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock and
subject to any other provisions of this Certificate or any amendment hereto,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken by
the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only by
a unanimous written consent of the stockholders signed by each stockholder
entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall be
stated and expressed herein or in the resolution or resolutions providing for
the issue of shares of a particular series, and in such resolution or
resolutions providing for the issue of shares of such series, the Board of
Directors, or any duly authorized committee thereof, is expressly authorized
to fix or establish the basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of such
series issued shall be cumulative, and the extent of participation rights,
if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire or
redeem shares of such series as a sinking fund or otherwise, and the terms
and conditions of any such redemption;
d. The designation and maximum number of shares of such series issuable;
e. The right to vote, if any, with holders of shares of any other class
or series, either generally or as a condition to specified corporate
action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary liquidation;
h. The rights, if any, of the holders of shares of such series to convert
such shares into other classes of stock of the Corporation, or to exchange
such shares for other securities or assets, and the terms and conditions of
any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors and
not prohibited by law.
C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms shall
have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the application of the constructive ownership rules of
Section 544 of the Internal Revenue Code of 1986, as
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amended (the "Code"), as modified by Section 856(h)(l)(B) of the Code, and
(iii) the number of shares of Equity Stock which such Person is deemed to
beneficially own pursuant to Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); provided however, that for the
purposes of calculating the foregoing, no share shall be counted more than
once. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Look-Through Entity" shall mean a Person that is either (i) a trust
described in Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code as modified by Section 856(h)(3) of the Code or (ii)
registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" shall mean, with respect to a class or
series of Equity Stock, 9.8% of the number of outstanding shares of such
Equity Stock.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(e) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(e) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event (other than a purported
Transfer) that would (a) cause any Person (other than a Look-Through
Entity) to Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit, (b) cause any Look-Through Entity to
Beneficially Own or Constructively Own shares of Equity Stock in excess of
the Look-Through Ownership Limit, (c) result in the capital stock of
Patriot REIT being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (d) result in Patriot REIT being "closely
held" within the meaning of Section 856(h) of the Code, or (e) cause
Patriot REIT to Constructively Own 10% or more of the ownership interest in
a tenant of Patriot REIT's or a Subsidiary's real property within the
meaning of Section 856(d)(2)(B) of the Code. Non-Transfer Events include
but are not limited to (i) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of shares of Equity
Stock or (ii) the sale, transfer, assignment or other disposition of
interests in any Person or of any securities or rights convertible into or
exchangeable for shares of Equity Stock that results in changes in
Beneficial Ownership or Constructive Ownership of shares of Equity Stock.
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"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 8.0% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by any Person, any shares of Equity Stock of the
Corporation which are deemed to be Beneficially Owned by such Person
pursuant to Rule 13d-3 of the Exchange Act but which are not outstanding
shall be deemed to be outstanding. "Pairing Agreement" shall mean the
Pairing Agreement, dated as of February 17, 1983, by and between Bay
Meadows Realty Enterprises, Inc. (the predecessor of California Jockey
Club) and Bay Meadows Operating Company, as amended from time to time in
accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Board of Directors determines that it is no longer in the best interests of
the Corporation to attempt to, or continue to, qualify under the Code as a
real estate investment trust (a "REIT").
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section D of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality
Operating Company (the "Operating Company") in accordance with the Pairing
Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person (other than a Look-Through Entity)
shall Beneficially Own or Constructively Own outstanding shares of Equity
Stock in excess of the Ownership Limit and no Look-Through Entity shall
Beneficially Own or Constructively Own outstanding shares of Equity Stock in
excess of the Look-Through Ownership Limit, (ii) any Transfer (whether or not
the result of a transaction entered into through the facilities of the New
York Stock Exchange) that, if effective, would result in any Person (other
than a Look-Through Entity) Beneficially Owning or Constructively Owning
shares of Equity Stock in excess of the Ownership Limit shall be void ab
initio as to the Transfer of that number of shares of Equity Stock which would
be otherwise Beneficially Owned or Constructively Owned by such Person in
excess of the Ownership Limit and the intended transferee shall acquire no
rights in such shares of Equity Stock, and (iii) any Transfer (whether or not
the result of a transaction entered into through the facilities of the New
York Stock Exchange) that, if effective, would result in any Look-Through
Entity Beneficially Owning or Constructively Owning shares of Equity Stock in
excess of the Look-Through Ownership Limit shall be void ab initio as to the
Transfer of that number of shares of Equity Stock which would be otherwise
Beneficially Owned or Constructively Owned by such Look-Through Entity in
excess of the Look-Through Ownership Limit and the intended transferee shall
acquire no rights in such shares of Equity Stock.
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b. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) that, if effective, would result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code shall be void
ab initio as to the Transfer of that number of shares of Equity Stock that
would cause the Corporation to be "closely held" within the meaning of Section
856(h) of the Code, and the intended transferee shall acquire no rights in
such shares of Equity Stock.
c. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of shares of Equity Stock that, if effective, would cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the real property of the Corporation or any direct or indirect
subsidiary (whether a corporation, partnership, limited liability company or
other entity) of the Corporation (a "Subsidiary"), within the meaning of
Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer
of that number of shares of Equity Stock that would cause the Corporation to
Constructively Own 10% or more of the ownership interests in a tenant of the
real property of the Corporation or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights
in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) that, if effective, would result in the shares of capital
stock of the Corporation being beneficially owned (within the meaning of
Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code shall be void ab initio and the intended
transferee shall acquire no rights in such shares of Equity Stock.
3. Owners Required to Provide Information. Until the Restriction Termination
Date:
a. Every Beneficial Owner or Constructive Owner of more than 5%, or such
lower percentages as required pursuant to regulations under the Code, of
the outstanding shares of any class or series of Equity Stock of the
Corporation shall, within 30 days after January 1 of each year, provide to
the Corporation a written statement or affidavit stating the name and
address of such Beneficial Owner or Constructive Owner, the number of
shares of Equity Stock Beneficially Owned or Constructively Owned, and a
description of how such shares are held. Each such Beneficial Owner or
Constructive Owner shall provide to the Corporation such additional
information as the Corporation may request to ensure compliance with the
restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of shares
of Equity Stock and each Person (including the stockholder of record) who
is holding shares of Equity Stock for a Beneficial Owner or Constructive
Owner shall provide to the Corporation a written statement or affidavit
stating such information as the Corporation may request in order to
determine the Corporation's status as a REIT and to ensure compliance with
the Ownership Limit or the Look-Through Ownership Limit, as the case may
be.
4. Exception. The Board of Directors, upon receipt of a ruling from the
Internal Revenue Service or an opinion of counsel in each case to the effect
that the restrictions contained in Sections (C)(2)(b) through (d) of this
Article IV would not be violated, may exempt a Person from the Ownership Limit
or Look-Through Ownership Limit , provided that (A) the Board of Directors
obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain that no Person's Beneficial Ownership or
Constructive Ownership of shares of Equity Stock will (i) result in the
capital stock of the Corporation being beneficially owned (within the meaning
of Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (ii) result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code or (iii) cause
the Corporation to Constructively Own 10% or more of the ownership interests
in the real property of a tenant of the Corporation or a Subsidiary within the
meaning of Section 856(d)(2)(B) of the Code and (B) such Person agrees in
writing that any violation or attempted violation of the Ownership Limit or
Look-Through Ownership Limit will result in the conversion of such shares into
shares of Excess Stock pursuant to Section (D)(1) of this Article IV.
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5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall preclude
the settlement of any transaction entered into through the facilities of the
New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event such that any Person (other than a Look-Through Entity)
would either Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit or such that any Person that is a Look-Through
Entity would either Beneficially Own or Constructively Own shares of Equity
Stock in excess of the Look-Through Ownership Limit, then, (i) except as
otherwise provided in Section (C)(4) of this Article IV, the purported
transferee shall be deemed to be a Prohibited Owner and shall acquire no right
or interest (or, in the case of a Non-Transfer Event, the Person holding
record title to the shares of Equity Stock Beneficially Owned or
Constructively Owned by such Beneficial Owner or Constructive Owner, shall
cease to own any right or interest) in such number of shares of Equity Stock
which would cause such Beneficial Owner or Constructive Owner to Beneficially
Own or Constructively Own shares of Equity Stock in excess of the Ownership
Limit or the Look-Through Ownership Limit, as the case may be, (ii) such
number of shares of Equity Stock in excess of the Ownership Limit or the Look-
Through Ownership Limit, as the case may be, (rounded up to the nearest whole
share) shall be automatically converted into an equal number of shares of
Excess Stock and transferred to a Trust in accordance with Section (D)(4) of
this Article IV and (iii) the Prohibited Owner shall submit such number of
shares of Equity Stock to the Corporation for registration in the name of the
Trustee of the Trust. Such conversion into Excess Stock and transfer to a
Trust shall be effective as of the close of trading on the Trading Day prior
to the date of the Transfer or Non-Transfer Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event that, if effective, would (i) result in the capital stock
of the Corporation being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code, (ii) result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code or (iii) cause the
Corporation to Constructively Own 10% or more of the ownership interest in a
tenant of the Corporation's or a Subsidiary's real property within the meaning
of Section 856(d)(2)(B) of the Code, then (x) the purported transferee shall
be deemed to be a Prohibited Owner and shall acquire no right or interest (or,
in the case of a Non-Transfer Event, the Person holding record title of the
shares of Equity Stock with respect to which such Non-Transfer Event occurred,
shall be deemed to be a Prohibited Owner and shall cease to own any right or
interest) in such number of shares of Equity Stock, the ownership of which by
such purported transferee or record holder would (A) result in the shares of
capital stock of the Corporation being beneficially owned (within the meaning
of Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (B) result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code or (C) cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the Corporation's or a Subsidiary's real property within the meaning
of Section 856(d)(2)(B) of the Code, (y) such number of shares of Equity Stock
(rounded up to the nearest whole share) shall be automatically converted into
an equal number of shares of Excess Stock and transferred to a Trust in
accordance with Section (D)(4) of this Article IV and (z) the Prohibited Owner
shall submit such number of shares of Equity Stock to the Corporation for
registration in the name of the Trustee of the Trust. Such conversion into
Excess Stock and transfer to a Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer or Non-Transfer
Event, as the case may be.
c. Upon the occurrence of such a conversion of shares of any class or series
of Equity Stock into an equal number of shares of Excess Stock, such shares of
Equity Stock shall be automatically retired and canceled, without any action
required by the Board of Directors of the Corporation, and shall thereupon be
restored to the
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status of authorized but unissued shares of the particular class or series of
Equity Stock from which such Excess Stock was converted and may be reissued by
the Corporation as that particular class or series of Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at any
time determine in good faith that a Transfer has taken place in violation of
Section (C)(2) of this Article IV or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership or Constructive Ownership of any
shares of Equity Stock in violation of Section (C)(2) of this Article IV, the
Corporation shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer or acquisition, including, but not
limited to, refusing to give effect to such Transfer on the stock transfer
books of the Corporation or instituting proceedings to enjoin such Transfer or
acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this Article
IV, or any Person who owns shares of Equity Stock that were converted into
shares of Excess Stock and transferred to a Trust pursuant to Sections (D)(1)
and (D)(4) of this Article IV, shall immediately give written notice to the
Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect,
if any, of such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's status as a REIT.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that results
in Excess Stock pursuant to Section (D)(1) of this Article IV, such Excess
Stock shall be automatically transferred to a Trust to be held for the
exclusive benefit of the Beneficiary. The Corporation and the Operating
Company shall name a Beneficiary for each Trust pursuant to the terms of the
Pairing Agreement. Any conversion of shares of Equity Stock into shares of
Excess Stock and transfer to a Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer or Non-Transfer
Event that results in the conversion. Shares of Excess Stock so held in trust
shall remain issued and outstanding shares of stock of the Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the same
dividends and distributions (as to both timing and amount) as may be declared
by the Board of Directors as shares of the class or series of Equity Stock
from which such Excess Stock was converted. The Trustee, as record holder of
the shares of Excess Stock, shall be entitled to receive all dividends and
distributions and shall hold all such dividends or distributions in trust for
the benefit of the Beneficiary. The Prohibited Owner with respect to such
shares of Excess Stock shall repay to the Trust the amount of any dividends or
distributions received by it (i) that are attributable to any shares of Equity
Stock that have been converted into shares of Excess Stock and (ii) the record
date of which was on or after the date that such shares were converted into
shares of Excess Stock. The Corporation shall take all measures that it
determines reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding
any portion of future dividends or distributions payable on shares of Equity
Stock Beneficially Owned or Constructively Owned by the Person who, but for
the provisions of this Article IV, would Constructively Own or Beneficially
Own the shares of Equity Stock that were converted into shares of Excess
Stock; and, as soon as reasonably practicable following the Corporation's
receipt or withholding thereof, shall pay over to the Trust for the benefit of
the Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the same
class or series from which the Equity Stock was converted, that portion of the
assets of the Corporation that is available for distribution to the holders of
such class or series of Equity Stock. The Trust shall distribute to the
Prohibited Owner the amounts received upon such liquidation, dissolution, or
winding up, or distribution; provided, however, that the Prohibited Owner
shall not be entitled to receive amounts in excess of, in the case of a
purported Transfer in which the Prohibited Owner gave value for shares of
Equity Stock and which Transfer resulted in the conversion of the shares into
shares of Excess Stock, the price per share, if any, such Prohibited Owner
paid for the shares of Equity Stock (which, in the case of Equity Stock that
is paired, shall equal the price per paired share multiplied by the most
recent Valuation Percentage) and, in the case of a Non-Transfer Event or
Transfer in which the
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Prohibited Owner did not give value for such shares (e.g., if the shares were
received through a gift or devise) and which Non-Transfer Event or Transfer,
as the case may be, resulted in the conversion of the shares into shares of
Excess Stock, the price per share equal to the Market Price on the date of
such Non-Transfer Event or Transfer. Any remaining amount in such Trust shall
be distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the holder to the
number of votes the holder would have, if such share of Excess Stock was a
share of Equity Stock of the same class or series from which such Excess Stock
was converted, on all matters submitted to a vote at any meeting of
stockholders. The holders of shares of Excess Stock converted from the same
class or series of Equity Stock shall vote together with the holders of such
Equity Stock as a single class on all such matters. The Trustee, as record
holder of the Excess Stock, shall be entitled to vote all shares of Excess
Stock. Any vote by a Prohibited Owner as a purported holder of shares of
Equity Stock prior to the discovery by the Corporation that the shares of
Equity Stock have been converted into shares of Excess Stock shall, subject to
applicable law, be rescinded and shall be void ab initio with respect to such
shares of Excess Stock, and the Prohibited Owner shall be deemed to have
given, as of the close of trading on the Trading Day prior to the date of the
purported Transfer or Non-Transfer Event that results in the conversion of the
shares of Equity Stock into shares of Excess Stock and the transfer of such
shares to a Trust pursuant to Sections (D)(1) and (D)(4) of this Article IV,
an irrevocable proxy to the Trustee to vote the shares of Excess Stock in the
manner in which the Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to designate one
or more Permitted Transferees of any and all shares of Excess Stock if the
Corporation fails to exercise its option with respect to such shares pursuant
to Section (D)(10) hereof within the time period set forth therein. As soon as
practicable, but in an orderly fashion so as not to materially adversely
affect the Market Price of the shares of Excess Stock, the Trustee shall
designate any one or more Persons as Permitted Transferees; provided, however,
that (i) the Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the shares of Excess Stock
(which, in the case of paired Excess Stock, shall be determined based on the
Valuation Percentage) and (ii) the Permitted Transferee so designated may
acquire such shares of Excess Stock without violating any of the restrictions
set forth in Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired into
shares of Excess Stock and the transfer of such shares to a Trust pursuant to
Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee shall cause
to be transferred to the Permitted Transferee that number of shares of Excess
Stock acquired by the Permitted Transferee. Upon such transfer of the shares
of Excess Stock to the Permitted Transferee, such shares of Excess Stock shall
be automatically converted into an equal number of shares of Equity Stock of
the same class and series from which such Excess Stock was converted. Upon the
occurrence of such a conversion of shares of Excess Stock into an equal number
of shares of Equity Stock, such shares of Excess Stock shall be automatically
retired and canceled, without any action required by the Board of Directors of
the Corporation, and shall thereupon be restored to the status of authorized
but unissued shares of Excess Stock and may be reissued by the Corporation as
Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer books of
the Corporation that the Permitted Transferee is the holder of record of such
number of shares of Equity Stock, and (ii) distribute to the Beneficiary any
and all amounts held with respect to the shares of Excess Stock after making
payment to the Prohibited Owner pursuant to Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in Section
(C)(2) of this Article IV, such Transfer shall be void ab initio as to that
number of shares of Excess Stock that cause the violation of any such
restriction when such shares are converted into shares of Equity Stock (as
described in clause (b) above) and the purported Permitted Transferee shall be
deemed to be a Prohibited Owner and shall acquire no rights in such shares of
Excess Stock or Equity Stock.
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Such shares of Equity Stock shall be automatically re-converted into Excess
Stock and transferred to the Trust from which they were originally
Transferred. Such conversion and transfer to the Trust shall be effective as
of the close of trading on the Trading Day prior to the date of the Transfer
to the purported Permitted Transferee and the provisions of this Article IV
shall apply to such shares, including, without limitation, the provisions of
Sections (D)(8) through (D)(10) with respect to any future Transfer of such
shares by the Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be entitled
(following discovery of the shares of Excess Stock and subsequent designation
of the Permitted Transferee in accordance with Section (D)(8) of this Article
IV or following the acceptance of the offer to purchase such shares in
accordance with Section (D)(10) of this Article IV) to receive from the
Trustee following the sale or other disposition of such shares of Excess Stock
the lesser of (i) (a) in the case of a purported Transfer in which the
Prohibited Owner gave value for shares of Equity Stock and which Transfer
resulted in the conversion of such shares into shares of Excess Stock, the
price per share, if any, such Prohibited Owner paid for the shares of Equity
Stock (which, in the case of paired Excess Stock, shall be determined based on
the Valuation Percentage) and (b) in the case of a Non-Transfer Event or
Transfer in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which Non-
Transfer Event or Transfer, as the case may be, resulted in the conversion of
such shares into shares of Excess Stock, the price per share equal to the
Market Price on the date of such Non-Transfer Event or Transfer or (ii) the
price per share (which, in the case of paired Excess Stock, shall be
determined based on the Valuation Percentage) received by the Trustee from the
sale or other disposition of such shares of Excess Stock in accordance with
this Section (D)(9) or Section (D)(10) of this Article IV. Any amounts
received by the Trustee in respect of such shares of Excess Stock and in
excess of such amounts to be paid the Prohibited Owner pursuant to this
Section (D)(9) shall be distributed to the Beneficiary in accordance with the
provisions of Section (D)(8) of this Article IV. Each Beneficiary and
Prohibited Owner shall waive any and all claims that it may have against the
Trustee and the Trust arising out of the disposition of shares of Excess
Stock, except for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with this Section
D of this Article IV by, such Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be deemed
to have been offered for sale to the Corporation or its designee, at a price
per share equal to the lesser of (i) the price per share (which, in the case
of paired Excess Stock, shall be determined based on the Valuation Percentage)
in the transaction that created such shares of Excess Stock (or, in the case
of devise, gift or Non-Transfer Event, the Market Price at the time of such
devise, gift or Non-Transfer Event) or (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation shall have
the right to accept such offer for a period of 90 days following the later of
(a) the date of the Non-Transfer Event or purported Transfer which results in
such shares of Excess Stock or (b) the date on which the Corporation
determines in good faith that a Transfer or Non-Transfer Event resulting in
shares of Excess Stock previously has occurred, if the Corporation does not
receive a notice of such Transfer or Non-Transfer Event pursuant to Section
(D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT and to
ensure compliance with the requirements of the Pairing Agreement and with the
restrictions set forth in Section C of this Article IV.
G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the
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power to determine the application of the provisions of this Article IV with
respect to any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Wyndham
International, Inc. represented by this combined certificate are subject to
restrictions in the respective Amended and Restated Certificates of
Incorporation of each company which prohibit (a) any Person (other than a
Look-Through Entity) (as such terms are defined in the respective Amended
and Restated Certificates of Incorporation of each company) from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated Certificates of Incorporation of each
company) in excess of 8.0% of the number of outstanding shares of any class
or series of Equity Stock (as that term is defined in the respective
Amended and Restated Certificates of Incorporation of each company), (b)
any Look-Through Entity from Beneficially Owning or Constructively Owning
in excess of 9.8% of the number of outstanding shares of any class or
series of Equity Stock, (c) any Person from acquiring or maintaining any
ownership interest in the stock of either company that is inconsistent with
(i) the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to real estate investment trusts or (ii) Article IV of the
respective Amended and Restated Certificates of Incorporation of each
company and (d) any transfer of shares of any class or series of Equity
Stock of either company that are paired pursuant to the Pairing Agreement,
dated as of February 17, 1983, between the two companies, as amended from
time to time in accordance with the provisions thereof (the "Pairing
Agreement"), except in combination with an equal number of shares of the
other company in accordance with the respective Amended and Restated Bylaws
of each company and the Pairing Agreement, copies of which are on file with
the transfer agent named on the face hereof, and the holder of this
certificate by his acceptance hereof consents to be bound by such
restrictions.
Patriot American Hospitality, Inc. and Wyndham International, Inc. will
furnish without charge to each stockholder who so requests a copy of the
relevant provisions of the respective Amended and Restated Certificates of
Incorporation and the respective Amended and Restated Bylaws of each
company, a copy of the Pairing Agreement and a copy of the provisions
setting forth the designations, preferences, privileges and rights of each
class of stock or series thereof that each company is authorized to issue
and the qualifications, limitations and restrictions of such preferences
and/or rights. Any such request may be addressed to the Secretary of either
company or to the transfer agent named on the face hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall in no way affect the
validity of any other provision.
V.
Directors
A. General Powers. Except as otherwise expressly provided in this
Certificate, the property, affairs and business of the Corporation shall be
managed under the direction of the Board of Directors and, except as otherwise
expressly provided by law, the Bylaws or this Certificate, all of the powers
of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. At each annual meeting of stockholders, the
successor or successors of the class of directors whose term expires at that
meeting shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at such meeting and entitled to vote on the
election of directors, and shall hold office for a term expiring at the annual
meeting of stockholders held in the
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third year following the year of their election. The directors elected to each
class shall hold office until their successors are duly elected and qualified
or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's successor shall
have been duly elected and qualified, or until such director's right to hold
such office terminates pursuant to said provisions, whichever occurs earlier,
subject to such director's earlier death, disqualification, resignation or
removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Preferred Stock having such right to elect additional directors are divested
of such right pursuant to the provisions of such stock, the terms of office of
all such additional directors elected by the holders of such stock, or elected
to fill any vacancies resulting from the death, resignation, disqualification
or removal of such additional directors, shall forthwith terminate and the
total and authorized number of directors of the Corporation shall be reduced
accordingly.
D. Removal of Directors. Subject to the rights, if any, of any series of
Preferred Stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be
removed from office (a) only with cause and (b) only by the affirmative vote
of the holders of at least 75% of the shares then entitled to vote at an
election of directors. At least 30 days prior to any meeting of stockholders
at which it is proposed that any director be removed from office, written
notice of such proposed removal shall be sent to the director whose removal
will be considered at the meeting. For purposes of this Certificate, "cause,"
with respect to the removal of any director shall mean only (i) conviction of
a felony, (ii) declaration of unsound mind by order of a court, (iii) gross
dereliction of duty, (iv) commission of any act involving moral turpitude or
(v) commission of an act that constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit to such director and a material injury to the
Corporation.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
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F. Cooperation and Coordination with Patriot American Hospitality Operating
Company.
1. Definitions. For the purposes of this Section F Article V the following
terms shall have the meanings set forth below:
"Change of Control" shall mean the occurrence, with respect to either
OPCO or the Corporation, of any one of the following events (OPCO and the
Corporation being referred to below, as the case may be, as the "Company"):
a. any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company or any trustee fiduciary or other person or
entity holding securities under any employee benefit plan or trust of
the Company, together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of either (A) the combined voting
power of the Company's then outstanding securities having the right to
vote generally in an election of the Company's Board of Directors (the
"Voting Securities") or (B) the then outstanding Paired Shares (in
either such case other than as a result of an acquisition of securities
directly from the Company); or
b. (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, solely as a result of their capacity as such,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, securities representing in the aggregate 50% or more of the
voting securities of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing
the number of Paired Shares or other Voting Securities outstanding,
increases (x) the proportionate number of Paired Shares beneficially owned
by any person to 50% or more of the Paired Shares then outstanding or (y)
the proportionate voting power represented by the Voting Securities
beneficially owned by any person to 50% or more of the combined voting
power of all then outstanding Voting Securities; provided, however, that if
any person referred to in clause (x) or (y) of this sentence shall
thereafter become the beneficial owner of any additional Paired Shares or
other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction) and whose ownership immediately
thereafter shall equal or exceed the amounts set forth in clauses (x) or
(y), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
"Change in Patriot's Line of Business" shall mean an action by the
Corporation or Patriot OP (as hereinafter defined) with respect to the
Corporation's or Patriot OP's business that results in the consolidation
for financial reporting purposes of the results of operations of Patriot
with those of any business activity other than hospitality and hospitality-
related businesses, the gaming business and any other business in which the
Corporation or Patriot OP is engaged as of the date of this Certificate.
"Cooperation Agreement" shall mean the Cooperation Agreement to be
entered into by and between the Corporation and OPCO in connection with the
Merger.
"Issuance of Paired Equity" means a private or public offering, sale,
issuance or delivery of, or commitment or agreement to commit to offer,
sell, issue or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or
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any other debt or equity securities of OPCO (including, without limitation,
indebtedness having the right to vote, indebtedness convertible into any
equity of any class or any other securities) or limited partnership
interests or units of Patriot American Hospitality Operating Partnership,
L.P. ("OPCO OP")), or equity equivalents of either (including, without
limitation, stock appreciation rights), if it is contemplated that such
stock or other securities, or any securities underlying such stock or other
securities, would or could be paired with Patriot Stock (as defined in the
Merger Agreement) or any other securities of the Corporation, or, in the
case of limited partnership interests or units of OPCO OP, it is
contemplated that such interests or units would or could be economically
(or otherwise) "paired" (even if not pursuant to the Pairing Agreement)
with the limited partnership interests or units of Patriot American
Hospitality Partnership, L.P. ("Patriot OP"). Issuance of Paired Equity
shall also mean (A) the related issuance by the Corporation or Patriot OP
of the securities of the Corporation or Patriot OP which are paired with
the securities of OPCO or OPCO OP and (B) any reorganization,
recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, repurchase or redemption of
shares, change in corporate structure or the like in which the outstanding
Paired Shares would be increased, decreased, changed into or exchanged for
a different number or kind of Paired Shares or other paired securities.
"Issuance of Unpaired Equity" means, in the case of OPCO, a public or
private offering, sale, issuance, delivery or commitment or agreement to
commit to offer, sell, issue or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any or all securities described in the immediately
preceding definition of "Issuance of Paired Equity" if it is contemplated
that such stock or other securities, and any securities underlying such
stock or other securities, would not or could not be paired with Patriot
Stock (as defined in the Merger Agreement) or any other securities of
Patriot or, in the case of limited partnership interests or units of OPCO
OP, it is contemplated that such interests or units would not or could not
economically (or otherwise) be "paired" with the limited partnership
interests or units of Patriot OP. "Issuance of Unpaired Equity" means, in
the case of the Corporation, a public or private offering, sale, issuance
or delivery of, or commitment or agreement to commit to offer, sell, issue
or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), any stock of
any class or any other debt or equity securities of the Corporation
(including, without limitation, indebtedness having the right to vote and
indebtedness convertible into any equity of any class or any other
securities) or limited partnership interests or units of Patriot OP, or
equity equivalents of either (including, without limitation, stock
appreciation rights), if it is contemplated that such stock or other
securities, and any securities underlying such stock or other securities,
would not or could not be paired with OPCO Stock (as defined in the Merger
Agreement) or any other securities of OPCO or, in the case of limited
partnership interests or units of Patriot OP, it is contemplated that such
interests or units would not or could not be economically (or otherwise)
"paired" (even if not pursuant to the Pairing Agreement) with the limited
partnership interests or units of OPCO OP.
"Merger" shall mean the merger of the Corporation and Wyndham Hotel
Corporation, a Delaware corporation ("Wyndham"), pursuant to an Agreement
and Plan of Merger dated as of April 14, 1997 (the "Merger Agreement"), in
which the Corporation and Wyndham agreed to engage in a business
combination pursuant to which Wyndham will merge with and into the
Corporation with the Corporation being the surviving corporation.
"OPCO" shall mean Wyndham International, Inc. (formerly known as Patriot
American Hospitality Operating Company).
"Paired Shares" or "Paired Equity" shall mean, immediately following the
Merger, the shares of common stock, par value $.01 per share, of the
Corporation and the shares of common stock, par value $.01 per share, of
OPCO, which are paired and transferable and traded only in combination as a
single unit on the New York Stock Exchange (together, the "Paired Shares"
or "Paired Equity").
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2. Establishment of Cooperation Committee. The Corporation shall establish
with OPCO, as promptly as practicable following the closing of the Merger and
thereafter to continue in effect, a committee (the "Cooperation Committee")
consisting of (i) the Chairman of the Corporation's Board of Directors (who
shall be the Chairman of the Cooperation Committee), (ii) the Chairman of
OPCO's Board of Directors, (iii) a designee of the Corporation's Board of
Directors reasonably acceptable to OPCO (who shall serve at the pleasure of
the Corporation's Board of Directors and may be removed and replaced at any
time) and (iv) the President of OPCO. The Cooperation Committee will normally
consider and propose the agenda listing the matters to be considered at any
joint meeting of the Boards of Directors of the Corporation and OPCO, subject
to the right of a Board member to request consideration of additional matters.
The Cooperation Committee shall establish such procedures for the conduct of
its business as it shall deem appropriate from time to time.
3. Corporate Matters Categories. All matters to be considered by the
Corporation's Board of Directors, and all matters related thereto, except (i)
a Change in Patriot's Line of Business and (ii) Issuances of Paired Equity and
Issuances of Unpaired Equity, shall be classified into the most appropriate of
the following three categories:
a. Routine corporate governance matters, such as approval and retention
of independent accountants, the fixing of employee compensation and other
like matters (each, a "Category 1 Matter");
b. All other matters, other than a Change of Control and the removal of
the Chairman or Chief Executive Officer of the Corporation and, after the
third anniversary of the Merger, all other matters (including a Change of
Control) other than the removal of the Chairman or Chief Executive Officer
of the Corporation (each, a "Category 2 Matter"); and
c. The removal of the Chairman or Chief Executive officer of the
Corporation and, until the third anniversary of the Merger, any proposed
action by the Corporation that would result in a Change of Control (each, a
"Category 3 Matter").
4. Consideration of Corporate Matters.
a. At any meeting of the Corporation's Board of Directors (whether or not
held jointly with OPCO), the Corporation may (i) submit a Category 1 Matter to
the consideration and vote of the Corporation's Board of Directors,
irrespective of any consideration or vote by OPCO's Board of Directors, (ii)
submit a Category 2 Matter to the consideration and vote of the Corporation's
Board of Directors, with such matter requiring the majority vote of the
Corporation's Board of Directors for approval, and (iii) submit a Category 3
Matter to the consideration and vote of the Corporation's Board of Directors,
with such matter requiring a 66 2/3% vote of the Corporation's Board of
Directors for approval.
b. If the Corporation's Board of Directors at any such meeting that is not
held jointly with OPCO's Board of Directors shall have approved any Category 2
Matter or Category 3 Matter, the Corporation's Board of Directors shall
promptly provide notice (the "Board Notice") to OPCO in accordance with the
terms of the Cooperation Agreement of the occurrence of such meeting and the
Category 2 Matters or Category 3 Matters approved at such meeting. The
Cooperation Committee shall convene promptly (in any event, within ten (10)
business days) following the Corporation's Board of Directors meeting to
consider the actions taken by the Corporation's Board of Directors. If the
Cooperation Committee votes to approve the action taken by the Corporation's
Board of Directors with respect to any such matter, then the action authorized
by the Corporation's Board of Directors may be implemented without
consideration of such matter by OPCO's Board of Directors. If the Cooperation
Committee does not approve the action taken by the Corporation's Board of
Directors, OPCO's Board of Directors may then hold a meeting within fifteen
(15) business days following receipt of the Board Notice to consider and vote
upon the Category 2 Matters or Category 3 Matters approved by the
Corporation's Board of Directors and during such period the action authorized
by the Corporation's Board of Directors may not be implemented. In the event
that OPCO's Board of Directors approves at such a meeting the action taken by
the Corporation's Board of Directors or OPCO's Board of Directors does not
hold a meeting within fifteen (15) business days following receipt of the
Board Notice, the action authorized by the Corporation's Board of Directors
may thereafter be implemented.
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c. In the event OPCO's Board of Directors holds a meeting within fifteen
(15) business days following receipt of the Board Notice but does not approve
the action authorized by the Corporation's Board of Directors, the action
authorized by the Corporation's Board of Directors may not be implemented. In
such an event, the Cooperation Committee will convene promptly following the
meeting of OPCO's Board of Directors to consider the contrary positions of the
Corporation's Board of Directors and OPCO's Board of Directors and recommend a
resolution of such contrary positions in connection with the reconsideration
process described below (the "Reconsideration Process"). The Boards of
Directors of the Corporation and OPCO will then follow the Reconsideration
Process.
d. At any joint meeting of the Boards of Directors of the Corporation and
OPCO, in the event that the Corporation's Board of Directors approves a
Category 2 Matter or Category 3 Matter but OPCO's Board of Directors does not,
the action authorized by the Corporation's Board of Directors may not be
implemented. The Cooperation Committee shall convene immediately following the
joint meeting (unless a quorum of the Cooperation Committee is not present, in
which case the Cooperation Committee shall convene as soon as practicable
thereafter) to consider the votes of the Boards of Directors of the
Corporation and OPCO taken at such meeting. The Boards of Directors of the
Corporation and OPCO will then follow the Reconsideration Process described
below.
5. Reconsideration Process. Following any meeting of the Cooperation
Committee as described above, the Corporation's Board of Directors may
reconsider a Category 2 Matter at any subsequent meeting of the Corporation's
Board of Directors and, if the Corporation's Board of Directors approves such
matter by a majority vote at such subsequent meeting, then the Corporation's
Board of Directors may take the action contemplated by such matter regardless
of the position of OPCO's Board of Directors. Following any meeting of the
Cooperation Committee as described above, the Corporation's Board of Directors
may reconsider a Category 3 Matter at any subsequent meeting of the
Corporation's Board of Directors and, if the Corporation's Board of Directors
approves such matter by a 66 2/3% vote at such subsequent meeting, then the
Corporation's Board of Directors may take the action contemplated by such
matter (but only if OPCO's Board of Directors approves such matter by a
majority vote in the case of a Change of Control).
6. Change in Patriot's Line of Business. Until the third anniversary of the
Merger, any Change in Patriot's Line of Business shall require a majority vote
of OPCO's Board of Directors for approval.
7. Hotel Acquisitions Committee. The Corporation shall establish with OPCO,
as promptly as practicable following the closing of the Merger, and thereafter
continue in effect as provided herein, a hotel acquisitions committee (the
"Hotel Acquisitions Committee") to analyze, evaluate and consider potential
acquisitions by the Corporation of hotel properties and related assets (which
properties and related assets may consist of a portfolio of hotel properties
and related assets, and which may be acquired in any form, such as by merger,
asset acquisition or otherwise) ("Hotel Acquisitions"). The Hotel Acquisitions
Committee shall have the sole power and authority to authorize the Corporation
to enter into a binding agreement with respect to Hotel Acquisitions involving
a proposed purchase price (inclusive of any indebtedness to be assumed in
connection therewith) not exceeding (with respect to each Hotel Acquisition or
such series of Hotel Acquisitions as are reasonably likely to be considered an
integrated transaction) 5% of the total combined market capitalization of the
Corporation and OPCO (which for such purposes shall include, without
limitation, the aggregate number of outstanding shares of Paired Equity,
including equity securities of the Corporation or OPCO that are convertible
into Paired Equity, and including limited partnership interests or units of
Patriot OP or OPCO OP for which Paired Equity may be received upon redemption
of such interests or units by the holders thereof, in each case valued at the
market value for the underlying Paired Equity) computed as of the last
business day of the month immediately preceding the month during which such
Hotel Acquisition is to be authorized and based on the average closing sale
price of a Paired Share over the five (5) trading days immediately preceding
such business day. The members of the Hotel Acquisitions Committee shall be
determined as provided in the Cooperation Agreement. Notwithstanding the
foregoing, the Hotel Acquisitions Committee shall no longer have the power and
authority described herein on and after the third anniversary of the Merger.
8. Unpaired Equity Committee. The Unpaired Equity Committee shall be
established jointly by the Corporation and OPCO. As used herein, the "Unpaired
Equity Committee" means that committee whose members shall consist of (i) the
Chairman of the Corporation's Board of Directors, (ii) the Chairman of OPCO's
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Board of Directors, (iii) two designees of the Corporation from either the
Corporation's or OPCO's Board of Directors and (iv) one designee of OPCO from
either the Corporation's or OPCO's Board of Directors. Upon consummation of
the Merger, the members of the Unpaired Equity Committee shall consist of (i)
Paul A. Nussbaum until such time as he shall no longer serve as Chairman of
the Corporation's Board of Directors and, after such time, the Chairman of the
Corporation's Board of Directors, (ii) James D. Carreker until such time as he
shall no longer serve as the Chairman of OPCO's Board of Directors and, after
such time, the Chairman of OPCO's Board of Directors, (iii) two designees of
the Corporation from either the Corporation's or OPCO's Board of Directors and
(iv) one designee of OPCO from either the Corporation's or OPCO's Board of
Directors.
9. Authority to Issue Unpaired Equity. The Corporation shall have the right
to engage in an Issuance of Unpaired Equity only upon the affirmative vote of
a majority of the members of the Corporation's Board of Directors.
10. Limitation on Committees. For the term of the Cooperation Agreement, the
formation by the Corporation's Board of Directors of either (i) an executive
or similar committee of the Corporation's Board of Directors which is
authorized to act upon any Category 2 Matter or Category 3 Matter or (ii) a
nomination committee for the purpose of nominating directors shall require the
approval of OPCO's Board of Directors.
11. Voting by Directors. Any vote on any matter by the Board of Directors of
the Corporation or the members of the Cooperation Committee, the Hotel
Acquisitions Committee or the Unpaired Equity Committee provided for herein
shall require for approval the affirmative vote of the applicable number or
percentage of all of the members of either such Board of Directors then in
office or the then existing members of any such committee, as the case may be.
VI.
Limitation of Liability
Neither a director of the Corporation, a member of OPCO's Board of Directors
nor a member of any duly authorized and constituted committee of the
Corporation or the Board of Directors of the Corporation, including without
limitation, the Cooperation Committee, the Hotel Acquisition Committee and the
Unpaired Equity Committee, shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director or as such a member, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors or the person or persons exercising or performing any of the powers
or duties otherwise conferred or imposed upon directors of the Corporation,
then the liability of the director of the Corporation or the person or persons
exercising or performing any of the powers or duties otherwise conferred or
imposed upon directors of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
VII.
Maintenance of REIT Status
For so long as the Board of Directors deems the maintenance of REIT status
to be in the best interests of the Corporation, it shall be the duty of the
Board of Directors to ensure that the Corporation satisfies the requirements
for qualification as a REIT under the Code, including, but not limited to, the
ownership of its
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outstanding stock, the nature of its assets, the sources of its income, and
the amount and timing of its distributions to its stockholders.
VIII.
Related Person Transaction
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this Corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this Corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the Corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the Corporation.
For purposes of this Article VIII:
1. The term "Business Combination" shall mean (a) any merger,
reorganization or consolidation of this Corporation with or into a Related
Person, (b) any sale, lease, exchange, transfer or other disposition,
including, without limitation, a mortgage or any other security device, of
all or any substantial part of the assets of this Corporation (including,
without limitation, any voting securities of a subsidiary) or of a
subsidiary, to a Related Person, (c) any merger or consolidation of a
Related Person with or into this Corporation or a subsidiary of this
Corporation and (d) any sale, lease, exchange, transfer or other
disposition of all or any substantial part of the assets of a Related
Person to this Corporation or a subsidiary of this Corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate
five percent (5%) or more of the outstanding shares of the capital stock of
this Corporation, and any "affiliate" or "associate" (as those terms are
defined in Rule 12b-2 of the Exchange Act) of any such individual,
corporation, partnership or other person or entity; provided, however, that
the term "Related Person" shall not include either Patriot American
Hospitality Operating Company or any subsidiary of this Corporation.
3. The term "substantial part of the assets" shall mean assets having a
fair market value or book value, whichever is greater, equal to 25% or more
of such value of the total assets as reflected on the most recent quarterly
balance sheet of the Corporation as of a date no earlier than forty-five
(45) days prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this Corporation
which any Related Person has the right to acquire pursuant to any agreement
or upon exercise of conversion rights, warrants or options, or otherwise
shall be deemed beneficially owned by such Related Person.
The provisions set forth in this Article VIII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this Corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
IX.
Amendment of Bylaws
A. Amendment By the Board of Directors. Except as otherwise provided by law
or this Certificate, the Bylaws of the Corporation may be amended or repealed
by the Board of Directors by the affirmative vote of a majority of the
directors then in office.
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B. Amendment By the Stockholders. The Bylaws of the Corporation may be
amended or repealed at any annual meeting of stockholders, or special meeting
of stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Board of Directors recommends
that stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative vote
of the majority of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class.
X.
Amendment of Certificate of Incorporation
Subject to Article VIII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided however,
that any amendment, repeal or modification of Section F of Article V shall
first require a 66 2/3% vote of the Corporation's Board of Directors and
OPCO's Board of Directors.
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I, Rex E. Stewart, Executive Vice President and Chief Financial Officer of
the Corporation, for the purpose of amending and restating the Corporation's
Certificate of Incorporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed on behalf of the Corporation this 5th day of
January, 1998.
/s/ Rex E. Stewart
------------------------
Rex E. Stewart
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
Patriot American Hospitality Operating Company, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The name of the Corporation is Patriot American Hospitality Operating
Company. The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
January 27, 1983 (the "Original Certificate of Incorporation"). The name
under which the Corporation filed the Original Certificate of Incorporation
was Bay Meadows Operating Company. An Amended and Restated Certificate of
Incorporation (the "Second Certificate") was filed with the Secretary of
State of the State of Delaware on July 1, 1997, pursuant to which, among
other things, the name of the Corporation was changed to Patriot American
Hospitality Operating Company. Pursuant to this Amended and Restated
Certificate of Incorporation, the name of the Corporation is hereby changed
to Wyndham International, Inc.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Second
Certificate, was duly adopted by the Board of Directors of the Corporation
in accordance with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law, as amended from time to time (the "DGCL"), and was
duly adopted by the stockholders of the Corporation in accordance with the
applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Second Certificate, is hereby amended and restated in
its entirety to provide as herein set forth in full.
I.
Name
The name of the corporation is Wyndham International, Inc.
II.
Purposes
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
Capital Stock
Except as may be otherwise provided in Section G of Article V below, the
Corporation shall have the authority to issue 650,000,000 shares of common
stock, par value $.01 per share (the "Common Stock"),
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750,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock"), and 100,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one vote
on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock and
subject to any other provisions of this Certificate or any amendment hereto,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken by
the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only by
a unanimous written consent of the stockholders signed by each stockholder
entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall be
stated and expressed herein or in the resolution or resolutions providing for
the issue of shares of a particular series, and in such resolution or
resolutions providing for the issue of shares of such series, the Board of
Directors, or any duly authorized committee thereof, is expressly authorized
to fix or establish the basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of such
series issued shall be cumulative, and the extent of participation rights,
if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire or
redeem shares of such series as a sinking fund or otherwise, and the terms
and conditions of any such redemption;
d. The designation and maximum number of shares of such series issuable;
e. The right to vote, if any, with holders of shares of any other class
or series, either generally or as a condition to specified corporate
action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary liquidation;
h. The rights, if any, of the holders of shares of such series to convert
such shares into other classes of stock of the Corporation, or to exchange
such shares for other securities or assets, and the terms and conditions of
any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors and
not prohibited by law.
C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms shall
have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the
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application of the constructive ownership rules of Section 544 of the
Internal Revenue Code of 1986, as amended (the "Code"), as modified by
Section 856(h)(1)(B) of the Code, and (iii) the number of shares of Equity
Stock which such Person is deemed to beneficially own pursuant to Rule 13d-
3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); provided however, that for the purposes of calculating the
foregoing, no share shall be counted more than once. The terms "Beneficial
Owner," "Beneficially Owns" and "Beneficially Owned" shall have correlative
meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Look-Through Entity" shall mean a Person that is either (i) a trust
described in Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code as modified by Section 856(h)(3) of the Code or (ii)
registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" shall mean, with respect to a class or
series of Equity Stock, 9.8% of the number of outstanding shares of such
Equity Stock.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(e) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(e) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event (other than a purported
Transfer) that would (a) cause any Person (other than a Look-Through
Entity) to Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit (b) cause any Look-Through Entity to
Beneficially Own or Constructively Own shares of Equity Stock in excess of
the Look-Through Ownership Limit, (c) result in the capital stock of
Patriot REIT being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (d) result in Patriot REIT being "closely
held" within the meaning of Section 856(h) of the Code, or (e) cause
Patriot REIT to Constructively Own 10% or more of the ownership interest in
a tenant of Patriot REIT's or a Subsidiary's real property within the
meaning of Section 856(d)(2)(B) of the Code. Non-Transfer Events include
but are not limited to (i) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of shares of Equity
Stock or (ii) the sale, transfer, assignment or other disposition of
interests in
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any Person or of any securities or rights convertible into or exchangeable
for shares of Equity Stock that results in changes in Beneficial Ownership
or Constructive Ownership of shares of Equity Stock.
"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 8.0% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by any Person, any shares of Equity Stock of the
Corporation which are deemed to be Beneficially Owned by such Person
pursuant to Rule 13d-3 of the Exchange Act but which are not outstanding
shall be deemed to be outstanding.
"Pairing Agreement" shall mean the Pairing Agreement, dated as of
February 17, 1983, by and between Bay Meadows Realty Enterprises, Inc. (the
predecessor of California Jockey Club) and Bay Meadows Operating Company,
as amended from time to time in accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Corporation is no longer a party to the Pairing Agreement, the Pairing
Agreement terminates or the Corporation is no longer required by the
Pairing Agreement to maintain the restrictions set forth in this Section C
of this Article IV.
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section D of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality,
Inc. ("Patriot REIT") in accordance with the Pairing Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person (other than a Look-Through Entity)
shall Beneficially Own or Constructively Own outstanding shares of Equity
Stock in excess of the Ownership Limit and no Look-Through Entity shall
Beneficially Own or Constructively Own outstanding shares of Equity Stock in
excess of the Look-Through Ownership Limit, (ii) any Transfer (whether or not
the result of a transaction entered into through the facilities of the New
York Stock Exchange) that, if effective, would result in any Person (other
than a Look-Through Entity) Beneficially Owning or Constructively Owning
shares of Equity Stock in excess of the Ownership Limit shall be void ab
initio as to the Transfer of that number of shares of Equity Stock which would
be otherwise Beneficially Owned or Constructively Owned by such Person in
excess of the Ownership Limit and the intended transferee shall acquire no
rights in such shares of Equity Stock, and (iii) any Transfer (whether or not
the result of a transaction entered
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into through the facilities of the New York Stock Exchange) that, if
effective, would result in any Look-Through Entity Beneficially Owning or
Constructively Owning shares of Equity Stock in excess of the Look-Through
Ownership Limit shall be void ab initio as to the Transfer of that number of
shares of Equity Stock which would be otherwise Beneficially Owned or
Constructively Owned by such Look-Through Entity in excess of the Look-Through
Ownership Limit and the intended transferee shall acquire no rights in such
shares of Equity Stock.
b. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of shares of Equity Stock that are paired pursuant to the
Pairing Agreement that, if effective, would result in Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code shall be void
ab initio as to the Transfer of that number of shares of Equity Stock that are
paired pursuant to the Pairing Agreement that would cause Patriot REIT to be
"closely held" within the meaning of Section 856(h) of the Code, and the
intended transferee shall acquire no rights in such shares of Equity Stock.
c. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of shares of Equity Stock that, if effective, would cause
Patriot REIT to Constructively Own 10% or more of the ownership interests in a
tenant of the real property of Patriot REIT or any direct or indirect
subsidiary (whether a corporation, partnership, limited liability company or
other entity) of Patriot REIT (a "Subsidiary"), within the meaning of Section
856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of that
number of shares of Equity Stock that would cause Patriot REIT to
Constructively Own 10% or more of the ownership interests in a tenant of the
real property of Patriot REIT or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights
in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of Equity Stock that is paired pursuant to the Pairing
Agreement that, if effective, would result in the capital stock of Patriot
REIT being beneficially owned (within the meaning of Section 856(a)(5) of the
Code) by fewer than 100 persons within the meaning of Section 856(a)(5) of the
Code shall be void ab initio and the intended transferee shall acquire no
rights in such shares of Equity Stock.
3. Owners Required to Provide Information. Until the Restriction Termination
Date:
a. Every Beneficial Owner or Constructive Owner of more than 5%, or such
lower percentages as required pursuant to regulations under the Code, of
the outstanding shares of any class or series of Equity Stock of the
Corporation shall, within 30 days after January 1 of each year, provide to
the Corporation a written statement or affidavit stating the name and
address of such Beneficial Owner or Constructive Owner, the number of
shares of Equity Stock Beneficially Owned or Constructively Owned, and a
description of how such shares are held. Each such Beneficial Owner or
Constructive Owner shall provide to the Corporation such additional
information as the Corporation may request to ensure compliance with the
restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of shares
of Equity Stock and each Person (including the stockholder of record) who
is holding shares of Equity Stock for a Beneficial Owner or Constructive
Owner shall provide to the Corporation a written statement or affidavit
stating such information as the Corporation may request to ensure
compliance with the restrictions set forth in this Section C of this
Article IV.
4. Exception. The Board of Directors may exempt a Person from the Ownership
Limit or the Look-Through Ownership Limit, provided that (A) such exemption is
permitted by and made in accordance with the Pairing Agreement and (B) such
Person agrees in writing that any violation or attempted violation of the
Ownership Limit or Look-Through Ownership Limit, as the case may be, will
result in the conversion of such shares into shares of Excess Stock pursuant
to Section (D)(1) of this Article IV and provides such other representations
and undertakings as the Board of Directors may reasonably require.
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5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall preclude
the settlement of any transaction entered into through the facilities of the
New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event such that any Person (other than a Look-Through Entity)
would either Beneficially Own or Constructively Own shares of Equity Stock
in excess of the Ownership Limit or such that any Person that is a Look-
Through Entity would either Beneficially Own or Constructively Own shares
of Equity Stock in excess of the Look-Through Ownership Limit, then, (i)
except as otherwise provided in Section (C)(4) of this Article IV, the
purported transferee shall be deemed to be a Prohibited Owner and shall
acquire no right or interest (or, in the case of a Non-Transfer Event, the
Person holding record title to the shares of Equity Stock Beneficially
Owned or Constructively Owned by such Beneficial Owner or Constructive
Owner, shall cease to own any right or interest) in such number of shares
of Equity Stock which would cause such Beneficial Owner or Constructive
Owner to Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit or the Look-Through Ownership Limit, as the
case may be, (ii) such number of shares of Equity Stock in excess of the
Ownership Limit or the Look-Through Ownership Limit, as the case may be,
(rounded up to the nearest whole share) shall be automatically converted
into an equal number of shares of Excess Stock and transferred to a Trust
in accordance with Section (D)(4) of this Article IV and (iii) the
Prohibited Owner shall submit such number of shares of Equity Stock to the
Corporation for registration in the name of the Trustee of the Trust. Such
conversion into Excess Stock and transfer to a Trust shall be effective as
of the close of trading on the Trading Day prior to the date of the
Transfer or Non-Transfer Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event that, if effective, would (i) result in the capital
stock of Patriot REIT being beneficially owned (within the meaning of
Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (ii) result in Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or (iii)
cause Patriot REIT to Constructively Own 10% or more of the ownership
interest in a tenant of Patriot REIT's or a Subsidiary's real property
within the meaning of Section 856(d)(2)(B) of the Code, then (x) the
purported transferee shall be deemed to be a Prohibited Owner and shall
acquire no right or interest (or, in the case of a Non-Transfer Event, the
Person holding record title of the shares of Equity Stock with respect to
which such Non-Transfer Event occurred, shall be deemed to be a Prohibited
Owner and shall cease to own any right or interest) in such number of
shares of Equity Stock, the ownership of which by such purported transferee
or record holder would (A) result in the capital stock of Patriot REIT
being beneficially owned (within the meaning of Section 856(a)(5) of the
Code) by fewer than 100 persons within the meaning of Section 856(a)(5) of
the Code, (B) result in Patriot REIT being "closely held" within the
meaning of Section 856(h) of the Code or (C) cause Patriot REIT to
Constructively Own 10% or more of the ownership interests in a tenant of
Patriot REIT's or a Subsidiary's real property within the meaning of
Section 856(d)(2)(B) of the Code, (y) such number of shares of Equity Stock
(rounded up to the nearest whole share) shall be automatically converted
into an equal number of shares of Excess Stock and transferred to a Trust
in accordance with Section (D)(4) of this Article IV and (z) the Prohibited
Owner shall submit such number of shares of Equity Stock to the Corporation
for registration in the name of the Trustee of the Trust. Such conversion
into Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the Transfer or
Non-Transfer Event, as the case may be.
c. Upon the occurrence of such a conversion of shares of any class or
series of Equity Stock into an equal number of shares of Excess Stock, such
shares of Equity Stock shall be automatically retired and canceled, without
any action required by the Board of Directors of the Corporation, and shall
thereupon be
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restored to the status of authorized but unissued shares of the particular
class or series of Equity Stock from which such Excess Stock was converted
and may be reissued by the Corporation as that particular class or series
of Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at any
time determine in good faith that a Transfer has taken place in violation of
Section (C)(2) of this Article IV or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership or Constructive Ownership of any
shares of Equity Stock in violation of Section (C)(2) of this Article IV, the
Corporation shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer or acquisition, including, but not
limited to, refusing to give effect to such Transfer on the stock transfer
books of the Corporation or instituting proceedings to enjoin such Transfer or
acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this Article
IV, or any Person who owns shares of Equity Stock that were converted into
shares of Excess Stock and transferred to a Trust pursuant to Sections (D)(1)
and (D)(4) of this Article IV, shall immediately give written notice to the
Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect,
if any, of such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's compliance with the terms of the Pairing Agreement, including
the effect on Patriot REIT's status as a real estate investment trust.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that results
in Excess Stock pursuant to Section (D)(1) of this Article IV, such Excess
Stock shall be automatically transferred to a Trust to be held for the
exclusive benefit of the Beneficiary. The Corporation and Patriot REIT shall
name a Beneficiary for each Trust pursuant to the terms of the Pairing
Agreement. Any conversion of shares of Equity Stock into shares of Excess
Stock and transfer to a Trust shall be effective as of the close of trading on
the Trading Day prior to the date of the Transfer or Non-Transfer Event that
results in the conversion. Shares of Excess Stock so held in trust shall
remain issued and outstanding shares of stock of the Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the same
dividends and distributions (as to both timing and amount) as may be declared
by the Board of Directors as shares of the class or series of Equity Stock
from which such Excess Stock was converted. The Trustee, as record holder of
the shares of Excess Stock, shall be entitled to receive all dividends and
distributions and shall hold all such dividends or distributions in trust for
the benefit of the Beneficiary. The Prohibited Owner with respect to such
shares of Excess Stock shall repay to the Trust the amount of any dividends or
distributions received by it (i) that are attributable to any shares of Equity
Stock that have been converted into shares of Excess Stock and (ii) the record
date of which was on or after the date that such shares were converted into
shares of Excess Stock. The Corporation shall take all measures that it
determines reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding
any portion of future dividends or distributions payable on shares of Equity
Stock Beneficially Owned or Constructively Owned by the Person who, but for
the provisions of this Article IV, would Constructively Own or Beneficially
Own the shares of Equity Stock that were converted into shares of Excess
Stock; and, as soon as reasonably practicable following the Corporation's
receipt or withholding thereof, shall pay over to the Trust for the benefit of
the Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the same
class or series from which the Equity Stock was converted, that portion of the
assets of the Corporation that is available for distribution to the holders of
such class or series of Equity Stock. The Trust shall distribute to the
Prohibited Owner the amounts received upon such liquidation, dissolution, or
winding up, or distribution; provided, however, that the Prohibited Owner
shall not be entitled to receive amounts in excess of, in the case of a
purported Transfer in which the Prohibited Owner gave value for shares of
Equity Stock and which Transfer resulted in the conversion of the shares into
shares of Excess Stock, the price per share, if any, such Prohibited Owner
paid for the shares of
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Equity Stock (which, in the case of Equity Stock that is paired, shall equal
the price per paired share multiplied by the most recent Valuation Percentage)
and, in the case of a Non-Transfer Event or Transfer in which the Prohibited
Owner did not give value for such shares (e.g., if the shares were received
through a gift or devise) and which Non-Transfer Event or Transfer, as the
case may be, resulted in the conversion of the shares into shares of Excess
Stock, the price per share equal to the Market Price on the date of such Non-
Transfer Event or Transfer. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the holder to the
number of votes the holder would have, if such share of Excess Stock was a
share of Equity Stock of the same class or series from which such Excess Stock
was converted, on all matters submitted to a vote at any meeting of
stockholders. The holders of shares of Excess Stock converted from the same
class or series of Equity Stock shall vote together with the holders of such
Equity Stock as a single class on all such matters. The Trustee, as record
holder of the Excess Stock, shall be entitled to vote all shares of Excess
Stock. Any vote by a Prohibited Owner as a purported holder of shares of
Equity Stock prior to the discovery by the Corporation that the shares of
Equity Stock have been converted into shares of Excess Stock shall, subject to
applicable law, be rescinded and shall be void ab initio with respect to such
shares of Excess Stock, and the Prohibited Owner shall be deemed to have
given, as of the close of trading on the Trading Day prior to the date of the
purported Transfer or Non-Transfer Event that results in the conversion of the
shares of Equity Stock into shares of Excess Stock and the transfer of such
shares to a Trust pursuant to Sections (D)(1) and (D)(4) of this Article IV,
an irrevocable proxy to the Trustee to vote the shares of Excess Stock in the
manner in which the Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to designate one
or more Permitted Transferees of any and all shares of Excess Stock if the
Corporation fails to exercise its option with respect to such shares pursuant
to Section (D)(10) hereof within the time period set forth therein. As soon as
practicable, but in an orderly fashion so as not to materially adversely
affect the Market Price of the shares of Excess Stock, the Trustee shall
designate any one or more Persons as Permitted Transferees; provided, however,
that (i) the Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the shares of Excess Stock
(which, in the case of paired Excess Stock, shall be determined based on the
Valuation Percentage) and (ii) the Permitted Transferee so designated may
acquire such shares of Excess Stock without violating any of the restrictions
set forth in Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired into
shares of Excess Stock and the transfer of such shares to a Trust pursuant to
Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee shall cause
to be transferred to the Permitted Transferee that number of shares of Excess
Stock acquired by the Permitted Transferee. Upon such transfer of the shares
of Excess Stock to the Permitted Transferee, such shares of Excess Stock shall
be automatically converted into an equal number of shares of Equity Stock of
the same class and series from which such Excess Stock was converted. Upon the
occurrence of such a conversion of shares of Excess Stock into an equal number
of shares of Equity Stock, such shares of Excess Stock shall be automatically
retired and canceled, without any action required by the Board of Directors of
the Corporation, and shall thereupon be restored to the status of authorized
but unissued shares of Excess Stock and may be reissued by the Corporation as
Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer books of
the Corporation that the Permitted Transferee is the holder of record of such
number of shares of Equity Stock, and (ii) distribute to the Beneficiary any
and all amounts held with respect to the shares of Excess Stock after making
payment to the Prohibited Owner pursuant to Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in Section
(C)(2) of this Article IV, such Transfer shall be void ab initio as to that
number of shares of Excess Stock that cause the violation of any such
restriction when such shares are converted
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into shares of Equity Stock (as described in clause (b) above) and the
purported Permitted Transferee shall be deemed to be a Prohibited Owner and
shall acquire no rights in such shares of Excess Stock or Equity Stock. Such
shares of Equity Stock shall be automatically re-converted into Excess Stock
and transferred to the Trust from which they were originally Transferred. Such
conversion and transfer to the Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer to the purported
Permitted Transferee and the provisions of this Article IV shall apply to such
shares, including, without limitation, the provisions of Sections (D)(8)
through (D)(10) with respect to any future Transfer of such shares by the
Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be entitled
(following discovery of the shares of Excess Stock and subsequent designation
of the Permitted Transferee in accordance with Section (D)(8) of this Article
IV or following the acceptance of the offer to purchase such shares in
accordance with Section (D)(10) of this Article IV) to receive from the
Trustee following the sale or other disposition of such shares of Excess Stock
the lesser of (i) (a) in the case of a purported Transfer in which the
Prohibited Owner gave value for shares of Equity Stock and which Transfer
resulted in the conversion of such shares into shares of Excess Stock, the
price per share, if any, such Prohibited Owner paid for the shares of Equity
Stock (which, in the case of paired Excess Stock, shall be determined based on
the Valuation Percentage) and (b) in the case of a Non-Transfer Event or
Transfer in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which Non-
Transfer Event or Transfer, as the case may be, resulted in the conversion of
such shares into shares of Excess Stock, the price per share equal to the
Market Price on the date of such Non-Transfer Event or Transfer or (ii) the
price per share (which, in the case of paired Excess Stock, shall be
determined based on the Valuation Percentage) received by the Trustee from the
sale or other disposition of such shares of Excess Stock in accordance with
this Section (D)(9) or Section (D)(10) of this Article IV. Any amounts
received by the Trustee in respect of such shares of Excess Stock and in
excess of such amounts to be paid the Prohibited Owner pursuant to this
Section (D)(9) shall be distributed to the Beneficiary in accordance with the
provisions of Section (D)(8) of this Article IV. Each Beneficiary and
Prohibited Owner shall waive any and all claims that it may have against the
Trustee and the Trust arising out of the disposition of shares of Excess
Stock, except for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with this Section
D of this Article IV by, such Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be deemed
to have been offered for sale to the Corporation or its designee, at a price
per share equal to the lesser of (i) the price per share (which, in the case
of paired Excess Stock, shall be determined based on the Valuation Percentage)
in the transaction that created such shares of Excess Stock (or, in the case
of devise, gift or Non-Transfer Event, the Market Price at the time of such
devise, gift or Non-Transfer Event) or (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation shall have
the right to accept such offer for a period of 90 days following the later of
(a) the date of the Non-Transfer Event or purported Transfer which results in
such shares of Excess Stock or (b) the date on which the Corporation
determines in good faith that a Transfer or Non-Transfer Event resulting in
shares of Excess Stock previously has occurred, if the Corporation does not
receive a notice of such Transfer or Non-Transfer Event pursuant to Section
(D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders to ensure compliance with the requirements of the Pairing
Agreement and with the restrictions set forth in Section C of this Article IV.
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G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the power to
determine the application of the provisions of this Article IV with respect to
any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Wyndham
International, Inc. represented by this combined certificate are subject to
restrictions in the respective Amended and Restated Certificates of
Incorporation of each company which prohibit (a) any Person (other than a
Look-Through Entity) (as such terms are defined in the respective Amended
and Restated Certificates of Incorporation of each company) from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated Certificates of Incorporation of each
company) in excess of 8.0% of the number of outstanding shares of any class
or series of Equity Stock (as that term is defined in the respective
Amended and Restated Certificates of Incorporation of each company), (b)
any Look-Through Entity from Beneficially Owning or Constructively Owning
in excess of 9.8% of the number of outstanding shares of any class or
series of Equity Stock, (c) any Person from acquiring or maintaining any
ownership interest in the stock of either company that is inconsistent with
(i) the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to real estate investment trusts or (ii) Article IV of the
respective Amended and Restated Certificates of Incorporation of each
company and (d) any transfer of shares of any class or series of Equity
Stock of either company that are paired pursuant to the Pairing Agreement,
dated as of February 17, 1983, between the two companies, as amended from
time to time in accordance with the provisions thereof (the "Pairing
Agreement"), except in combination with an equal number of shares of the
other company in accordance with the respective Amended and Restated Bylaws
of each company and the Pairing Agreement, copies of which are on file with
the transfer agent named on the face hereof, and the holder of this
certificate by his acceptance hereof consents to be bound by such
restrictions.
Patriot American Hospitality, Inc. and Wyndham International, Inc. will
furnish without charge to each stockholder who so requests a copy of the
relevant provisions of the respective Amended and Restated Certificates of
Incorporation and the respective Amended and Restated Bylaws of each
company, a copy of the Pairing Agreement and a copy of the provisions
setting forth the designations, preferences, privileges and rights of each
class of stock or series thereof that each company is authorized to issue
and the qualifications, limitations and restrictions of such preferences
and/or rights. Any such request may be addressed to the Secretary of either
company or to the transfer agent named on the face hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall be in no way affect the
validity of any other provision.
V.
Directors
A. General Powers. Except as otherwise expressly provided in this
Certificate, the property, affairs and business of the Corporation shall be
managed under the direction of the Board of Directors and, except as otherwise
expressly provided by law, the Bylaws or this Certificate, all of the powers
of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. At each annual meeting of stockholders, the
successor or successors of the class of directors whose term expires at that
meeting shall be elected by a plurality
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of the votes of the shares present in person or represented by proxy at such
meeting and entitled to vote on the election of directors, and shall hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. The directors elected to each
class shall hold office until their successors are duly elected and qualified
or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's successor shall
have been duly elected and qualified, or until such director's right to hold
such office terminates pursuant to said provisions, whichever occurs earlier,
subject to such director's earlier death, disqualification, resignation or
removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Preferred Stock having such right to elect additional directors are divested
of such right pursuant to the provisions of such stock, the terms of office of
all such additional directors elected by the holders of such stock, or elected
to fill any vacancies resulting from the death, resignation, disqualification
or removal of such additional directors, shall forthwith terminate and the
total and authorized number of directors of the Corporation shall be reduced
accordingly.
D. Removal of Directors; Qualification.
1. Except as provided in Section (D)(2) below and subject to the rights, if
any, of any series of Preferred Stock to elect directors and to remove any
director whom the holders of any such stock have the right to elect, any
director (including persons elected by directors to fill vacancies in the
Board of Directors) may be removed from office (a) only with cause and (b)
only by the affirmative vote of the holders of at least 75% of the shares then
entitled to vote at an election of directors. At least 30 days prior to any
meeting of stockholders at which it is proposed that any director be removed
from office, written notice of such proposed removal shall be sent to the
director whose removal will be considered at the meeting. For purposes of this
Certificate, "cause," with respect to the removal of any director shall mean
only (i) conviction of a felony, (ii) declaration of unsound mind by order of
a court, (iii) gross dereliction of duty, (iv) commission of any act involving
moral turpitude or (v) commission of an act that constitutes intentional
misconduct or a knowing violation of law if such action in either event
results both in an improper substantial personal benefit to such director and
a material injury to the Corporation.
2. Notwithstanding anything to the contrary contained above in Section
(D)(1) above, if at any time any director of the Corporation shall interfere
or fail to cooperate fully with any Issuance of Paired Equity (as required by
Section G of Article V below), such director (i) shall be deemed to be no
longer acting within the scope of his authority with respect to the management
of the affairs of the Corporation and (ii) shall have failed to remain
qualified as a director. In such event, such director shall automatically
cease to be a director and shall no longer be qualified to serve as a director
of the Corporation at any future date unless consented to by a resolution of
the Board of Directors of Patriot. The determination of whether any director
of Corporation has interfered or failed to cooperate fully with any Issuance
of Paired Equity shall be made by the Board of Directors of Patriot (as
defined in Section F of Article V. below) and notice of any such determination
shall be given by Patriot to the Corporation within 10 days after the date of
such determination. Notwithstanding when such determination and notice shall
be made and given, any such director shall be deemed to have ceased to be a
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director at the time of any such interference or failure to cooperate;
provided, however, that for purposes of any right to indemnification to which
such director would otherwise be entitled, such director shall be deemed to
have been acting as a director until such time as such determination and
notice shall be made and given, and such director's right to indemnification,
if any, shall in no way be prejudiced solely by reason of having acted as a
director during the period from the time of such interference or failure to
cooperate until such determination and notice are made and given.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
F. Cooperation and Coordination with Patriot.
1. Definitions. For the purposes of Section F of this Article V the
following terms shall have the meanings set forth below:
"Change of Control" shall mean the occurrence, with respect to either
Patriot or the Corporation, of any one of the following events (Patriot and
the Corporation being referred to below, as the case may be, as the
"Company"):
a. any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company or any trustee fiduciary or other person or
entity holding securities under any employee benefit plan or trust of
the Company, together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of either (A) the combined voting
power of the Company's then outstanding securities having the right to
vote generally in an election of the Company's Board of Directors (the
"Voting Securities") or (B) the then outstanding Paired Shares (in
either such case other than as a result of an acquisition of securities
directly from the Company); or
b. (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, solely as a result of their capacity as such,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, securities representing in the aggregate 50% or more of the
voting securities of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing
the number of Paired Shares or other Voting Securities outstanding,
increases (x) the
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proportionate number of Paired Shares beneficially owned by any person to
50% or more of the Paired Shares then outstanding or (y) the proportionate
voting power represented by the Voting Securities beneficially owned by any
person to 50% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in
clause (x) or (y) of this sentence shall thereafter become the beneficial
owner of any additional Paired Shares or other Voting Securities (other
than pursuant to a stock split, stock dividend, or similar transaction) and
whose ownership immediately thereafter shall equal or exceed the amounts
set forth in clauses (x) or (y), then a "Change of Control" shall be deemed
to have occurred for purposes of the foregoing clause (i).
"Change in Patriot's Line of Business" shall mean an action by Patriot or
Patriot OP (as hereinafter defined) with respect to Patriot's or Patriot
OP's business that results in the consolidation for financial reporting
purposes of the results of operations of Patriot with those of any business
activity other than hospitality and hospitality-related businesses, the
gaming business and any other business in which Patriot or Patriot OP is
engaged as of the date of this Certificate.
"Cooperation Agreement" shall mean the Cooperation Agreement to be
entered into by and between Patriot and the Corporation in connection with
the Merger.
"Issuance of Paired Equity" means a private or public offering, sale,
issuance or delivery of, or commitment or agreement to commit to offer,
sell, issue or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other debt or equity securities of
the Corporation (including, without limitation, indebtedness having the
right to vote, indebtedness convertible into any equity of any class or any
other securities) or limited partnership interests or units of Patriot
American Hospitality Operating Partnership, L.P. ("OPCO OP")), or equity
equivalents of either (including, without limitation, stock appreciation
rights), if it is contemplated that such stock or other securities, or any
securities underlying such stock or other securities, would or could be
paired with Patriot Stock (as defined in the Merger Agreement) or any other
securities of Patriot, or, in the case of limited partnership interests or
units of OPCO OP, it is contemplated that such interests or units would or
could be economically (or otherwise) "paired" (even if not pursuant to the
Pairing Agreement) with the limited partnership interests or units of
Patriot American Hospitality Partnership, L.P. ("Patriot OP"). Issuance of
Paired Equity shall also mean (A) the related issuance by Patriot or
Patriot OP of the securities of Patriot or Patriot OP which are paired with
the securities of the Corporation or OPCO OP and (B) any reorganization,
recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, repurchase or redemption of
shares, change in corporate structure or the like in which the outstanding
Paired Shares would be increased, decreased, changed into or exchanged for
a different number or kind of Paired Shares or other paired securities.
"Issuance of Unpaired Equity" means, in the case of the Corporation, a
public or private offering, sale, issuance, delivery or commitment or
agreement to commit to offer, sell, issue or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any or all securities described in the
immediately preceding definition of "Issuance of Paired Equity" if it is
contemplated that such stock or other securities, and any securities
underlying such stock or other securities, would not or could not be paired
with Patriot Stock (as defined in the Merger Agreement) or any other
securities of Patriot or, in the case of limited partnership interests or
units of OPCO OP, it is contemplated that such interests or units would not
or could not economically (or otherwise) be "paired" with the limited
partnership interests or units of Patriot OP. "Issuance of Unpaired Equity"
means, in the case of Patriot, a public or private offering, sale, issuance
or delivery of, or commitment or agreement to commit to offer, sell, issue
or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), any stock of
any class or any other debt or equity securities of Patriot (including,
without limitation, indebtedness having the right to vote and indebtedness
convertible into any equity of any class or any other securities) or
limited partnership interests or units of Patriot OP, or equity equivalents
of either (including, without limitation, stock appreciation rights), if it
is contemplated that such stock or other securities, and any securities
underlying such stock or other securities, would not or could not be paired
with OPCO Stock (as defined in the Merger Agreement)
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or any other securities of the Corporation or, in the case of limited
partnership interests or units of Patriot OP, it is contemplated that such
interests or units would not or could not be economically (or otherwise)
"paired" (even if not pursuant to the Pairing Agreement) with the limited
partnership interests or units of OPCO OP.
"Merger" shall mean the merger of Patriot and Wyndham Hotel Corporation,
a Delaware corporation ("Wyndham"), pursuant to an Agreement and Plan of
Merger dated as of April 14, 1997 (the "Merger Agreement"), in which
Patriot and Wyndham agreed to engage in a business combination pursuant to
which Wyndham will merge with and into Patriot with Patriot being the
surviving corporation.
"Paired Shares" or "PAIRED EQUITY" shall mean, immediately following the
Merger, the shares of common stock, par value $.01 per share, of the
Corporation (the "Corporation Paired Stock") and the shares of common
stock, par value $.01 per share, of Patriot (the "Patriot Paired Stock")
which are paired and transferable and traded only in combination as a
single unit on the New York Stock Exchange (together, the "Paired Shares"
or "Paired Equity").
"Patriot" shall mean Patriot American Hospitality, Inc.
2. Establishment of Cooperation Committee. The Corporation shall establish
with Patriot, as promptly as practicable following the closing of the Merger
and thereafter to continue in effect, a committee (the "Cooperation
Committee") consisting of (i) the Chairman of Patriot's Board of Directors
(who shall be the Chairman of the Cooperation Committee), (ii) the Chairman of
the Corporation's Board of Directors, (iii) a designee of Patriot's Board of
Directors reasonably acceptable to the Corporation (who shall serve at the
pleasure of Patriot's Board of Directors and may be removed and replaced at
any time) and (iv) the President of OPCO. The Cooperation Committee will
normally consider and propose the agenda listing the matters to be considered
at any joint meeting of the Boards of Directors of Patriot and the
Corporation, subject to the right of a Board member to request consideration
of additional matters. The Cooperation Committee shall establish such
procedures for the conduct of its business as it shall deem appropriate from
time to time.
3. Corporate Matters Categories. All matters to be considered by the
Corporation's Board of Directors, and all matters related thereto, except (i)
a Change in Patriot's Line of Business and (ii) Issuances of Paired Equity and
Issuances of Unpaired Equity, shall be classified into the most appropriate of
the following three categories:
a. Routine corporate governance matters, such as approval and retention
of independent accountants, the fixing of employee compensation and other
like matters (each, a "Category 1 Matter");
b. All other matters, other than a Change of Control and the removal of
the Chairman or Chief Executive Officer of the Corporation, and, after the
third anniversary of the Merger, all other matters (including a Change of
Control) other than the removal of the Chairman or Chief Executive Officer
of the Corporation (each, a "Category 2 Matter"); and
c. The removal of the Chairman or Chief Executive officer of the
Corporation and, until the third anniversary of the Merger, any proposed
action by the Corporation that would result in a Change of Control (each, a
"Category 3 Matter").
4. Consideration of Corporate Matters.
a. At any meeting of the Corporation's Board of Directors (whether or not
held jointly with Patriot), the Corporation may (i) submit a Category 1
Matter to the consideration and vote of the Corporation's Board of
Directors, irrespective of any consideration or vote by Patriot's Board of
Directors, (ii) submit a Category 2 Matter to the consideration and vote of
the Corporation's Board of Directors, with such matter requiring the
majority vote of the Corporation's Board of Directors for approval, and
(iii) submit a Category 3 Matter to the consideration and vote of the
Corporation's Board of Directors, with such matter requiring a 66 2/3% vote
of the Corporation's Board of Directors for approval.
b. If the Corporation's Board of Directors at any such meeting that is
not held jointly with Patriot's Board of Directors shall have approved any
Category 2 Matter or Category 3 Matter, the Corporation's
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Board of Directors shall promptly provide notice (the "Board Notice") to
Patriot in accordance with the terms of the Cooperation Agreement of the
occurrence of such meeting and the Category 2 Matters or Category 3 Matters
approved at such meeting. The Cooperation Committee shall convene promptly
(in any event, within ten (10) business days) following the Corporation's
Board of Directors meeting to consider the actions taken by the
Corporation's Board of Directors. If the Cooperation Committee votes to
approve the action taken by the Corporation's Board of Directors with
respect to any such matter, then the action authorized by the Corporation's
Board of Directors may be implemented without consideration of such matter
by Patriot's Board of Directors. If the Cooperation Committee does not
approve the action taken by the Corporation's Board of Directors, Patriot's
Board of Directors may then hold a meeting within fifteen (15) business
days following receipt of the Board Notice to consider and vote upon the
Category 2 Matters or Category 3 Matters approved by the Corporation's
Board of Directors and during such period the action authorized by the
Corporation's Board of Directors may not be implemented. In the event that
Patriot's Board of Directors approves at such a meeting the action taken by
the Corporation's Board of Directors or Patriot's Board of Directors does
not hold a meeting within fifteen (15) business days following receipt of
the Board Notice, the action authorized by the Corporation's Board of
Directors may thereafter be implemented.
c. In the event Patriot's Board of Directors holds a meeting within
fifteen (15) business days following receipt of the Board Notice but does
not approve the action authorized by the Corporation's Board of Directors,
the action authorized by the Corporation's Board of Directors may not be
implemented. In such an event, the Cooperation Committee will convene
promptly following the meeting of Patriot's Board of Directors to consider
the contrary positions of the Corporation's Board of Directors and
Patriot's Board of Directors and recommend a resolution of such contrary
positions in connection with the reconsideration process described below
(the "Reconsideration Process"). The Boards of Directors of the Corporation
and Patriot will then follow the Reconsideration Process.
d. At any joint meeting of the Boards of Directors of Patriot and the
Corporation, in the event that the Corporation's Board of Directors
approves a Category 2 Matter or Category 3 Matter but Patriot's Board of
Directors does not, the action authorized by the Corporation's Board of
Directors may not be implemented. The Cooperation Committee shall convene
immediately following the joint meeting (unless a quorum of the Cooperation
Committee is not present, in which case the Cooperation Committee shall
convene as soon as practicable thereafter) to consider the votes of the
Boards of Directors of the Corporation and Patriot taken at such meeting.
The Boards of Directors of the Corporation and Patriot will then follow the
Reconsideration Process described below.
5. Reconsideration Process. Following any meeting of the Cooperation
Committee as described above, the Corporation's Board of Directors may
reconsider a Category 2 Matter at any subsequent meeting of the Corporation's
Board of Directors and, if the Corporation's Board of Directors approves such
matter by a majority vote at such subsequent meeting, then the Corporation's
Board of Directors may take the action contemplated by such matter regardless
of the position of Patriot's Board of Directors. Following any meeting of the
Cooperation Committee as described above, the Corporation's Board of Directors
may reconsider a Category 3 Matter at any subsequent meeting of the
Corporation's Board of Directors and, if the Corporation's Board of Directors
approves such matter by a 66 2/3% vote at such subsequent meeting, then the
Corporation's Board of Directors may take the action contemplated by such
matter (but only if Patriot's Board of Directors approves such matter by a
majority vote in the case of a Change of Control).
6. Hotel Acquisitions Committee. The Corporation shall establish with
Patriot, as promptly as practicable following the closing of the Merger, and
thereafter to continue in effect as provided herein, a hotel acquisitions
committee (the "Hotel Acquisitions Committee") to analyze, evaluate and
consider potential acquisitions by the Corporation of hotel properties and
related assets (which properties and related assets may consist of a portfolio
of hotel properties and related assets, and which may be acquired in any form,
such as by merger, asset acquisitions or otherwise) ("Hotel Acquisitions").
The Hotel Acquisitions Committee shall have the sole power and authority to
authorize the Corporation to enter into a binding agreement with respect to
Hotel Acquisitions involving a proposed purchase price (inclusive of any
indebtedness to be assumed in connection therewith) not
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exceeding (with respect to each Hotel Acquisition or such series of Hotel
Acquisitions as are reasonably likely to be considered an integrated
transaction) 5% of the total combined market capitalization of the Corporation
and Patriot (which for such purposes shall include, without limitation, the
aggregate number of outstanding shares of Paired Equity, including equity
securities of the Corporation or Patriot that are convertible into Paired
Equity, and including limited partnership interests or units of Patriot OP or
OPCO OP for which Paired Equity may be received upon redemption of such
interests or units by the holders thereof, in each case valued at the market
value for the underlying Paired Equity) computed as of the last business day
of the month immediately preceding the month during which such Hotel
Acquisition is to be authorized and based on the average closing sale price of
a Paired Share over the five (5) trading days immediately preceding such
business day. The members of the Hotel Acquisitions Committee shall be
determined as provided in the Cooperation Agreement. Notwithstanding the
foregoing, the Hotel Acquisitions Committee shall no longer have the power and
authority described herein on and after the third anniversary of the Merger.
7. Limitation on Committees. For the term of the Cooperation Agreement, the
formation by the Corporation's Board of Directors of either (i) an executive
or similar committee of the Corporation's Board of Directors which is
authorized to act upon any Category 2 Matter or Category 3 Matter or (ii) a
nomination committee for the purpose of nominating directors shall require the
approval of the Board of Directors of Patriot.
8. Voting by Directors. Any vote on any matter by the Board of Directors of
the Corporation or the members of the Cooperation Committee or the Unpaired
Equity Committee provided for herein shall require for approval the
affirmative vote of the applicable number or percentage of all of the members
of either such Board of Directors then in office or the then existing members
of any such committee, as the case may be.
G. Issuance of Paired and Unpaired Equity.
1. Definitions. For the purposes of Section G of this Article V the
following terms shall have the meanings set forth below:
"Action" means any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state,
local, foreign or international Governmental Authority or any arbitration
or mediation tribunal.
"Governmental Authority" means any federal, state, local, foreign or
international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental
authority.
"Merger" shall have the meaning set forth in Section F of Article V
above.
"Issuance of Paired Equity" shall have the meaning set forth in Section F
of Article V above.
"Issuance of Unpaired Equity" shall have the meaning set forth in Section
F of Article V above.
"Paired Equity Officer/Director" means any officer or officers of Patriot
designated by Patriot's Board of Directors, from time to time, to be a
Paired Equity Officer/Director pursuant to Section (G)(2)(b) hereof.
"Paired Shares" or "Paired Equity" shall have the meaning set forth in
Section F of Article V above.
"Patriot" shall have the meaning set forth in Section F of Article V
above.
"Unpaired Equity Committee" means that committee whose members shall
consist of (i) the Chairman of Patriot's Board of Directors, (ii) the
Chairman of the Corporation's Board of Directors, (iii) two designees of
Patriot from either Patriot's or the Corporation's Board of Directors and
(iv) one designee of the Corporation from either Patriot's or the
Corporation's Board of Directors. Upon consummation of the Merger, the
members of the Unpaired Equity Committee shall consist of (i) Paul A.
Nussbaum until such time as he shall no longer serve as Chairman of
Patriot's Board of Directors and, after such time, the Chairman of
Patriot's Board of Directors, (ii) James D. Carreker until such time as he
shall no longer serve as Chairman of the Corporation's Board of Directors
and, after such time, the Chairman of the Corporation's Board of Directors,
(iii) two designees of Patriot from either Patriot's or the Corporation's
Board of Directors and (iv) one designee of the Corporation from either
Patriot's or the Corporation's Board of Directors.
2. Authority to Issue Paired Equity.
a. From and after the date of the Cooperation Agreement until the date
(the "Termination Date") which is twelve (12) months after the date on
which the Pairing Agreement is no longer in effect, Patriot's
16
<PAGE>
Board of Directors shall have the sole right to authorize and to effect, or
to cause the Corporation to effect, an Issuance of Paired Equity and to
take or cause to be taken any and all action in contemplation of, or in
connection with, an Issuance of Paired Equity and the Corporation's bylaws
shall so provide. In connection therewith, Patriot's Board of Directors
shall also have the authority to cause the Corporation to comply with the
procedures set forth in Section (G)(3) below.
b. Patriot shall be entitled to designate from time to time one or more
officers of Patriot to serve as a Paired Equity Officer/Director, and any
such officer so designated shall also serve as a vice president and
assistant secretary of the Corporation for so long as he or she is serving
as a Paired Equity Officer/Director. Any Paired Equity Officer/Director may
resign or be removed by Patriot at any time and, at any time thereafter,
Patriot may designate a new Paired Equity Officer/Director. Upon such
appointment, any Paired Equity Officer/Director shall have the express
authority to do any and all acts and things related to any Issuance of
Paired Equity, including, without limitation, the execution and delivery in
the name and on behalf of the Corporation of any and all documents,
certificates (including stock certificates) and other instruments necessary
or appropriate in connection with the issuance of any Corporation Paired
Stock pursuant to an Issuance of Paired Equity, the engagement of
investment bankers, accountants, attorneys and other professionals, and the
incurrence of any and all other transaction costs related thereto.
c. The Corporation shall at all times and in all circumstances maintain
and support the position that Patriot has the sole right and power to
authorize and effect, or to cause the Corporation to effect, the Issuance
of Paired Equity and the Corporation shall not assert otherwise in any
forum, proceeding, Action or communication or take any other action which
is inconsistent with its obligations hereunder.
3. Procedures in Connection with Issuance of Paired Equity. Upon receipt of
notice by Patriot of a determination by Patriot to engage in an Issuance of
Paired Equity, the Corporation and the Directors of the Corporation shall
promptly cooperate with Patriot in every way to effect such Issuance of Paired
Equity pursuant to the terms and schedule thereof as established by Patriot
including, without limitation, the actions set forth in Section 3.3(b) of the
Cooperation Agreement.
4. Authority to Issue of Unpaired Equity. The Unpaired Equity Committee
shall be established jointly by the Corporation and Patriot. The Corporation
shall have the right to engage in an Issuance of Unpaired Equity only upon the
affirmative vote of a majority of the members of the Unpaired Equity
Committee.
VI.
Limitation of Liability
Neither a director of the Corporation, a member of Patriot's Board of
Directors nor a member of any duly authorized and constituted committee of the
Corporation or the Board of Directors of the Corporation, including without
limitation, the Cooperation Committee, the Hotel Acquisitions Committee and
the Unpaired Equity Committee, shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director or as such a member, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors or the person or persons exercising or performing any of the powers
or duties otherwise conferred or imposed upon directors of the Corporation,
then the liability of the director of the Corporation or the person or persons
exercising or performing any of the powers or duties otherwise conferred or
imposed upon directors of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
17
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VII.
Related Person Transaction
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this Corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this Corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the Corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the Corporation.
For purposes of this Article VII:
1. The term "Business Combination" shall mean (a) any merger,
reorganization or consolidation of this Corporation with or into a Related
Person, (b) any sale, lease, exchange, transfer or other disposition,
including, without limitation, a mortgage or any other security device, of
all or any substantial part of the assets of this Corporation (including,
without limitation, any voting securities of a subsidiary) or of a
subsidiary, to a Related Person, (c) any merger or consolidation of a
Related Person with or into this Corporation or a subsidiary of this
Corporation and (d) any sale, lease, exchange, transfer or other
disposition of all or any substantial part of the assets of a Related
Person to this Corporation or a subsidiary of this Corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate
five percent (5%) or more of the outstanding shares of the capital stock of
this Corporation, and any "affiliate" or "associate" (as those terms are
defined in Rule 12b-2 of the Exchange Act) of any such individual,
corporation, partnership or other person or entity; provided, however, that
the term "Related Person" shall not include either Patriot or any
subsidiary of this Corporation.
3. The term "substantial part of the assets" shall mean assets having a
fair market value or book value, whichever is greater, equal to 25% or more
of such value of the total assets as reflected on the most recent quarterly
balance sheet of the Corporation as of a date no earlier than forty-five
(45) days prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this Corporation
which any Related Person has the right to acquire pursuant to any agreement
or upon exercise of conversion rights, warrants or options, or otherwise
shall be deemed beneficially owned by such Related Person.
The provisions set forth in this Article VII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this Corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
VIII.
Amendment of Bylaws
A. Amendment By the Board of Directors. Except as otherwise provided by law
or this Certificate, the Bylaws of the Corporation may be amended or repealed
by the Board of Directors by the affirmative vote of a majority of the
directors then in office.
18
<PAGE>
B. Amendment By the Stockholders. The Bylaws of the Corporation may be
amended or repealed at any annual meeting of stockholders, or special meeting
of stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Board of Directors recommends
that stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative vote
of the majority of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class.
IX.
Amendment of Certificate of Incorporation
Subject to Article VII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided however,
that any amendment, repeal or modification of Sections (D)(2), F and G of
Article V shall first require a 66 2/3% vote of the Corporation's Board of
Directors and Patriot's Board of Directors.
19
<PAGE>
I, Rex E. Stewart, Chief Financial Officer of the Corporation, for the
purpose of amending and restating the Corporation's Certificate of Incorporation
pursuant to the General Corporation Law of the State of Delaware, do make this
certificate, hereby declaring and certifying that this is my act and deed on
behalf of the Corporation this 5th day of January, 1998.
/s/ Rex E. Stewart
------------------------
Rex E. Stewart
Chief Financial Officer
<PAGE>
EXHIBIT 10.2
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
among
PATRIOT AMERICAN HOSPITALITY, INC.,
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.,
VARIOUS LENDERS,
THE CHASE MANHATTAN BANK,
as Arranger and Administrative Agent
and
PAINE WEBBER REAL ESTATE SECURITIES, INC.,
as Arranger and Documentation Agent
----------------------------------
Dated as of December 16, 1997
----------------------------------
$900,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
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SECTION 1. Amount and Terms of Credit............................................................... 1
1.01 The Commitments....................................................................... 1
1.02 Minimum Amount of Each Borrowing...................................................... 2
1.03 Notice of Borrowing................................................................... 2
1.04 Disbursement of Funds................................................................. 3
1.05 Notes................................................................................. 4
1.06 Conversions........................................................................... 4
1.07 Pro Rata Borrowings................................................................... 5
1.08 Interest.............................................................................. 5
1.09 Interest Periods...................................................................... 6
1.10 Increased Costs, Illegality, etc...................................................... 7
1.11 Compensation.......................................................................... 9
1.12 Change of Lending Office.............................................................. 10
1.13 Replacement of Lenders................................................................ 10
SECTION 2. Letters of Credit........................................................................ 11
2.01 Letters of Credit..................................................................... 11
2.02 Letter of Credit Requests............................................................. 13
2.03 Letter of Credit Participations....................................................... 14
2.04 Agreement to Repay Letter of Credit Drawings.......................................... 16
2.05 Increased Costs....................................................................... 17
SECTION 3. Fees; Reductions of Commitment........................................................... 18
3.01 Fees.................................................................................. 18
3.02 Voluntary Termination of Commitments.................................................. 19
3.03 Mandatory Termination and Reduction of Commitments.................................... 19
SECTION 4. Prepayments; Payments; Taxes............................................................. 19
4.01 Voluntary Prepayments................................................................. 19
4.02 Mandatory Repayments and Cash Collateralization....................................... 20
4.03 Method and Place of Payment........................................................... 21
4.04 Net Payments; Taxes................................................................... 21
SECTION 5. Conditions Precedent to Effective Date................................................... 23
5.01 Execution of Agreement; Notes......................................................... 23
5.02 Fees, etc............................................................................. 23
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5.03 Opinions of Counsel................................................................... 23
5.04 Trust, Corporate, Limited Liability Company and Partnership
Documents; Proceedings; etc....................................................... 23
5.05 Amended and Restated Affiliate Guaranty............................................... 24
5.06 Adverse Change; Approvals............................................................. 24
5.07 Litigation............................................................................ 25
5.08 Solvency Certificate; Insurance Certificates.......................................... 25
5.09 Pro Forma Balance Sheets; Projections................................................. 25
5.10 Initial Borrowing Base Certificate.................................................... 25
5.11 Eligible Hotel Documents.............................................................. 25
5.12 Original Credit Agreement; etc........................................................ 25
5.13 Term Loan Agreement................................................................... 26
SECTION 6. Conditions Precedent to All Loans........................................................ 26
6.01 No Default; Representations and Warranties............................................ 26
6.02 Notice of Borrowing; Letter of Credit Request......................................... 27
6.03 Borrowing Base Certificate............................................................ 27
SECTION 7. Representations and Warranties........................................................... 27
7.01 Trust, Corporate, Limited Liability Company and Partnership
Status............................................................................ 28
7.02 Trust, Corporate, Limited Liability Company or Partnership
Power and Authority............................................................... 28
7.03 No Violation.......................................................................... 29
7.04 Governmental Approvals................................................................ 29
7.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc..................................................... 29
7.06 Litigation............................................................................ 31
7.07 True and Complete Disclosure.......................................................... 31
7.08 Use of Proceeds; Margin Regulations................................................... 32
7.09 Tax Returns and Payments.............................................................. 32
7.10 Compliance with ERISA................................................................. 33
7.11 Real Properties....................................................................... 34
7.12 Subsidiaries.......................................................................... 35
7.13 Compliance with Statutes, etc......................................................... 35
7.14 Investment Company Act................................................................ 35
7.15 Public Utility Holding Company Act.................................................... 35
7.16 Environmental Matters................................................................. 35
7.17 Labor Relations....................................................................... 36
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(ii)
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7.18 Intellectual Property................................................................. 37
7.19 Indebtedness.......................................................................... 37
7.20 Ground Leases......................................................................... 37
7.21 Status as REIT........................................................................ 37
7.22 Operators............................................................................. 37
7.23 Eligible Hotels....................................................................... 37
7.24 Further Assurances.................................................................... 38
SECTION 8. Affirmative Covenants.................................................................... 38
8.01 Information Covenants................................................................. 38
8.02 Books, Records and Inspections........................................................ 43
8.03 Maintenance of Property; Insurance.................................................... 43
8.04 Corporate Franchises.................................................................. 44
8.05 Compliance with Statutes, etc......................................................... 44
8.06 Compliance with Environmental Laws.................................................... 44
8.07 ERISA................................................................................. 45
8.08 End of Fiscal Years; Fiscal Quarters.................................................. 46
8.09 Performance of Obligations............................................................ 47
8.10 Payment of Taxes...................................................................... 47
8.11 Certain Requirements with Respect to Eligible Hotels.................................. 47
8.12 Operators............................................................................. 48
8.13 Qualified Ground Leases and Operating Leases.......................................... 48
8.14 FF&E Reserves......................................................................... 49
8.15 REIT Requirements..................................................................... 50
8.16 Maintenance of Operating Account...................................................... 50
SECTION 9. Negative Covenants....................................................................... 50
9.01 Line of Business...................................................................... 50
9.02 Consolidation, Merger, Sale of Assets, etc............................................ 50
9.03 Dividends............................................................................. 51
9.04 Investments........................................................................... 52
9.05 Transactions with Affiliates.......................................................... 53
9.06 Total Interest Coverage............................................................... 54
9.07 Unsecured Interest Coverage........................................................... 54
9.08 Fixed Charge Coverage................................................................. 54
9.09 Tangible Net Worth.................................................................... 54
9.10 Limitations on Indebtedness........................................................... 54
9.11 Limitation on Certain Restrictions.................................................... 55
</TABLE>
(iii)
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SECTION 10. Events of Default....................................................................... 55
10.01 Payments............................................................................. 56
10.02 Representations, etc................................................................. 56
10.03 Covenants............................................................................ 56
10.04 Default Under Other Agreements....................................................... 56
10.05 Bankruptcy, etc...................................................................... 56
10.06 ERISA................................................................................ 57
10.07 REIT Status.......................................................................... 58
10.08 Guaranties........................................................................... 58
10.09 Judgments............................................................................ 58
10.10 Change of Control.................................................................... 58
10.11 General Partner Status............................................................... 58
SECTION 11. Definitions and Accounting Terms........................................................ 59
11.01 Defined Terms........................................................................ 59
SECTION 12. The Agents..............................................................................105
12.01 Appointment..........................................................................105
12.02 Nature of Duties.....................................................................105
12.03 Lack of Reliance on the Agents.......................................................106
12.04 Certain Rights of the Agents.........................................................106
12.05 Reliance.............................................................................106
12.06 Indemnification......................................................................107
12.07 Each Agent in its Individual Capacity................................................107
12.08 Holders..............................................................................107
12.09 Removal of or Resignation by Either of the Agents....................................107
SECTION 13. Miscellaneous...........................................................................109
13.01 Payment of Expenses, etc.............................................................109
13.02 Right of Setoff......................................................................111
13.03 Notices..............................................................................112
13.04 Benefit of Agreement.................................................................112
13.05 No Waiver; Remedies Cumulative.......................................................114
13.06 Payments Pro Rata....................................................................114
13.07 Calculations; Computations...........................................................115
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE; WAIVER OF JURY TRIAL.......................................................116
13.09 Counterparts.........................................................................117
13.10 Effectiveness........................................................................117
</TABLE>
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13.11 Headings Descriptive.................................................................118
13.12 Amendment or Waiver; etc.............................................................118
13.13 Survival.............................................................................119
13.14 Domicile of Loans....................................................................119
13.15 Confidentiality......................................................................119
13.16 Register.............................................................................120
13.17 Addition of New Lenders; Termination of Commitments of
Non-Continuing Lenders; etc.......................................................121
SECTION 14. Patriot REIT Guaranty...................................................................122
14.01 The Guaranty.........................................................................122
14.02 Bankruptcy...........................................................................122
14.03 Nature of Liability..................................................................123
14.04 Independent Obligation...............................................................123
14.05 Authorization........................................................................123
14.06 Reliance.............................................................................124
14.07 Subordination........................................................................124
14.08 Waiver...............................................................................125
14.09 Nature of Liability..................................................................126
</TABLE>
SCHEDULE I-A Commitments on the Effective Date
SCHEDULE I-B Commitments on the Increase Effective Date
SCHEDULE II Lender Addresses
SCHEDULE III Litigation
SCHEDULE IV Initial Hotels and Real Property
SCHEDULE V Subsidiaries
SCHEDULE VI Existing Indebtedness
SCHEDULE VII Original Letters of Credit
SCHEDULE VIII Qualified Ground Leases
EXHIBIT A Notice of Borrowing
EXHIBIT B Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Opinion of Counsel to the Credit Parties
EXHIBIT F-1 Officers' Certificate
EXHIBIT F-2 Officers' Wyndham Certificate
(v)
<PAGE>
EXHIBIT G Amended and Restated Affiliate Guaranty
EXHIBIT H Officer's Solvency Certificate
EXHIBIT I Borrowing Base Certificate
EXHIBIT J Compliance Certificate
EXHIBIT K Assignment and Assumption Agreement
(vi)
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 18, 1997 and
amended and restated as of December 16, 1997, among PATRIOT AMERICAN
HOSPITALITY, INC., a Delaware corporation ("Patriot REIT"), PATRIOT AMERICAN
HOSPITALITY PARTNERSHIP, L.P., a Virginia limited partnership (the "Borrower"),
the Lenders party hereto from time to time, PAINE WEBBER REAL ESTATE SECURITIES,
INC. and THE CHASE MANHATTAN BANK, as Arrangers, PAINEWEBBER, as Documentation
Agent, and CHASE, as Administrative Agent (all capitalized terms used herein and
defined in Section 11 are used herein as therein defined).
W I T N E S S E T H :
-------------------
WHEREAS, Patriot REIT, the Borrower, the Original Lenders, the
Documentation Agent and the Administrative Agent are parties to a Credit
Agreement, dated as of July 18, 1997 (as the same has been amended, modified or
supplemented to, but not including, the Effective Date, the "Original Credit
Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Original
Credit Agreement in the form of this Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree that the Original Credit
Agreement shall be and hereby is amended and restated in its entirety as
follows:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 The Commitments. Subject to and upon the terms and conditions
---------------
set forth herein, each Lender severally agrees (A) to continue as Loans (as
hereinafter defined), on the Effective Date, Original Loans made by such Lender
pursuant to the Original Credit Agreement and outstanding on the Effective Date
and/or (B) to make, at any time and from time to time on and after the Effective
Date and prior to the Maturity Date, a loan or loans (each, a "Loan" and,
collectively, the "Loans") to the Borrower, which Loans (i) shall, at the option
of the Borrower, be Base Rate Loans or Eurodollar Loans, provided that, except
--------
as otherwise specifically provided in Section 1.10(b), all Loans comprising the
same Borrowing shall at all times be of the same Type, (ii) may be repaid and
reborrowed at any time in accordance with the provisions hereof, (iii) shall not
exceed for any Lender at any time outstanding that aggregate
<PAGE>
principal amount which, when added to the product of (x) such Lender's
Percentage and (y) the aggregate amount of all Letter of Credit Outstandings at
such time (exclusive of Unpaid Drawings which are repaid with the proceeds of,
and simultaneously with the incurrence of, the respective incurrence of Loans),
equals the Commitment of such Lender at such time and (iv) shall not exceed for
all Lenders at any time outstanding that aggregate principal amount which, when
added to the amount of all Letter of Credit Outstandings at such time (exclusive
of Unpaid Drawings which are repaid with the proceeds of, and simultaneously
with the incurrence of, the respective incurrence of Loans) equals the lesser of
(x) the Borrowing Base at such time and (y) the Adjusted Total Commitment at
such time. Notwithstanding the foregoing, the Borrower shall not be permitted
to incur Loans, the proceeds of which are used for working capital purposes
("W/C Loans") in aggregate principal amount which, when added to the amount of
all Letter of Credit Outstandings at such time (exclusive of Unpaid Drawings
which are repaid with the proceeds of, and simultaneously with the incurrence
of, the respective incurrence of Loans) would exceed 10% of the Total Commitment
then in effect.
1.02 Minimum Amount of Each Borrowing. The aggregate principal
--------------------------------
amount of each Borrowing of Loans (other than Base Rate Loans incurred to repay
any Unpaid Drawings) shall not be less than the Minimum Borrowing Amount
applicable thereto. More than one Borrowing may occur on the same date, but at
no time shall there be outstanding more than ten Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
-------------------
incur a Borrowing hereunder, the Borrower shall give the Administrative Agent at
its Notice Office at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of each Base Rate Loan and at
least three Business Days' (or, in the case of Loans made on the Effective Date,
two Business Days') prior written notice (or telephonic notice promptly
confirmed in writing) of each Eurodollar Loan to be made hereunder, provided
--------
that any such notice shall be deemed to have been given on a certain day only if
given before 11:00 A.M. (New York time) on such day. Each such written notice
or written confirmation of telephonic notice (each a "Notice of Borrowing"),
except as otherwise expressly provided in Section 1.10, shall be given by the
Borrower in the form of Exhibit A, completed to specify (i) the aggregate
principal amount of the Loans to be incurred pursuant to such Borrowing, (ii)
the date of such Borrowing (which shall be a Business Day) and (iii) whether the
Loans being incurred pursuant to such Borrowing are to be initially maintained
as Base Rate Loans or Euro dollar Loans and, if Eurodollar Loans, the initial
Interest Period to be applicable thereto. The Administrative Agent shall
promptly give each Lender notice of such pro posed Borrowing, of such Lender's
proportionate share thereof and of the other matters
-2-
<PAGE>
required by the immediately preceding sentence to be specified in the Notice of
Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice of any Borrowing of Loans, the
Administrative Agent may act without liability upon the basis of telephonic
notice of such Borrowing believed by the Administrative Agent in good faith to
be from an Authorized Officer of the Borrower prior to receipt of written
confirmation. In each such case, the Borrower hereby waives the right to
dispute the Administrative Agent's record of the terms of such telephonic notice
of such Borrowing.
1.04 Disbursement of Funds. No later than 1:00 P.M. (New York time)
---------------------
on the date specified in each Notice of Borrowing, each Lender will disburse its
pro rata portion of each Borrowing requested to be made on such date. All such
- --- ----
amounts shall be disbursed in Dollars and in immediately available funds at the
Payment Office of the Administrative Agent, and the Administrative Agent will
promptly disburse to the Borrower at the Payment Office, in Dollars and in
immediately available funds, the aggregate of the amounts so made available by
the Lenders. Unless the Administrative Agent shall have been notified by any
Lender prior to the date of Borrowing that such Lender does not intend to
disburse to the Administrative Agent such Lender's portion of any Borrowing to
be made on such date, the Administrative Agent may assume that such Lender has
disbursed such amount to the Administrative Agent on such date of Borrowing and
the Administrative Agent may, in reliance upon such assumption, disburse to the
Borrower a corresponding amount. If such corresponding amount is not in fact
disbursed to the Administrative Agent by such Lender, the Administrative Agent
shall be entitled to recover such corresponding amount on demand from such
Lender. If such Lender does not pay such corresponding amount forthwith upon
the Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Borrower and the Borrower shall within one Business Day
thereafter pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover on demand from such
Lender or the Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was
disbursed by the Administrative Agent to the Borrower until the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (i) if recovered from such Lender, at the overnight Federal Funds
Rate and (ii) if recovered from the Borrower, the rate of interest applicable to
the respective Borrowing, as determined pursuant to Section 1.08. Nothing in
this Section 1.04 shall be deemed to relieve any Lender from its obligation to
make Loans here under or to prejudice any rights which the Borrower may have
against any Lender as a result of any failure by such Lender to make Loans
hereunder.
-3-
<PAGE>
1.05 Notes. (a) The Borrower's obligation to pay the principal of,
-----
and interest on, the Loans made by each Lender shall be evidenced by a
promissory note duly executed and delivered by the Borrower substantially in the
form of Exhibit B with blanks appropriately completed in conformity herewith
(each, a "Note" and, collectively, the "Notes"). The Note issued to each Lender
shall (i) be executed by the Borrower, (ii) be payable to the order of such
Lender and be dated the Effective Date (or, if issued after the Effective Date,
be dated the date of the issuance thereof), (iii) be in a stated principal
amount equal to the Commitment of such Lender and be payable in the principal
amount of the outstanding Loans evidenced thereby, (iv) mature on the Maturity
Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced thereby, (vi) be subject to voluntary prepayment and mandatory
repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(b) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of its Note properly endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation (or any error in any such notation) shall not affect the
Borrower's obligations to the holder from time to time of each Note in respect
of such Loans.
1.06 Conversions. The Borrower shall have the option to convert, on
-----------
any Business Day, all or a portion equal to at least the applicable Minimum
Borrowing Amount of the outstanding principal amount of Loans made to the
Borrower into a Borrowing or Borrowings of another Type of Loan, provided that
--------
(i) except as other wise provided in Section 1.10(b), Eurodollar Loans may be
converted into Base Rate Loans only on the last day of an Interest Period
applicable to the Loans being converted and no partial conversion of a Borrowing
of Eurodollar Loans shall reduce the outstanding principal amount of such
Eurodollar Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount applicable thereto, (ii) Base Rate Loans may only be converted
into Eurodollar Loans if no Event of Default is in existence on the date of the
conversion, (iii) no conversion pursuant to this Section 1.06 shall result in a
greater number of Borrowings of Eurodollar Loans than is permitted under Section
1.02 and (iv) Loans converted into Eurodollar Loans prior to the Increase
Effective Date may have an Interest Period of seven days or one, two, three or
six months. Each such conversion shall be effected by the Borrower by giving
the Administrative Agent at its Notice Office prior to 11:00 A.M. (New York
time) at least three Business Days' prior written notice (each a "Notice of
Conversion") specifying the Loans to be so converted (or one Business Day's
prior written notice in the case of a conversion of Eurodollar Loans into Base
Rate Loans), the Borrowing or Borrowings
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<PAGE>
pursuant to which such Loans were made and, if to be converted into Eurodollar
Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Lender prompt notice of any such proposed
conversion affecting any of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Loans shall be incurred
-------------------
from the Lenders pro rata on the basis of their respective Commitments. It is
--- ----
understood that no Lender shall be responsible for any default by any other
Lender of its obligation to make Loans hereunder and that each Lender shall be
obligated to make the Loans provided to be made by it hereunder, regardless of
the failure of any other Lender to make its Loans hereunder.
1.08 Interest. (a) The Borrower agrees to pay interest in respect
--------
of the unpaid principal amount of each Base Rate Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Base Rate Loan and (ii) the
conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06,
at a rate per annum which shall be equal to the sum of the Applicable Margin
plus the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan from the date the proceeds thereof are
made available to the Borrower until the earlier of (i) the maturity (whether by
acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of
such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10,
as applicable, at a rate per annum which shall, during each Interest Period
applicable thereto, be equal to the sum of the Applicable Margin plus the
Eurodollar Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable hereunder
shall, in each case, bear interest at a rate per annum equal to the rate which
is the greater of (i) 2% in excess of the rate then borne by such Loans (without
giving effect to any increase in the rate borne by such Loans as a result of the
operation of this clause (c)) and (ii) the Base Rate then in effect plus 4%, in
each case with such interest to be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable (i)
in respect of each Base Rate Loan, monthly in arrears on the tenth day of each
calendar month, (ii) in respect of each Eurodollar Loan, on the tenth day of
each calendar month and (iii) in respect of each Loan, on any repayment or
prepayment (on the amount
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<PAGE>
repaid or prepaid), at maturity (whether by acceleration or otherwise) and,
after such maturity, on demand.
(e) Upon each Interest Determination Date, the Administrative Agent
shall determine the Eurodollar Rate for each Interest Period applicable to
Eurodollar Loans and shall promptly notify the Borrower and the Lenders thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.
1.09 Interest Periods. At the time the Borrower gives any Notice of
----------------
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an Interest
Period applicable to such Eurodollar Loan (in the case of any subsequent
Interest Period), the Borrower shall have the right to elect, by giving the
Administrative Agent notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, a be a seven day period or a one, two, three or six-
month period, prior to the Increase Effective Date, and thereafter be a one,
two, three or six-month period, provided that:
--------
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the
date of any conversion thereto from a Loan of a different Type) and each
Interest Period occurring thereafter in respect of such Eurodollar Loan
shall commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Loan begins on
a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period shall end on
the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, however, that if any Interest Period for
-------- -------
a Eurodollar Loan would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
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<PAGE>
(v) no Interest Period may be selected at any time when an Event of
Default is then in existence; and
(vi) no Interest Period shall be selected which extends beyond the
Maturity Date.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest Period to be applicable to such Eurodollar
Loans as provided above, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any
---------------------------------
Lender shall have determined in good faith (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto but,
with respect to clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition of
Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and including the introduction of
any new law or governmental rule, regulation, order, guideline or request,
such as, for example, but not limited to: (A) a change in the basis of
taxation of payment to any Lender of the principal of or interest on such
Eurodollar Loan or any other amounts payable hereunder (except for changes
in the rate of tax on, or determined by reference to, the net income or net
profits of such Lender, or any franchise tax, in either case pursuant to
the laws of the jurisdiction in which such Lender is organized or in which
such Lender's principal office or applicable lending office is located or
any subdivision thereof or therein), or (B) a change in official reserve
requirements, but, in all events, excluding any change in reserve
requirements included in the computation of the Eurodollar Rate and/or (y)
other circumstances since the date of this Agreement affecting the
interbank Eurodollar market; or
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<PAGE>
(iii) at any time, that the making or continuance of any Eurodollar
Loan has been made (x) unlawful by any law or governmental rule, regulation
or order, (y) impossible by compliance by any Lender in good faith with any
governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the date of this
Agreement which materially and adversely affects the interbank Eurodollar
market;
then, and in any such event, such Lender (or the Administrative Agent, in the
case of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the Borrower and, except in the case of clause (i) above, to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in
the case of clause (i) above, Eurodollar Loans shall no longer be available
until such time as the Administrative Agent notifies the Borrower and the
Lenders that the circumstances giving rise to such notice by the Administrative
Agent no longer exist, and any Notice of Borrowing or Notice of Conversion
given by the Borrower with respect to Eurodollar Loans which have not yet been
incurred (including by way of conversion) shall be deemed rescinded by the
Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such
Lender, five Business Days after written demand therefor, such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its sole discretion shall
determine) as shall be required to compensate such Lender for such increased
costs or reductions in amounts received or receivable hereunder (a written
notice as to the additional amounts owed to such Lender, showing the basis for
the calculation thereof, submitted to the Borrower by such Lender in good faith
shall, absent manifest error, be final and conclusive and binding on all the
parties hereto) and (z) in the case of clause (iii) above, the Borrower shall
take one of the actions specified in Section 1.10(b) as promptly as possible
and, in any event, within the time period required by law. Each of the
Administrative Agent and each Lender agrees that if it gives notice to the
Borrower of any of the events described in clause (i) or (ii) above, it shall
promptly notify the Borrower and, in the case of any such Lender, the
Administrative Agent, if such event ceases to exist. If any such event
described in clause (iii) above ceases to exist as to a Lender, the obligations
of such Lender to make Eurodollar Loans and to convert Base Rate Loans into
Eurodollar Loans on the terms and conditions contained herein shall be
reinstated. In addition, if the Administrative Agent gives notice to the
Borrower that the events described in clause (i) above cease to exist, then the
obligations of the Lenders to make Eurodollar Loans and to convert Base Rate
Loans into Eurodollar Loans on the terms and conditions contained herein (but
subject to clause (iii) above) shall also be reinstated.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the
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<PAGE>
case of a Eurodollar Loan affected by the circumstances described in Section
1.10(a)(iii), the Borrower shall) either (x) if the affected Eurodollar Loan is
then being made initially or pursuant to a conversion, cancel the respective
Borrowing by giving the Administrative Agent telephonic notice (confirmed in
writing) on the same date that the Borrower was notified by the affected Lender
or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if
the affected Eurodollar Loan is then outstanding, upon at least three Business
Days' written notice to the Administrative Agent, require the affected Lender to
convert such Eurodollar Loan into a Base Rate Loan, provided that, if more than
--------
one Lender is affected at any time, then all affected Lenders must be treated
the same pursuant to this Section 1.10(b).
(c) If at any time any Lender determines in good faith that, after the
date of this Agreement, the introduction of or any change in any applicable law
or governmental rule, regulation, order, guideline, directive or request
(whether or not having the force of law and including, without limitation, those
announced or published prior to the Effective Date) concerning capital adequacy,
or any change in interpretation or administration thereof by any governmental
authority, central bank or comparable agency, will have the effect of increasing
the amount of capital required or expected to be maintained by such Lender or
any corporation controlling such Lender based on the existence of such Lender's
Commitments hereunder or its obligations hereunder, then the Borrower shall pay
to such Lender, five Business Days after such Lender's written demand therefor,
such additional amounts as shall be required to compensate such Lender or such
other corporation for the increased cost to such Lender or such other
corporation or the reduction in the rate of return to such Lender or such other
corporation as a result of such increase of capital allocable to the existence
of such Lender's commitment or obligations hereunder. In determining such
additional amounts, each Lender will act reasonably and in good faith and will
use averaging and attribution methods which are reasonable, provided that such
--------
Lender's reasonable good faith determination of compensation owing under this
Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto. Each Lender, upon determining that any
additional amounts will be payable pursuant to this Section 1.10(c), will give
prompt written notice thereof to the Borrower, which notice shall show the basis
for calculation of such additional amounts. In addition, each such Lender, upon
determining that the circumstances giving rise to the payment of additional
amounts pursuant to this Section 1.10(c) cease to exist, will give prompt
written notice thereof to the Borrower.
1.11 Compensation. The Borrower shall compensate each Lender, upon
------------
its written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or
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<PAGE>
reemployment of deposits or other funds required by such Lender to fund its
Eurodollar Loans but excluding any loss of anticipated profit) which such Lender
may sustain: (i) if for any reason (other than a default by such Lender or the
Administrative Agent) a Borrowing of, or conversion from or into, Eurodollar
Loans does not occur on a date specified therefor in a Notice of Borrowing or
Notice of Conversion (whether or not withdrawn by the Borrower or deemed
withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including any
repayment made pursuant to Section 4.01 or 4.02 or as a result of an
acceleration of the Loans pursuant to Section 10) or conversion of any
Eurodollar Loans occurs on a date which is not the last day of an Interest
Period with respect thereto; (iii) if any prepayment of any Eurodollar Loans is
not made on any date specified in a notice of prepayment given by the Borrower;
or (iv) as a consequence of (x) any other default by the Borrower to repay the
Loans when required by the terms of this Agreement or the Note held by such
Lender or (y) any election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Lender agrees that on the
------------------------
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to such
Lender, it will, if requested by the Borrower, use reasonable efforts (subject
to overall policy considerations of such Lender) to designate another lending
office for any Loans or Letters of Credit affected by such event, provided that
--------
such designation is made on such terms that such Lender and its lending office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding or reducing the consequence of the event giving rise to the operation
of such Section. Nothing in this Section 1.12 shall affect or postpone any of
the obligations of the Borrower or the right of any Lender provided in Sections
1.10, 2.05 and 4.04.
1.13 Replacement of Lenders. (a) (x) If any Lender (i) becomes a
----------------------
Defaulting Lender or otherwise defaults in its obligations to make Loans or fund
Unpaid Drawings or (ii) refuses to consent to certain proposed changes, waivers,
discharges or terminations with respect to this Agreement which have been
approved by the Required Lenders as provided in Section 13.12(b) or (y) upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to any Lender
which results in such Lender charging to the Borrower increased costs in excess
of those being generally charged by the other Lenders, the Borrower shall have
the right, in accordance with the requirements of Section 13.04(b), if no
Default or Event of Default will exist after giving effect to such replacement,
to replace such Lender (the "Replaced Lender") with one or more other Eligible
Transferee or Transferees, none of whom shall constitute a Defaulting Lender at
the time of such replacement (collectively, the "Replacement Lender"),
reasonably acceptable to the Administrative Agent, provided that (i) at the
--------
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<PAGE>
time of any replacement pursuant to this Section 1.13, the Replaced Lender and
the Replacement Lender shall enter into one or more Assignment and Assumption
Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to
said Section 13.04(b) to be paid by the Replacement Lender) pursuant to which
the Replacement Lender shall acquire the entire Commitment and all of the
outstanding Loans of, and in each case participations in Letters of Credit by,
the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced
Lender in respect thereof an amount equal to the sum of (1) an amount equal to
the principal of, and all accrued interest on, all outstanding Loans of the
Replaced Lender together with all then unpaid interest with respect thereto at
such time, (2) an amount equal to all Unpaid Drawings that have been funded by
(and not reimbursed to) such Replaced Lender, together with all then unpaid
interest with respect thereto at such time and (3) an amount equal to all
accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant to
Section 3.01 and (y) the respective Issuing Lender an amount equal to such
Replaced Lender's Percentage of any Unpaid Drawing (which at such time remains
an Unpaid Drawing) to the extent such amount was not theretofore funded by such
Replaced Lender, and (ii) all obligations of the Borrower owing to the Replaced
Lender (other than those specifically described in clause (i) above of this
proviso in respect of which the assignment purchase price has been, or is
concurrently being, paid) shall be paid in full to such Replaced Lender
concurrently with such replacement.
(b) Upon the execution of the respective Assignment and Assumption
Agreements, the payment of amounts referred to in clauses (i) and (ii) of the
proviso of Section 1.13(a) and, if so requested by the Replacement Lender,
delivery to the Replacement Lender of the appropriate Note executed by the
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to indemnification provisions under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06), which shall
survive as to such Replaced Lender. Upon the Replaced Lender ceasing to be a
Lender hereunder, such Replaced Lender agrees to promptly return to the Borrower
the Note theretofore delivered to such Replaced Lender pursuant to this
Agreement marked "cancelled", or if such Replaced Lender has lost or cannot find
such Note, such Replaced Lender will execute and deliver to the Borrower a
customary lost note and indemnity agreement in form and substance reasonably
satisfactory to the Borrower.
SECTION 2. Letters of Credit.
-----------------
2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions herein set forth, the Borrower may request that any Issuing Lender
issue, at
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<PAGE>
any time and from time to time on and after the Effective Date and prior to the
Maturity Date, for the account of the Borrower and for the benefit of any holder
(or any trustee, agent or other similar representative for any such holders) of
L/C Supportable Obligations of the Borrower or any of its Subsidiaries, an
irrevocable standby letter of credit, in a form customarily used by such Issuing
Lender or in such other form as has been approved by such Issuing Lender, such
approval not to be unreasonably withheld or delayed (each such standby letter of
credit, a "Letter of Credit") in support of such L/C Supportable Obligations.
On the Effective Date, all Original Letters of Credit shall be deemed to have
been issued under this Agreement and shall for all purposes constitute "Letters
of Credit" hereunder.
(b) Subject to the terms and conditions contained herein, the
Administrative Agent hereby agrees that it will (and at the Borrower's request
each other Issuing Lender may, at its option, agree that it will), at any time
and from time to time on or after the Effective Date and prior to the Maturity
Date, following its receipt of the respective Letter of Credit Request, issue
for the account of the Borrower one or more Letters of Credit in support of such
L/C Supportable Obligations of the Borrower or any of its Subsidiaries as is
permitted to remain outstanding without giving rise to a Default or Event of
Default hereunder, provided that the respective Issuing Lender shall be under no
--------
obligation to issue any Letter of Credit if at the time of such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain such Issuing
Lender from issuing such Letter of Credit or any requirement of law
applicable to such Issuing Lender or any request or directive (whether or
not having the force of law) from any governmental authority with
jurisdiction over such Issuing Lender shall prohibit, or request that such
Issuing Lender refrain from, the issuance of letters of credit generally or
such Letter of Credit in particular or shall impose upon such Issuing
Lender with respect to such Letter of Credit any restriction or reserve or
capital requirement (for which such Issuing Lender is not otherwise
compensated) not in effect on the date hereof, or any unreimbursed loss,
cost or expense which was not applicable, in effect or known to such
Issuing Lender as of the date hereof and which such Issuing Lender in good
faith deems material to it; or
(ii) such Issuing Lender shall have received notice from any Lender
prior to the issuance of such Letter of Credit of the type described in the
second sentence of Section 2.02(b).
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<PAGE>
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) and the aggregate
principal amount of all Loans then outstanding, would exceed the lesser of (x)
the Adjusted Total Commitment at such time and (y) the Borrowing Base at such
time, (ii) each Letter of Credit shall be denominated in Dollars, (iii) each
Letter of Credit shall by its terms terminate on or before the earlier of (A)
the date which occurs 12 months after the date of the issuance thereof (although
any such Letter of Credit may be automatically extendable for successive periods
of up to 12 months, but not beyond the tenth Business Day prior to the Maturity
Date, on terms acceptable to the Issuing Lender thereof) and (B) the tenth
Business Day prior to the Maturity Date, (iv) the Stated Amount of each Letter
of Credit upon issuance shall be not less than $100,000 or such lesser amount as
is acceptable to the respective Issuing Lender and (v) no Letter of Credit shall
be issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) and the aggregate
principal amount of all W/C Loans at such time, would exceed 10% of the Total
Commitment then in effect. Notwithstanding anything to the contrary contained
in this Agreement, in the event that a Lender Default exists, the respective
Issuing Lender shall not be required to issue any Letter of Credit unless such
Issuing Lender has entered into an arrangement satisfactory to it and the
Borrower to eliminate such Issuing Lender's risk with respect to the
participation in Letters of Credit by the Defaulting Lender or Lenders,
including by cash collateralizing such Defaulting Lender's or Lenders'
Percentage of the Letter of Credit Outstandings.
2.02 Letter of Credit Requests. (a) Whenever the Borrower desires
-------------------------
that a Letter of Credit be issued for its account, the Borrower shall give the
Administrative Agent and the respective Issuing Lender at least five Business
Days' (or such shorter period as is acceptable to the respective Issuing Lender)
written notice thereof. Each notice shall be in the form of Exhibit C (each a
"Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be deemed to be
a representation and warranty by the Borrower that such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
2.01(c). Unless the respective Issuing Lender has received notice from any
Lender before it issues a Letter of Credit that one or more of the conditions
specified in Section 5 or Section 6, as applicable, are not then satisfied, or
that the issuance of such Letter of Credit would violate Section 2.01(c), then
such Issuing Lender may issue the requested Letter of Credit for the account of
the Borrower in accordance with such Issuing Lender's usual and customary
practices. Upon the issuance of any Letter of Credit, such Issuing
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Lender shall promptly notify each Lender of such issuance and such notice shall
be accompanied by a copy of the issued Letter of Credit.
2.03 Letter of Credit Participations. (a) Immediately upon the
-------------------------------
issuance by any Issuing Lender of any Letter of Credit, such Issuing Lender
shall be deemed to have sold and transferred to each Lender, other than such
Issuing Lender (each such Lender, in its capacity under this Section 2.03, a
"Participant"), and each such Participant shall be deemed irrevocably and
unconditionally to have purchased and received from such Issuing Lender, without
recourse or warranty, an undivided interest and participation, to the extent of
such Participant's Percentage, in such Letter of Credit, each drawing made
thereunder and the obligations of the Borrower under this Agreement with respect
thereto (excluding the Facing Fee), and any security therefor or guaranty
pertaining thereto. Upon any change in the Commitments of the Lenders pursuant
to Section 1.13 or 13.04, it is hereby agreed that, with respect to all
outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic
adjustment to the participations pursuant to this Section 2.03 to reflect the
new Percentages of the assignor and assignee Lender.
(b) In determining whether to pay under any Letter of Credit, the
respective Issuing Lender shall have no obligation relative to the other Lenders
other than to confirm that any documents required to be delivered under such
Letter of Credit appear to have been delivered and that they appear to comply on
their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by any Issuing Lender under or in connection with any Letter
of Credit if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Issuing Lender any resulting liability to
the Borrower or any Lender.
(c) In the event that any Issuing Lender makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to such Issuing Lender pursuant to Section 2.04(a), such Issuing Lender shall
promptly notify the Administrative Agent, which shall promptly notify each
Participant, of such failure, and each Participant shall promptly and
unconditionally pay to such Issuing Lender the amount of such Participant's
Percentage of such unreimbursed payment in Dollars and same day funds. If the
Administrative Agent so notifies any Participant prior to 11:00 A.M. (New York
time) on any Business Day, such Participant shall make available such funds to
such Issuing Lender on such Business Day. If and to the extent such Participant
shall not have so made its Percentage of the amount of such payment available to
such Issuing Lender, such Participant agrees to pay to such Issuing Lender,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to such Issuing Lender at the
overnight Federal Funds Rate. The failure of any Participant to make available
to such Issuing
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Lender its Percentage of any payment under any Letter of Credit shall not
relieve any other Participant of its obligation hereunder to make available to
such Issuing Lender its Percentage of any payment under Letter of Credit on the
date required, as specified above, but no Participant shall be responsible for
the failure of any other Participant to make available to such Issuing Lender
such other Participant's Percentage of any such payment.
(d) Whenever any Issuing Lender receives a payment of a reimbursement
obligation as to which it has received any payments from the Participants
pursuant to clause (c) above, such Issuing Lender shall forward such payment to
the Administrative Agent, which in turn shall distribute to each Participant
which has paid its Percentage thereof, in Dollars and in same day funds, an
amount equal to such Participant's share (based upon the proportionate aggregate
amount originally funded by such Participant to the aggregate amount funded by
all Participants) of the principal amount of such reimbursement obligation and
interest thereon accruing after the purchase of the respective participations.
(e) Upon the request of any Participant, each Issuing Lender shall
furnish to such Participant copies of any Letter of Credit issued by it and such
other documentation as may reasonably be requested by such Participant.
(f) The obligations of the Participants to make payments to each
Issuing Lender with respect to Letters of Credit issued by it shall be
irrevocable and not subject to any qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or
any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other right
which the Borrower or any of its Subsidiaries may have at any time against
a beneficiary named in a Letter of Credit, any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), the
Administrative Agent, any Issuing Lender, any Participant, or any other
Person, whether in connection with this Agreement, any Letter of Credit,
the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the Borrower and the
beneficiary named in any such Letter of Credit);
-15-
<PAGE>
(iii) any draft, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
--------------------------------------------
hereby agrees to reimburse the respective Issuing Lender, by making payment to
the Administrative Agent in immediately available funds at the Payment Office,
for any drawing (each, a "Drawing") made by it under any Letter of Credit (each
such Drawing until reimbursed, an "Unpaid Drawing"), no later than four Business
Days after the date of such Drawing, with interest on the amount of such
Drawing, to the extent not reimbursed prior to 12:00 Noon (New York time) on the
date of such Drawing, from and including the date of such Drawing to but
excluding the date such Issuing Lender was reimbursed by the Borrower therefor
at a rate per annum which shall be the Base Rate in effect from time to time
plus the Applicable Margin for Loans maintained as Base Rate Loans, provided,
--------
however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New
- -------
York time) on the seventh Business Day following such Drawing, interest shall
thereafter accrue on the amount (and until reimbursed by the Borrower) at a rate
per annum which shall be the Base Rate in effect from time to time plus 4%, in
each such case, with interest to be payable on demand. The respective Issuing
Lender shall give the Borrower prompt written notice of each Drawing under any
Letter of Credit, provided that the failure to give any such notice shall in no
--------
way affect, impair or diminish the Borrower's obligations hereunder.
(b) The obligations of the Borrower under this Section 2.04 to
reimburse the respective Issuing Lender with respect to Drawings (including
interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower may have or have had against any Lender (including in its
capacity as an Issuing Lender or as a Participant), or any nonapplication or
misapplication by the beneficiary of the proceeds of such Drawing, the
respective Issuing Lender's only obligation to the Borrower being to confirm
that any documents required to be delivered under such Letter of Credit appear
to have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by any Issuing Lender under or in connection with any Letter of Credit if taken
or omitted in the absence of gross negligence or willful misconduct, shall not
create for such Issuing Lender any resulting liability to the Borrower.
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<PAGE>
2.05 Increased Costs. If at any time after the date of this
---------------
Agreement, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Issuing Lender or
any Participant with any request or directive by any such authority (whether or
not having the force of law), or any change in generally accepted accounting
principles, shall either (i) impose, modify or make applicable any reserve,
deposit, capital adequacy or similar requirement against letters of credit
issued by any Issuing Lender or participated in by any Participant, or (ii)
impose on any Issuing Lender or any Participant any other conditions relating,
directly or indirectly, to this Agreement or any Letter of Credit; and the
result of any of the foregoing is to increase the cost to any Issuing Lender or
any Participant of issuing, maintaining or participating in any Letter of
Credit, or reduce the amount of any sum received or receivable by any Issuing
Lender or any Participant hereunder or reduce the rate of return on its capital
with respect to Letters of Credit (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Issuing Lender or
such Participant, or any franchise tax, in either case pursuant to the laws of
the United States of America, the jurisdiction in which it is organized or in
which its principal office or applicable lending office is located or any
subdivision thereof or therein), but without duplication of any amounts payable
in respect of Taxes pursuant to Section 4.04(a), then, five Business Days after
written demand to the Borrower by such Issuing Lender or any Participant (a copy
of which demand shall be sent by such Issuing Lender or such Participant to the
Administrative Agent), the Borrower shall pay to such Issuing Lender or such
Participant such additional amount or amounts as will compensate such Lender for
such increased cost or reduction in the amount receivable or reduction on the
rate of return on its capital. Any Issuing Lender or any Participant, upon
determining that any additional amounts will be payable pursuant to this Section
2.05, will give prompt written notice thereof to the Borrower, which notice
shall include a certificate submitted to the Borrower by such Issuing Lender or
such Participant (a copy of which certificate shall be sent by such Issuing
Lender or such Participant to the Administrative Agent), setting forth in
reasonable detail the basis for and the calculation of such additional amount or
amounts necessary to compensate such Issuing Lender or such Participant. The
certificate required to be delivered pursuant to this Section 2.05 shall, if
delivered in good faith and absent manifest error, be final and conclusive and
binding on the Borrower.
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<PAGE>
SECTION 3. Fees; Reductions of Commitment.
------------------------------
3.01 Fees. (a) The Borrower agrees to pay to the Administrative
----
Agent for distribution to each Non-Defaulting Lender a commitment fee (the
"Commitment Fee") for the period from the Effective Date to but not including
the Maturity Date (or until such earlier date as the Total Commitment shall have
been terminated), computed at a rate for each day equal to the Applicable Margin
on the daily average Unutilized Commitment of such Non-Defaulting Lender.
Accrued Commitment Fee shall be due and payable quarterly in arrears on the
tenth day of each January, April, July and October, on the date of any reduction
of the Total Unutilized Commitment pursuant to Section 3.02 and on the Maturity
Date or such earlier date upon which the Total Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent for
distribution to each Non-Defaulting Lender (based on their respective
Percentages) a fee in respect of each Letter of Credit issued hereunder (the
"Letter of Credit Fee"), for the period from and including the date of issuance
of such Letter of Credit to and including the termination of such Letter of
Credit, computed at a rate per annum equal to the Applicable Margin then in
effect for Loans maintained as Eurodollar Loans on the daily average Stated
Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and
payable quarterly in arrears on the tenth day of each January, April, July and
October and upon the first day on or after the termination of the Total
Commitment upon which no Letters of Credit remain outstanding.
(c) The Borrower agrees to pay to the respective Issuing Lender, for
its own account, a facing fee in respect of each Letter of Credit issued by it
hereunder (the "Facing Fee") for the period from and including the date of
issuance of such Letter of Credit to and including the termination of such
Letter of Credit, computed at a rate equal to 0.125% per annum of the daily
average Stated Amount of such Letter of Credit. Accrued Facing Fees shall be
due and payable quarterly in arrears on the tenth day of each January, April,
July and October and on the date upon which such Letter of Credit has been
terminated in accordance with its terms.
(d) The Borrower shall pay, upon each drawing under, issuance of, or
amendment to, any Letter of Credit, such amount as shall at the time of such
event be the administrative charge which the respective Issuing Lender is
generally imposing in connection with such occurrence with respect to letters of
credit.
(e) The Borrower agrees to pay to each of the Arrangers, for their own
account, such other fees as have been agreed to in writing by the Borrower with
the Arrangers.
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<PAGE>
3.02 Voluntary Termination of Commitments. Upon at least three
------------------------------------
Business Days' prior written notice to the Administrative Agent at its Notice
Office (which notice the Administrative Agent shall promptly transmit to each of
the Lenders), the Borrower shall have the right, at any time or from time to
time, without premium or penalty, to terminate or partially reduce the Total
Unutilized Commitment, in integral multiples of $1,000,000; provided that each
--------
such reduction shall apply proportionately to permanently reduce the Commitment
of each Lender.
3.03 Mandatory Termination and Reduction of Commitments. (a) The
--------------------------------------------------
Total Commitment (and the Commitment of each Lender) shall terminate in its
entirety on January 31, 1998 and the Original Credit Agreement shall continue in
effect, unless the Effective Date shall have occurred on or prior to such date.
(b) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Commitment (and the Commitment of each Lender)
shall terminate in its entirety on the Maturity Date.
SECTION 4. Prepayments; Payments; Taxes.
----------------------------
4.01 Voluntary Prepayments. The Borrower shall have the right to
---------------------
prepay the Loans, without premium or penalty, in whole or in part at any time
and from time to time on the following terms and conditions: (i) the Borrower
shall give the Administrative Agent prior to 12:00 Noon (New York time) at its
Notice Office (x) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of the Borrower's intent to
prepay Base Rate Loans and (y) at least three Business Days' prior written
notice (or telephonic notice promptly confirmed in writing) of the Borrower's
intent to prepay Eurodollar Loans, the amount of such prepayment and the Types
of Loans to be prepaid and, in the case of Eurodollar Loans, the specific
Borrowing or Borrowings pursuant to which made, which notice the Administrative
Agent shall promptly transmit to each of the Lenders; (ii) each prepayment of
Loans shall be in an aggregate principal amount of at least $1,000,000, provided
--------
that if any partial prepayment of Eurodollar Loans made pursuant to any
Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto, then such Borrowing may not be continued as a Borrowing of Eurodollar
Loans and any election of an Interest Period with respect thereto given by the
Borrower shall have no force or effect; and (iii) each prepayment in respect of
any Loans made pursuant to a Borrowing shall be applied pro rata among the
--- ----
Lenders which made such Loans, provided that in connection with any prepayment
--------
of Loans pursuant to this Section 4.01(a), such prepayment shall not be applied
to any Loans of a Defaulting Lender.
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<PAGE>
4.02 Mandatory Repayments and Cash Collateralization. (a)(i) On any
-----------------------------------------------
day on which the sum of the aggregate outstanding principal amount of the Loans
made by Non-Defaulting Lenders and the Letter of Credit Outstandings exceeds the
Adjusted Total Commitment as then in effect, the Borrower shall prepay principal
of Loans of Non-Defaulting Lenders in an amount equal to such excess. If, after
giving effect to the prepayment of all outstanding Loans of Non-Defaulting
Lenders, the aggregate amount of the Letter of Credit Outstandings exceeds the
Adjusted Total Commitment as then in effect, the Borrower shall pay to the
Administrative Agent at the Payment Office on such date an amount of cash or
Cash Equivalents equal to the amount of such excess (up to a maximum amount
equal to the Letter of Credit Outstandings at such time), such cash or Cash
Equivalents to be held as security for all obligations of the Borrower to Non-
Defaulting Lenders hereunder in a cash collateral account to be established by
the Administrative Agent.
(ii) On any day on which the aggregate outstanding principal amount
of the Loans made by any Defaulting Lender exceeds the Commitment of such
Defaulting Lender, the Borrower shall prepay principal of Loans of such
Defaulting Lender in an amount equal to such excess.
(b) If at any time the aggregate outstanding principal amount of
Loans and Letter of Credit Outstandings exceeds the Borrowing Base at such time
(a "Borrowing Base Deficiency"), the Borrower shall, within one Business Day of
such event (or five Business Days if such Borrowing Base Deficiency arises as a
result of any Hotel no longer meeting the qualifications to be an Eligible Hotel
pursuant to Section 8.11(b)), prepay Loans then outstanding, and thereafter cash
collateralize Letters of Credit in the manner described above, in each case, in
an amount equal to such excess.
(c) The Borrower shall prepay Loans in connection with Asset Sales
and Asset Encumbrances as necessary to avoid the occurrence of Defaults or
Events of Defaults as set forth in Section 8.01(l).
(d) With respect to each repayment of Loans required by this Section
4.02, the Borrower may designate the Types of Loans which are to be repaid and,
in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant
to which made, provided that: (i) if any repayment of Eurodollar Loans made
--------
pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans
made pursuant to such Borrowing to an amount less than the Minimum Borrowing
Amount applicable thereto, such Borrowing shall be converted at the end of the
then current Interest Period into a Borrowing of Base Rate Loans and (ii) each
repayment of Loans made pursuant to the same Borrowing shall be applied pro rata
--- ----
among the Lenders which made such Loans.
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<PAGE>
In the absence of a designation by the Borrower as described in the preceding
sentence, the Administrative Agent shall, subject to the above, make such
designation in its sole discretion.
4.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement or any Note (other than
interest payments deducted from the Operating Account pursuant to Section 8.16)
shall be made to the Administrative Agent for the account of the Lender or
Lenders entitled thereto not later than 12:00 Noon (New York time) on the date
when due and shall be made in Dollars in immediately available funds at the
Payment Office of the Administrative Agent. Whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
4.04 Net Payments; Taxes. (a) All payments made by the Borrower
-------------------
hereunder or under any Note will be made without reduction on account of any
setoff, counterclaim or other defense. Except as provided in Section 4.04(b),
all such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments (but excluding any tax imposed on or
measured by the net income or net profits of a Lender, or any franchise tax, in
either case pursuant to the laws of the jurisdiction in which it is organized or
the jurisdiction in which the principal office or applicable lending office of
such Lender is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect to such non-excluded taxes,
levies, imposts, duties, fees or other charges (all such non-excluded taxes,
levies, imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). The Borrower will furnish to the Administrative Agent
within 45 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by the
Borrower. Except as provided in Section 4.04(b), the Borrower agrees to
indemnify and hold harmless each Lender, and reimburse such Lender upon its
written request, for the amount of any Taxes so levied or imposed and paid by
such Lender.
(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Administrative Agent on or prior to the Effective Date, or in the case
of a Lender that is an assignee or transferee of an interest under this
Agreement pursuant to Section 1.13 or 13.04 (unless the respective Lender was
already a Lender hereunder immediately
-21-
<PAGE>
prior to such assignment or transfer), on the date of such assignment or
transfer to such Lender, (i) two accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001 (or successor or additional forms)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments to be made under this Agreement
and under any Note, or (ii) if the Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit D (any such certificate, a "Section
4.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor or additional forms)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments of interest to be made under
this Agreement and under any Note. In addition, each Lender agrees that from
time to time after the Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, such Lender will promptly deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001 (or successor or additional forms),
or Form W-8 (or successor or additional forms) and a Section 4.04(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify the
Borrower and the Administrative Agent of its inability to deliver any such Form
or Certificate, in which case such Lender shall not be required to deliver any
such Form or Certificate pursuant to this Section 4.04(b). Notwithstanding
anything to the contrary contained in Section 4.04(a), but subject to Section
13.04(b) and the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political sub-
division or taxing authority thereof or therein) from interest, Fees or other
amounts payable hereunder for the account of any Lender which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
U.S. Federal income tax purposes to the extent that such Lender has not provided
to the Borrower U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) the Borrower shall not be
obligated pursuant to Section 4.04(a) to gross-up payments to be made to a
Lender in respect of income or similar taxes imposed by the United States if (I)
such Lender has not provided to the Borrower the Internal Revenue Service Forms
required to be provided to the Borrower pursuant to this Section 4.04(b) or (II)
in the case of a payment, other than interest, to a Lender described in clause
(ii) above, to the extent that such Forms do not establish a complete exemption
from withholding of such taxes. Notwithstanding anything to the contrary
contained in the preceding sentence or elsewhere in this Section 4.04 and
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<PAGE>
except as set forth in Section 13.04(b), the Borrower agrees to pay additional
amounts and to indemnify each Lender in the manner set forth in Section 4.04(a)
(without regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any Taxes deducted or withheld by it as described in
the immediately preceding sentence as a result of any changes after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of such Taxes.
SECTION 5. Conditions Precedent to Effective Date. The obligation of
--------------------------------------
each Lender to make Loans, and the obligation of each Issuing Lender to issue
Letters of Credit, on the Effective Date is subject at the time of such Credit
Event to the satisfaction of the following conditions:
5.01 Execution of Agreement; Notes. (i) This Agreement shall have
-----------------------------
been executed and delivered as provided in Section 13.10(i) and (ii) there shall
have been delivered to the Administrative Agent for the account of each of the
Lenders the appropriate Note executed by the Borrower, in each case in the
amount, maturity and as otherwise provided herein.
5.02 Fees, etc. On the Effective Date, the Borrower shall have paid
----------
to the Agents and the Lenders all costs, fees and expenses (including, without
limitation, legal fees and expenses) payable to the Arrangers and the Lenders to
the extent then due.
5.03 Opinions of Counsel. On the Effective Date, the Administrative
-------------------
Agent shall have received from counsel to the Credit Parties, an opinion or
opinions addressed to each of the Arrangers and each of the Lenders and dated
the Effective Date covering the matters set forth in Exhibit E and such other
matters incident to the transactions contemplated herein as the Administrative
Agent may reasonably request.
5.04 Trust, Corporate, Limited Liability Company and Partnership
-----------------------------------------------------------
Documents; Proceedings; etc. (a) On the Effective Date, the Administrative
- ----------------------------
Agent shall have received a certificate, dated the Effective Date, signed by the
Secretary or an Assistant Secretary of each Credit Party (or from the Secretary
or an Assistant Secretary of the general partner of each Credit Party that is a
partnership), in the form of Exhibit F-1 with appropriate insertions, together
with copies of the declaration of trust, the certificate of incorporation and
by-laws, limited liability company agreement or other organizational documents
(including partnership agreements and certificates of partnership) of each such
Credit Party and the resolutions of each Credit Party referred
-23-
<PAGE>
to in such certificate, and the foregoing shall be reasonably acceptable to the
Administrative Agent.
(b) On the Effective Date, all trust, corporate, limited liability
company, partnership and legal proceedings and all instruments and agreements in
connection with the transactions contemplated by this Agreement and the other
Credit Documents shall be reasonably satisfactory in form and substance to the
Administrative Agent and the Required Lenders, and the Administrative Agent
shall have received all information and copies of all documents and papers,
including records of corporate and partnership proceedings, governmental
approvals, good standing certificates and bring-down telegrams, if any, which
the Administrative Agent may have reasonably requested in connection therewith,
such documents and papers where appropriate to be certified by proper trust,
corporate, limited liability company, partnership or governmental authorities.
5.05 Amended and Restated Affiliate Guaranty. On the Effective Date,
---------------------------------------
each Person which is an Affiliate Guarantor on such date shall have duly
authorized, executed and delivered a guaranty in the form of Exhibit G (as
modified, amended or supplemented from time to time, the "Amended and Restated
Affiliate Guaranty").
5.06 Adverse Change; Approvals. (a) On the Effective Date, nothing
-------------------------
shall have occurred (and the Lenders shall have become aware of no facts,
conditions or other information not previously known) which the Administrative
Agent or the Required Lenders believe would reasonably be expected to have (i) a
material adverse effect on the rights or remedies of the Administrative Agent or
the Lenders, or on the ability of any Credit Party to perform its respective
obligations to the Administrative Agent and the Lenders or (ii) a Material
Adverse Effect.
(b) On or prior to the Effective Date, all necessary governmental
(domestic and foreign) and third party approvals (if any) in connection with the
making of the Loans and the transactions contemplated by the Credit Documents
and otherwise referred to herein or therein shall have been obtained and remain
in effect, and all applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents or
imposes materially adverse conditions upon the making of the Loans and the
transactions contemplated by the Credit Documents. Additionally, there shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunctive relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the making of the
Loans or the transactions contemplated by the Credit Documents.
-24-
<PAGE>
5.07 Litigation. Except as set forth on Schedule III, on the
----------
Effective Date, no litigation by any entity (private or governmental) shall be
pending or, to the Best Knowledge of Patriot REIT or the Borrower, threatened
(i) with respect to the making of the Loans or the Credit Documents or any
documentation executed in connection therewith or (ii) which the Administrative
Agent or the Required Lenders believe would reasonably be expected to have a
Materially Adverse Effect.
5.08 Solvency Certificate; Insurance Certificates. On or prior to
--------------------------------------------
the Effective Date, there shall have been delivered to the Administrative Agent:
(a) a solvency certificate in the form of Exhibit H, addressed to
each of the Arrangers and each of the Lenders and dated the Effective Date
from an Authorized Financial Officer of Patriot REIT; and
(b) certificates of insurance complying with the requirements of
Section 8.03 for the business and properties of Patriot REIT, the Borrower
and the other Guarantors, in scope, form and substance reasonably
satisfactory to the Administrative Agent and the Required Lenders.
5.09 Pro Forma Balance Sheets; Projections. On the Effective Date,
-------------------------------------
the Arrangers shall have received unaudited pro forma consolidated balance
--- -----
sheets dated September 30, 1997 and the projections dated the Effective Date
(the "Projections") in each case of Patriot REIT and its Subsidiaries and of
NPOC and its Subsidiaries, prepared in a format consistent with the financial
statements referred to in Section 7.05(a), after giving effect to the
transactions contemplated hereby, which consolidated balance sheets and
Projections shall be in form and substance reasonably satisfactory to the
Arrangers and the Required Lenders.
5.10 Initial Borrowing Base Certificate. On the Effective Date, the
----------------------------------
Borrower shall have delivered to the Arrangers the initial Borrowing Base
Certificate in the form of Exhibit I.
5.11 Eligible Hotel Documents. On the Effective Date, the Borrower
------------------------
shall have delivered to the Administrative Agent the Eligible Hotel Documents
relating to the Initial Eligible Hotel.
5.12 Original Credit Agreement; etc. On the Effective Date, (i)
-------------------------------
unless otherwise agreed by the Administrative Agent and the Borrower, each
Original Lender whose Commitment shall be increased on the Increase Effective
Date shall have surrendered to the Administrative Agent for cancellation the
promissory notes issued to it pursuant to the Original Credit Agreement, (ii)
each Lender shall have continued
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<PAGE>
its Original Loans as contemplated by Section 1.01, (iii) the Borrower shall
have paid all accrued and unpaid interest and fees then owing under the Original
Credit Agreement through the Effective Date, and (iv) the Administrative Agent
shall have received evidence in form, scope and substance satisfactory to it
that the matters set forth in this Section 5.12 have been satisfied on such
date.
5.13 Term Loan Agreement. On the Effective Date, a term loan
-------------------
agreement (the "Term Loan Agreement") shall have been, or shall substantially
contemporaneously (and in any event on the Effective Date) be, duly executed and
delivered by the parties thereto and shall be in full force and effect pursuant
to and in all material respects according to the terms and conditions set forth
in the Commitment Letter, dated as of November 25, 1997, among Patriot REIT,
PaineWebber and Chase.
SECTION 6. Conditions Precedent to All Loans. The obligation of each
---------------------------------
Lender to make Loans (including any Loans made on the Effective Date), and the
obligation of an Issuing Lender to issue any Letter of Credit, is subject, at
the time of each such Credit Event (except as hereinafter indicated), to the
satisfaction of the following conditions:
6.01 No Default; Representations and Warranties. At the time of each
------------------------------------------
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of the making of such Credit Event (it
being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct in
all material respects only as of such specified date).
6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to
---------------------------------------------
the making of each Loan, the Administrative Agent shall have received a Notice
of Borrowing meeting the requirements of Section 1.03(a).
(b) Prior to the issuance of each Letter of Credit, the
Administrative Agent and the respective Issuing Lender shall have received a
Letter of Credit Request meeting the requirements of Section 2.02.
6.03 Borrowing Base Certificate. Prior to the making of each Loan or
--------------------------
the issuance of each Letter of Credit, the Administrative Agent shall have
received a Borrowing Base Certificate meeting the requirements of Section
8.01(c), which Borrowing Base Certificate may include the portion of Aggregate
Borrowing Base Value attributable to any Eligible Hotel being acquired with the
proceeds of the Loan
-26-
<PAGE>
being made at such time, so long as the requirements of Section 8.11(a) have
been complied with at such time.
The occurrence of the Effective Date and the acceptance of the
proceeds of each Credit Event shall constitute a representation and warranty by
Patriot REIT and the Borrower to each of the Arrangers and each of the Lenders
that all the conditions specified in Section 5 and in this Section 6 and
applicable to the Effective Date and/or such Credit Event, as the case may be,
exist as of that time (except to the extent that any of the conditions specified
in Section 5 or in this Section 6 are required to be satisfactory to or
determined by any Lender, the Required Lenders and/or the Administrative Agent
or otherwise expressly calls for a subjective determination to be made by any
Lender, the Required Lenders and/or the Administrative Agent). All of the
Notes, certificates, legal opinions and other documents and papers referred to
in Section 5 and in this Section 6, unless otherwise specified, shall be
delivered to the Administrative Agent at the Notice Office for the account of
each of the Lenders and, except for the Notes, in sufficient counterparts or
copies for each of the Lenders and shall be in form and substance reasonably
satisfactory to the Arrangers.
SECTION 7. Representations and Warranties. In order to induce the
------------------------------
Lenders to enter into this Agreement and to make the Loans, and issue (or
participate in) the Letters of Credit as provided herein, each of Patriot REIT
and the Borrower makes the following representations and warranties, all of
which shall survive the execution and delivery of this Agreement and the Notes
and the making of the Loans and the issuance of the Letters of Credit, with the
occurrence of the Effective Date and the incurrence of each Loan and the
issuance of each Letter of Credit on or after the Effective Date being deemed to
constitute a representation and warranty that the matters specified in this
Section 7 are true and correct on and as of the Effective Date and true and
correct in all material respects on the date of each such Credit Event
thereafter (it being understood and agreed that any representation or warranty
which by its terms is made as of a specified date shall be required to be true
and correct in all material respects only as of such specified date). To the
extent Patriot REIT or the Borrower makes any representation or warranty
hereunder with respect to any other Guarantor or any Subsidiary of such
Guarantor which is not a Subsidiary of Patriot REIT or the Borrower, as the case
may be, or is not controlled by Patriot REIT or the Borrower, as the case may
be, such representations and warranties are made as to the Best Knowledge of
Patriot REIT or the Borrower, including taking into account all statements,
representations and warranties made by such Person in any Credit Document.
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<PAGE>
7.01 Trust, Corporate, Limited Liability Company and Partnership
-----------------------------------------------------------
Status. Patriot REIT, the Borrower and each of the other Guarantors, and their
- ------
respective Subsidiaries (i) is a duly organized and validly existing real estate
investment trust, corporation, partnership or limited liability company, as the
case may be, in good standing (if applicable) under the laws of the jurisdiction
of its organization, (ii) has the trust, corporate, partnership or limited
liability company power and authority, as the case may be, to own its property
and assets and to transact the business in which it is engaged and presently
proposes to engage and (iii) is duly qualified and is authorized to do business
and is in good standing in each jurisdiction where the conduct of its business
requires such qualifications except for failures to be so qualified which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
7.02 Trust, Corporate, Limited Liability Company or Partnership Power
----------------------------------------------------------------
and Authority. Each Credit Party has the trust, corporate, partnership or
- -------------
limited liability company power and authority, as the case may be, to execute,
deliver and perform the terms and provisions of each of the Credit Documents to
which it is a party and has taken all necessary trust, corporate, partnership or
limited liability company action, as the case may be, to authorize the
execution, delivery and performance by it of each of such Credit Documents.
Each Credit Party has duly executed and delivered each of the Credit Documents
to which it is a party, and each of such Credit Documents constitutes the
legal, valid and binding obligation of such Credit Party enforceable in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).
7.03 No Violation. Neither the execution, delivery or performance by
------------
any Credit Party of the Credit Documents to which it is a party, nor compliance
by it with the terms and provisions thereof, (i) will contravene any provision
of any applicable law, statute, rule or regulation or any applicable order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the properties or assets of Patriot REIT, the Borrower or any of the
other Guarantors, or any of their respective Subsidiaries, pursuant to the terms
of any indenture, mortgage, deed of trust, credit agreement or loan agreement,
or any other material agreement, contract or instrument, to which Patriot REIT,
the Borrower or any of the other Guarantors, or any of their respective
Subsidiaries, is a party or by which it or any of its property or assets is
bound or to which it may be
-28-
<PAGE>
subject or (iii) will violate any provision of the declaration of trust,
certificate of incorporation, partnership agreement, certificate of partnership,
limited liability company agreement or by-laws, as the case may be, of Patriot
REIT, the Borrower or any of the other Guarantors, or any of their respective
Subsidiaries.
7.04 Governmental Approvals. No order, consent, approval, license,
----------------------
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made and which remain in full force and
effect), or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, (i) the execution, delivery and performance of any Credit Document or (ii)
the legality, validity, binding effect or enforceability of any such Credit
Document.
7.05 Financial Statements; Financial Condition; Undisclosed
------------------------------------------------------
Liabilities; Projections; etc. (a) (i) The unaudited cash flow statements for
- ------------------------------
each Initial Eligible Hotel for each of (x) the three-month period ended on
September 30, 1997 and (y) the latest twelve-month period ended on December 31,
1996 and (ii) the pro forma balance sheet of Patriot REIT and NPOC and their
--- -----
Subsidiaries prepared on a Company Combined Basis at September 30, 1997 and the
pro forma combined cash flow statements for the latest twelve-month period ended
- --- -----
December 31, 1996 (which statements have been prepared based on the assumption
that (x) in the case of the balance sheet, that the Initial Eligible Hotels were
acquired on or before September 30, 1997 and (y) in the case of the cash flow
statements, that the Initial Eligible Hotels were acquired on or before
September 30, 1997) each present fairly the historical financial results of the
Initial Eligible Hotels. All information (other than projections) furnished to
the Lenders prior to the Effective Date with respect to the Initial Eligible
Hotels, or furnished pursuant to Section 8.11 with respect to subsequently
acquired or designated Eligible Hotels is, to the Best Knowledge of Patriot REIT
and the Borrower, true and accurate in all material respects and not incomplete
by omitting to state any fact necessary to make such information not misleading
in any material respect. Since September 30, 1997, there have been no events or
changes which would reasonably be expected to have a Material Adverse Effect.
(b) On and as of the Effective Date and on the date on which each
Loan is made, on a Pro Forma Basis after giving effect to all Indebtedness
(including the Loans) being incurred or assumed by each Credit Party in
connection therewith, (x) the sum of the assets, at a fair valuation, of Patriot
REIT, the Borrower and the other Guarantors (taken as a whole) and the Borrower
(on a stand-alone basis) will exceed their respective debts, (y) Patriot REIT,
the Borrower and the other Guarantors (taken as a whole) and the Borrower (on a
stand-alone basis) have not incurred and do not intend to incur, and do not
believe that they will incur, debts beyond their ability to pay
-29-
<PAGE>
such debts as such debts mature and (z) Patriot REIT, the Borrower and the other
Guarantors (taken as a whole) and the Borrower (on a stand-alone basis) shall
not have unreasonably small capital with which to conduct their respective
businesses. For purposes of this Section 7.05(b) "debt" means any liability on
a claim, and "claim" means (i) right to payment whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (ii)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(c) Except as fully disclosed or reflected in the financial
statements delivered pursuant to Section 7.05(a), there were as of the Effective
Date no liabilities or obligations with respect to Patriot REIT, the Borrower or
any of the other Guarantors, or any of their respective Subsidiaries, of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in aggregate, would be
material to Patriot REIT, the Borrower and the other Guarantors taken as a
whole. As of the Effective Date, the Senior Management of neither Patriot REIT
nor the Borrower knows of any basis for the assertion against it of any
liability or obligation of any nature that is not fully disclosed in the
financial statements delivered pursuant to Section 7.05(a) which would
reasonably be expected to be material to Patriot REIT, the Borrower and the
other Guarantors taken as a whole.
(d) On and as of the Effective Date, the Projections, including those
prepared on a combined basis for Patriot REIT, the Borrower and the other
Guarantors and those prepared for the individual Initial Eligible Hotels
delivered to the Arrangers and the Lenders prior to the Effective Date have been
prepared on a basis consistent with the financial statements referred to in
Section 7.05(a) (other than as set forth or presented in such Projections), and
there are no statements or conclusions in any of the Projections which are based
upon or include information known to the Senior Management of Patriot REIT or
the Borrower to be misleading in any material respect. On the Effective Date,
the Senior Management of each of Patriot REIT and the Borrower believed that the
Projections were reasonable. On the date of the delivery of any projections
with respect to each subsequently acquired or designated Eligible Hotel, there
shall be no statements or conclusions in any of such projections which, to the
Best Knowledge of each of Patriot REIT and the Borrower, are based upon or
include information known to be misleading in any material respect. On the date
any such projections are furnished pursuant to Section 8.11, the Senior
Management of each of Patriot REIT and the Borrower shall believe that such
projections are reasonable; it being recognized by the Lenders that projections
(including the Projections) as to future
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<PAGE>
results are not to be viewed as facts and that the actual results for the period
or periods covered by such projections may differ from the projected results.
7.06 Litigation. Except as set forth on Schedule III, there are no
----------
actions, suits or proceedings pending or, to the Best Knowledge of each of
Patriot REIT and the Borrower, threatened (i) with respect to any Credit
Document or (ii) that would reasonably be expected to have a Material Adverse
Effect.
7.07 True and Complete Disclosure. All factual information (taken as
----------------------------
a whole) furnished by or on behalf of Patriot REIT, the Borrower or any of the
other Guarantors, or any of their respective Subsidiaries, in writing to the
Administrative Agent or any Lender (including, without limitation, all
information contained in the Credit Documents and all information furnished to
the Lenders with respect to the Initial Eligible Hotels prior to the Effective
Date or furnished pursuant to Section 8.11 with respect to subsequently acquired
or designated Eligible Hotels but excluding projections) for purposes of or in
connection with this Agreement, the other Credit Documents or any transaction
contemplated herein or therein is, and all other such factual information (taken
as a whole) hereafter furnished by or on behalf of Patriot REIT, the Borrower or
any of the other Guarantors, or any of their respective Subsidiaries, in writing
to the Administrative Agent or any Lender will be, to the Best Knowledge of each
of Patriot REIT and the Borrower, true and accurate in all material respects on
the date as of which such information is dated or certified and, to the Best
Knowledge of each of Patriot REIT and the Borrower, not incomplete by omitting
to state any fact necessary to make such information (taken as a whole) not
misleading in any material respect at such time in light of the circumstances
under which such information was provided (subject, in the case of any
information referred to in Section 7.05, to the qualifications (if any) set
forth in Section 7.05 with respect to any such information).
7.08 Use of Proceeds; Margin Regulations. (a) The proceeds of all
-----------------------------------
Loans shall be used by the Borrower, subject to the other restrictions set forth
in this Agreement, to fund a portion of the cash component of the Wyndham
Transaction and other acquisitions, renovations and working capital of the
Borrower and, to the extent permitted under this Agreement, its Subsidiaries;
provided, however, that the sum of (x) all W/C Loans and (y) the Letter of
- -------- -------
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Loans) shall not exceed 10% of the Total Commitment then in effect
at any one time.
(b) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying
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<PAGE>
any Margin Stock. Neither the making of any Loan nor the use of the proceeds
thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
7.09 Tax Returns and Payments. Patriot REIT, the Borrower and each
------------------------
of the other Guarantors, and each of their respective Subsidiaries, has timely
filed or caused to be timely filed, on the due dates thereof or within
applicable grace periods, with the appropriate taxing authority, all Federal
income tax returns and other returns, statements, forms and reports for taxes
(the "Returns") required to be filed by or with respect to the income,
properties or operations of Patriot REIT, the Borrower and/or the other
Guarantors, and each of their respective Subsidiaries, as the case may be,
except where the failure to file such Returns (other than Federal income tax
returns of Patriot REIT, the Borrower and NPOC, which must be filed in any
event) would not be reasonably expected to have a Material Adverse Effect. The
Returns accurately reflect to the Best Knowledge of each of Patriot REIT or the
Borrower in all material respects (subject to any right to contest tax
liabilities in good faith) all liability for taxes of Patriot REIT, the Borrower
and the other Guarantors, and each of their respective Subsidiaries, for the
periods covered thereby. Patriot REIT, the Borrower and each of the other
Guarantors, and each of their respective Subsidiaries, has paid all material
taxes payable by them other than taxes which are not delinquent, and other than
those contested in good faith and for which adequate reserves have been
established in accordance with generally accepted accounting principles. There
is no material action, suit, proceeding, investigation, audit, or claim now
pending or, to the Best Knowledge of each of Patriot REIT and the Borrower,
threatened by any authority regarding (i) Patriot REIT's qualification as a real
estate investment trust or (ii) any taxes relating to Patriot REIT, the Borrower
or any of the other Guarantors, or any of their respective Subsidiaries, the
result of which in the case of this clause (ii) would be reasonably expected to
have a Material Adverse Effect.
7.10 Compliance with ERISA. Each Plan that is a single employer plan
---------------------
as defined in Section 4001(a)(15) of ERISA (a "Single Employer Plan") is in
substantial compliance with ERISA and the Code; no Reportable Event has occurred
with respect to a Single Employer Plan; no Single Employer Plan is insolvent or
in reorganization; to the Best Knowledge of each of Patriot REIT and the
Borrower, no Multiemployer Plan is insolvent or in reorganization; no Single
Employer Plan has an Unfunded Current Liability; no Single Employer Plan which
is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated
funding deficiency, within the meaning of such Sections of the Code or ERISA, or
has applied for or received an extension of any amortization period within the
meaning of Section 412 of the Code or Sections 303 or 304 of ERISA; all
contributions required to be made by Patriot REIT, the Borrower
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<PAGE>
or any of their respective Subsidiaries or any ERISA Affiliate with respect to a
Plan and a Foreign Pension Plan have been timely made; neither Patriot REIT, the
Borrower nor any of their respective Subsidiaries nor any ERISA Affiliate has
incurred any material liability to or on account of a Plan pursuant to Section
409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971, 4975 or 4980 of the Code or reasonably expects to
incur any material liability (including any indirect, contingent, or secondary
liability) under any of the foregoing Sections with respect to any Plan; no
proceedings have been instituted to terminate or appoint a trustee to administer
any Single Employer Plan; to the Best Knowledge of each of Patriot REIT and the
Borrower, no proceedings have been instituted to terminate or appoint a trustee
to administer any Multiemployer Plan; no condition exists which presents a
reasonably likely risk to Patriot REIT, the Borrower or any of their respective
Subsidiaries or any ERISA Affiliate of incurring a material liability to or on
account of a Single Employer Plan pursuant to the foregoing provisions of ERISA
and the Code; to the Best Knowledge of each of Patriot REIT and the Borrower, no
condition exists which presents a reasonably likely risk to Patriot REIT, the
Borrower or any of their respective Subsidiaries or any ERISA Affiliate of
incurring any material liability to or on account of a Multiemployer Plan
pursuant to the foregoing provisions of ERISA and the Code; based solely upon
information as may be requested by, and provided to Patriot REIT or the Borrower
by the sponsors of the Multiemployer Plans, the Senior Management of each of
Patriot REIT and the Borrower believes that the aggregate liabilities of Patriot
REIT, the Borrower and their respective Subsidiaries and ERISA Affiliates to all
Multiemployer Plans in the event of a complete withdrawal therefrom, as of the
close of the most recent fiscal year of each such Plan ended prior to the date
hereof, would not be reasonably likely to have a Material Adverse Effect; each
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) which covers or has covered employees or former employees of
Patriot REIT, the Borrower or any of their respective Subsidiaries or any ERISA
Affiliate has at all times been operated in substantial compliance with the
provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the
Code; no lien imposed under the Code or ERISA on the assets of Patriot REIT, the
Borrower or any of their respective Subsidiaries or any ERISA Affiliate exists
or, to the Best Knowledge of each of Patriot REIT and the Borrower, is likely to
arise on account of any Plan; and Patriot REIT, the Borrower and the other
Guarantors may cease contributions to or terminate each employee benefit plan
maintained by any of them (if any) without incurring any material liability.
7.11 Real Properties. (a) Patriot REIT, the Borrower and each of the
---------------
other Guarantors, and each of their respective Subsidiaries, has good and
marketable fee simple absolute title to all material Real Property purported to
be owned by them, and has good and marketable title to, or valid leasehold
interests in, all other material
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<PAGE>
Real Property purported to be leased by them, on any date on which this
representation and warranty is made or deemed made including all material Real
Property reflected in the consolidated balance sheets of Patriot REIT referred
to in Section 7.05(a) and in the pro forma balance sheet referred to in Section
--- -----
5.09 (except as sold or otherwise disposed of since the date of such balance
sheets in the ordinary course of business), free and clear of all Liens, other
than Permitted Liens. Schedule IV contains a true and complete list of each
Hotel owned or leased by Patriot REIT, the Borrower, the other Guarantors, or
any of their respective Subsidiaries on the Effective Date, and the type of
interest therein held by Patriot REIT, the Borrower, any such Guarantor, or any
of their respective Subsidiaries.
(b) All material Real Property leased on the Effective Date by the
Borrower, any of the Guarantors, or any of their respective Subsidiaries, is
listed on Schedule IV. To the Best Knowledge of each of Patriot REIT and the
Borrower, each of such leases is valid and enforceable in accordance with its
terms and is in full force and effect in all material respects. The Borrower
has delivered to the Administrative Agent true and complete copies of each of
such material leases and all material documents affecting the rights or
obligations of Patriot REIT, the Borrower, any of the other Guarantors, or any
of their respective Subsidiaries, which is a party thereto, including, without
limitation, any non-disturbance and recognition agreements, subordination
agreements, attornment agreements and agreements regarding the term or rental of
any of the leases. None of Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, nor, to the Best Knowledge
of each of Patriot REIT and the Borrower, any other party to any such lease is
in default of its obligations thereunder or has delivered or received any notice
of default under any such lease, nor has any event occurred which, with the
giving of notice, the passage of time or both, would constitute a default under
any such lease, except for defaults which would not reasonably be expected to
have a Material Adverse Effect.
7.12 Subsidiaries. On the Effective Date, all Subsidiaries of
------------
Patriot REIT and NPOC shall be as set forth on Schedule V, and the ownership
interests therein shall be as set forth on Schedule V.
7.13 Compliance with Statutes, etc. (a) Each of Patriot REIT, the
------------------------------
Borrower and the other Guarantors, and each of their respective Subsidiaries, is
in compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property (including applicable statutes, regulations, orders and restrictions
relating to environmental standards and controls), except such noncompliances as
would not reasonably be expected to have a Material Adverse Effect.
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<PAGE>
(b)(i) To the Best Knowledge of each of Patriot REIT and the
Borrower, each Hotel complies in all material respects with all Legal
Requirements, (ii) all material consents, licenses (including liquor licenses),
certificates and permits required by all Legal Requirements for the operation of
each Hotel have been obtained and are in full force and effect and (iii) all
utility services and facilities necessary for the operation of each Hotel are
available at such Hotel, except such non-compliances or failures to comply,
obtain or have in full force and effect and available as would not reasonably be
expected to have a Material Adverse Effect.
7.14 Investment Company Act. Neither Patriot REIT, the Borrower nor
----------------------
any of their respective Subsidiaries is an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
7.15 Public Utility Holding Company Act. Neither Patriot REIT, the
----------------------------------
Borrower nor any of their respective Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
7.16 Environmental Matters. (a) To the Best Knowledge of each of
---------------------
Patriot REIT and the Borrower, Patriot REIT, the Borrower and each of the other
Guarantors, and each of their respective Subsidiaries, has complied with all
applicable Environmental Laws and the requirements of any permits issued under
such Environmental Laws. To the Best Knowledge of each of Patriot REIT and the
Borrower, there are no pending or threatened Environmental Claims against
Patriot REIT, the Borrower, any of the other Guarantors, or any of their
respective Subsidiaries, or any Real Property owned or operated by Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries. To the Best Knowledge of each of Patriot REIT and the Borrower,
there are no facts, circumstances, conditions or occurrences on any Real
Property owned or operated by Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, or on any property
adjoining or in the vicinity of any such Real Property that would reasonably be
expected (i) to form the basis of an Environmental Claim against Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries, or any such Real Property or (ii) to cause any such Real Property
to be subject to any restrictions on the ownership, occupancy, use or transfer
ability of such Real Property by Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, under any applicable
Environmental Law.
-35-
<PAGE>
(b) To the Best Knowledge of each of Patriot REIT and the Borrower,
Hazardous Materials have not at any time been generated, used, treated or stored
on, or transported to or from, or Released on or from, any Real Property owned
or operated by Patriot REIT, the Borrower, any of the other Guarantors, or any
of their respective Subsidiaries, except in compliance with all applicable
Environmental Laws and reasonably required in connection with the operation, use
and maintenance of any such Real Property by Patriot REIT's, the Borrower's,
such Guarantor's, or such Subsidiary's business.
(c) Notwithstanding anything to the contrary in this Section 7.16,
the representations made in this Section 7.16 shall only be untrue if the
aggregate effect of all Environmental Claims, restrictions, failures and
noncompliance of the types described above would reasonably be expected to have
a Material Adverse Effect.
7.17 Labor Relations. None of Patriot REIT, the Borrower, any of the
---------------
other Guarantors or any of their respective Subsidiaries, is engaged in any
unfair labor practice that would reasonably be expected to have a Material
Adverse Effect. To the Best Knowledge of each of Patriot REIT and the Borrower,
there is (i) no unfair labor practice complaint pending or threatened against
Patriot REIT, the Borrower, any of the other Guarantors or any of their
respective Subsidiaries before the National Labor Relations Board and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending or threatened against
any of them, or (ii) no strike, labor dispute, slowdown or stoppage is pending
or threatened against Patriot REIT, the Borrower, any of the other Guarantors or
any of their respective Subsidiaries, in each case with respect to the Hotels,
except with respect to any matter specified in clause (i) or (ii) above such as
would not reasonably be expected to have a Material Adverse Effect.
7.18 Intellectual Property. Patriot REIT, the Borrower, each of the
---------------------
other Guarantors, and each of their respective Subsidiaries, owns or has the
right or ability to use all trademarks, permits, service marks, trade names,
licenses and franchises which are material and necessary for the conduct of its
respective businesses.
7.19 Indebtedness. (a) Schedule VI sets forth a true and complete
------------
list of all Indebtedness in excess of $1,000,000 of Patriot REIT, the Borrower,
the other Guarantors, and their respective Subsidiaries, as of the Effective
Date and intended to remain outstanding after such date (excluding the Loans,
the "Existing Indebtedness"), in each case showing the aggregate principal
amount thereof and the name of the respective borrower and any other entity
which directly or indirectly guaranteed such debt.
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<PAGE>
7.20 Ground Leases. Each ground lease with respect to any Hotel
-------------
which is located on a Leasehold is in full force and effect and no party thereto
has denied or disaffirmed any of its material obligations thereunder or has
defaulted (beyond applicable cure and notice periods) in the due performance or
observance of any material term, covenant or agreement on its part to be
performed or observed pursuant thereto, except in the case of any ground leases
other than Qualified Ground Leases relating to Eligible Hotels such denials,
disaffirmations and defaults as would not reasonably be expected to have a
Material Adverse Effect.
7.21 Status as REIT. Patriot REIT is organized in conformity with
--------------
the requirements for qualification as a real estate investment trust under the
Code. Patriot REIT has met all of the requirements for qualification as a real
estate investment trust under the Code for its Fiscal Year ended December 31,
1996. Patriot REIT is in a position to qualify for its current Fiscal Year as a
real estate investment trust under the Code and its proposed methods of
operation will enable it to so qualify.
7.22 Operators. Each Affiliated Operator, and to the Best Knowledge
---------
of each of Patriot REIT and the Borrower, each Third Party Operator, has full
power and authority and the legal right to own, lease (or sublease), manage and
operate (as applicable) the properties it operates and to conduct the business
in which it is currently engaged with respect to any Real Property owned or
leased by Patriot REIT, the Borrower, any of the other Guarantors, or any of
their respective Subsidiaries, except in the case of the operation by Third
Party Operators of Hotels other than Eligible Hotels such failures as would not
reasonably be expected to have a Material Adverse Effect.
7.23 Eligible Hotels. On and as of the Effective Date, each of the
---------------
Hotels included in the Borrowing Base on such date meets all of the conditions
and requirements for treatment as an Eligible Hotel (except to the extent (i)
expressly waived by the Administrative Agent on the Election Date or (ii) such
representation is deemed withdrawn pursuant to Section 8.11(b)) under this
Agreement. On and as of the Addition Date for any Hotel, such Hotel being added
to the Borrowing Base meets all of the conditions and requirements for treatment
as an Eligible Hotel under this Agreement. On any date, each of the Hotels
included in the Borrowing Base on such date (other than (i) any Hotel for which
the Administrative Agent has received notice of the type described in Section
8.11(c)(i) or as to which the Administrative Agent has waived any non-
eligibility, to the extent so waived or (ii) any Hotel as to which such
representation is deemed withdrawn pursuant to Section 8.11(b)) meets all of the
conditions and requirements for treatment as an Eligible Hotel under this
Agreement.
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7.24 Further Assurances. Patriot REIT and the Borrower will, and
------------------
will cause each of their Subsidiaries to, take all actions necessary to ensure
that all mortgage satisfactions, termination statements and evidence of release
requested by the Administrative Agent in its sole discretion with respect to the
general release described in Section 5.12 are prepared in recordable form and in
form otherwise satisfactory to, and delivered to, the Administrative Agent in
its sole discretion within 30 days after the Effective Date.
SECTION 8. Affirmative Covenants. Each of Patriot REIT and the
---------------------
Borrower hereby covenants and agrees that on and after the Effective Date and
until the Total Commitment and all Letters of Credit have terminated and the
Loans, Notes and Unpaid Drawings, together with interest, Fees and all other
obligations incurred here under and thereunder, are paid in full:
8.01 Information Covenants. Patriot REIT will furnish to the
---------------------
Administrative Agent (with sufficient copies for each of the Lenders, which the
Administrative Agent will promptly forward to each of the Lenders):
(a) Quarterly Financial Statements. Within 45 days after the end of
------------------------------
each Fiscal Quarter, (i) the consolidated balance sheet of Patriot REIT and
NPOC and their Subsidiaries calculated on a Company Combined Basis, as at
the end of such quarterly accounting period, (ii) the related consolidated
statements of income for such quarterly accounting period and for the
elapsed portion of the fiscal year ended with the last day of such
quarterly accounting period and (iii) the related consolidated statements
of cash flows for such quarterly accounting period and for the elapsed
portion of the fiscal year ended with the last day of such quarterly
accounting period, in each case setting forth comparative figures for the
corresponding fiscal periods in the prior fiscal year, all of which shall
be in reasonable detail and certified by an Authorized Financial Officer of
Patriot REIT that, to the best of such officer's knowledge after due
inquiry, they fairly present the financial condition of Patriot REIT and
its Subsidiaries and of NPOC and its Subsidiaries, as of the dates
indicated and the results of their operations and changes in their cash
flows for the periods indicated, subject to normal year-end audit
adjustments.
(b) Annual Financial Statements. Within 90 days after the end of
---------------------------
each Fiscal Year, the consolidated balance sheet of Patriot REIT and NPOC
and their Subsidiaries calculated on a Company Combined Basis, as at the
end of such fiscal year and the related consolidated statements of income
and shareholders' equity and of cash flows for such fiscal year setting
forth comparative figures
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for the preceding fiscal year and certified by Ernst & Young, any other
"Big Six" independent certified public accounting firm or such other
independent certified public accountants of recognized national standing
reasonably acceptable to the Administrative Agent, whose opinion shall not
be qualified as to the scope of audit or as to the status of Patriot REIT,
the Borrower or NPOC as a going concern.
(c) Borrowing Base Certificate. (i) Within 45 days after the end of
--------------------------
each Fiscal Quarter, a Borrowing Base Certificate, signed by an Authorized
Financial Officer of the Borrower, calculating the Borrowing Base as of the
last day of such Fiscal Quarter, (ii) at the time of the delivery of any
notice pursuant to Section 8.01(d), a revised Borrowing Base Certificate
signed by an Authorized Financial Officer of the Borrower calculating the
Borrowing Base as of the date of such notice, (iii) on any Addition Date
and on the date of any sale or other disposition of any Eligible Hotel or
on the date of any event which would cause any Hotel to no longer be an
Eligible Hotel, a revised Borrowing Base Certificate signed by an
Authorized Financial Officer of the Borrower calculating the Borrowing Base
as of such Addition Date or the date of such sale, other disposition or
other event, as the case may be, (iv) for any date on which the method for
calculating the Borrowing Base or the Aggregate Borrowing Base Value shall
change from that in effect for the calculation of the then existing
Borrower Base, a revised Borrowing Base Certificate signed by an Authorized
Financial Officer of the Borrower calculating the Borrowing Base as of the
date of such change and (v) within 5 Business Days after a written request
by the Administrative Agent, a revised Borrowing Base Certificate signed by
an Authorized Financial Officer of the Borrower calculating the Borrowing
Base as of the date of such request.
(d) Reduction of Borrowing Base. Promptly and in any event within
---------------------------
five Business Days after the Senior Management of Patriot REIT, the
Borrower or any of the other Guarantors obtains knowledge thereof, notice
of the occurrence or effectiveness of any event or condition that has
caused, or would reasonably be expected to cause, the Borrowing Base to be
reduced by more than $25,000,000, in each case together with a certificate
of an Authorized Financial Officer of the Borrower setting forth (in
reasonable detail) the nature of the respective event and/or condition.
(e) Budgets. Prior to the beginning of each Fiscal Year, budgets
-------
(including, in any event, budgeted statements of cash flow and budgeted
debt and cash balances) for such Fiscal Year prepared in detail, with
respect to (x) Patriot REIT and its Subsidiaries and of NPOC and its
Subsidiaries, (y) each
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Eligible Hotel and (z) all the Eligible Hotels taken as a whole, in each
case accompanied by a statement of an Authorized Financial Officer of the
Borrower to the effect that, to such officer's Best Knowledge, the budget
is a reasonable estimate of the period covered thereby, it being recognized
by the Lenders that budgets as to future results are not to be viewed as
facts and that the actual results for the period or periods covered by such
budgets may differ from the budgeted results.
(f) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Sections 8.01(a) and (b), a
certificate of an Authorized Financial Officer of Patriot REIT to the
effect that, to the best of such officer's actual knowledge, no Default or
Event of Default has occurred and is continuing or, if any Default or Event
of Default has occurred and is continuing, specifying the nature and extent
thereof, which certificate shall be in the form of Exhibit J and shall set
forth the calculations required to establish whether the Borrower was in
compliance with the provisions of Sections 8.14, 9.03, 9.04, 9.06 through
9.10, inclusive and 9.12, at the end of such fiscal quarter or year, as the
case may be.
(g) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within five Business Days after the Senior Management of Patriot REIT, the
Borrower or any of the other Guarantors obtains actual knowledge of (i) the
occurrence of any event which constitutes a Default or an Event of Default,
(ii) any litigation or governmental investigation or proceeding pending or
threatened in writing (x) against Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries which would
reasonably be expected to have a Material Adverse Effect, (y) with respect
to any material Indebtedness of Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries or (z) with
respect to any Credit Document and (iii) any other action or condition or
event which would reasonably be expected to have a Material Adverse Effect,
a certificate of an Authorized Financial Officer specifying (A) the nature
and period of existence of any such claimed Default, Event of Default,
condition or event, (B) the notice given or action taken by such Person in
connection therewith, and (C) what action the Borrower has taken, is taking
and proposes to take with respect thereto.
(h) Management Letters. Promptly after Patriot REIT's, the
------------------
Borrower's or NPOC's receipt thereof, a copy of any "management letter"
received by Patriot REIT, the Borrower or NPOC from its certified public
accountants and the management's responses thereto.
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(i) Other Reports and Filings. Promptly, and without duplication of
-------------------------
any documents or information delivered pursuant to another clause of this
Section 8.01, copies of all financial information, proxy materials and
other information and reports, if any, which Patriot REIT, the Borrower or
any of the other Guarantors, or any of their respective Subsidiaries, shall
file with the Securities and Exchange Commission or any successor thereto
(the "SEC") (other than preliminary filings made with the SEC).
(j) Environmental Matters. Promptly upon, and in any event within
---------------------
ten Business Days after the Senior Management of Patriot REIT, the Borrower
or any of the other Guarantors obtaining actual knowledge thereof, notice
of one or more of the following environmental matters:
(i) any pending or threatened material Environmental Claim
against Patriot REIT, the Borrower, any of the other Guarantors, or
any of their respective Subsidiaries or any Real Property owned or
operated by Patriot REIT, the Borrower, any of the other Guarantors,
or any of their respective Subsidiaries;
(ii) any condition or occurrence on or arising from any Real
Property owned or operated by Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries that (a)
results in non-compliance by Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries in any
material respect with any applicable Environmental Law or (b) would
reasonably be expected to form the basis of a material Environmental
Claim against Patriot REIT, the Borrower, any of the other Guarantors,
or any of their respective Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property owned or
operated by Patriot REIT, the Borrower, any of the other Guarantors,
or any of their respective Subsidiaries that would reasonably be
expected to cause such Real Property to be subject to any restrictions
on the ownership, occupancy, use or transferability by Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to
the actual or alleged presence of any Hazardous Material on any Real
Property relating to any material liability owned or operated by
Patriot REIT, the Borrower, any of the other Guarantors, or any of
their
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respective Subsidiaries as required by any Environmental Law or any
governmental or other administrative agency.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action
and Patriot REIT's, the Borrower's, such Guarantor's, or such Subsidiary's
response or proposed response thereto. In addition, Patriot REIT, the
Borrower, any of the other Guarantors, and any of their respective
Subsidiaries will provide the Administrative Agent with copies of all
material communications with any government or governmental agency relating
to Environmental Laws, all material communications with any Person relating
to Environmental Claims, and such detailed reports of any Environmental
Claim as may reasonably be requested by the Administrative Agent or any
Lender.
(k) Annual Meetings with Lenders. At the request of the
----------------------------
Administrative Agent or the Required Lenders, the Borrower shall, at least
once during each fiscal year of the Borrower, hold a meeting (at a mutually
agreeable location and time) with all of the Lenders at which meeting the
financial results of the previous fiscal year and the financial condition
of Patriot REIT and the Borrower and the budgets presented for the current
Fiscal Year shall be re viewed, with each Lender bearing its own travel,
lodging, food and other costs associated with attending any such meeting.
(l) Asset Sales; Asset Encumbrance. Prior to any Asset Sale or Asset
------------------------------
Encumbrance, a notice (i) describing the assets being sold or encumbered,
(ii) stating the estimated proceeds in respect of such Asset Sale or Asset
Encumbrance and (iii) accompanied by a certificate of an Authorized
Financial Officer of the Borrower stating that before and after (calculated
on a Pro Forma Basis) giving effect to such Asset Sale or Asset
Encumbrance, the Borrower shall be in compliance with all of its covenants
set forth in this Agreement and the other Credit Documents and that no
Default or Event of Default will result from such Asset Sale or Asset
Encumbrance; provided that if such certificate indicates that a Default or
--------
Event of Default would arise as a result thereof, such certificate shall
also include a calculation of the amount of proceeds from such Asset Sale
or Asset Encumbrance which would be required to repay Loans to avoid such
Default or Event of Default.
(m) Other Information. From time to time, such other information or
-----------------
documents (financial or otherwise) with respect to Patriot REIT, the
Borrower, the other Guarantors, or their respective Subsidiaries or any
Eligible Hotel, as
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the Administrative Agent or any Lender (through the Administrative Agent)
may reasonably request.
8.02 Books, Records and Inspections. Patriot REIT and the Borrower
------------------------------
will, will cause each of their respective Subsidiaries, each of the other
Guarantors and its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in conformity with generally accepted
accounting principles and all requirements of law shall be made of all dealings
and transactions in relation to its business and activities. Patriot REIT and
the Borrower will, will cause each of their respective Subsidiaries, each of the
other Guarantors and its Subsidiaries to, permit officers and designated
representatives of the Administrative Agent (at the expense of the
Administrative Agent, unless a Default or Event of Default is then in existence
or discovered during such inspection, in which case such visit shall be at the
expense of the Borrower) or any Lender (at such Lender's expense) to visit and
inspect, during regular business hours on reasonable advance notice and under
guidance of officers of Patriot REIT, the Borrower or such Guarantor, or their
respective Subsidiaries, any of the properties of Patriot REIT, the Borrower or
any of the other Guarantors or any of their respective Subsidiaries, and to
examine the books of account of Patriot REIT, the Borrower, any of the other
Guarantors or any of their respective Subsidiaries, and discuss the affairs,
finances and accounts of Patriot REIT, the Borrower, any of the other Guarantors
or any of their respective Subsidiaries with, and be advised as to the same by,
its and their Authorized Financial Officers and independent accountants, all at
such reasonable times and intervals and to such reasonable extent as the
Administrative Agent or any Lender may reasonably request.
8.03 Maintenance of Property; Insurance. Patriot REIT and the
----------------------------------
Borrower will, and will cause each of the other Guarantors and each of their
respective Subsidiaries to maintain insurance with responsible and reputable
insurance companies or associations and in such amounts and against at least
such risks as is consistent and in accordance with industry practice and furnish
to the Administrative Agent, upon written request, full information as to the
insurance carried. Such insurance shall include physical damage insurance on
all real and personal property (whether now owned or hereafter acquired) on an
all risk basis, covering the full repair and replacement costs of all such
property and business interruption insurance for the actual loss sustained.
8.04 Corporate Franchises. Patriot REIT and the Borrower will, and
--------------------
will cause each of their respective Subsidiaries, each of the other Guarantors
and its Subsidiaries to, do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises, licenses and patents; provided, however, that nothing in
-------- -------
this Section 8.04 shall prevent (i) any of the
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transactions permitted in accordance with Section 9.02 or (ii) the taking or
failing to take of any action with respect to the foregoing by Patriot REIT, the
Borrower, any of the other Guarantors or any of their respective Subsidiaries
which would not reasonably be expected to have a Material Adverse Effect.
8.05 Compliance with Statutes, etc. Patriot REIT and the Borrower
------------------------------
will, and will cause each of their respective Subsidiaries, each of the other
Guarantors and its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such noncompliances as would
not reasonably be expected to have a Material Adverse Effect.
8.06 Compliance with Environmental Laws. (a) Patriot REIT and the
----------------------------------
Borrower will, and will cause each of their respective Subsidiaries, each of the
other Guarantors and its Subsidiaries to, comply in all respects with all
Environmental Laws applicable to the ownership or use of its Real Property now
or hereafter owned or operated by Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, will promptly pay or cause
to be paid all costs and expenses incurred in connection with such compliance,
and will keep or cause to be kept all such Real Property free and clear of any
Liens imposed pursuant to such Environmental Laws. None of Patriot REIT, the
Borrower, any of the other Guarantors or any of their respective Subsidiaries
will generate, use, treat, store, Release or dispose of, or permit the
generation, use, treatment, storage, Release or disposal of Hazardous Materials
on any Real Property now or hereafter owned or operated by Patriot REIT, the
Borrower, any of the other Guarantors or any of their respective Subsidiaries,
or transport or permit the transportation of Hazardous Materials to or from any
such Real Property except for Hazardous Materials used or stored at any such
Real Properties in compliance with all applicable Environmental Laws and
reasonably required in connection with the operation, use and maintenance of any
such Real Property, except where the failure to so comply in respect of the
matters described in this clause (a) as would not reasonably be expected to have
a Material Adverse Effect.
(b) At the written request of the Administrative Agent or the
Required Lenders, which request shall specify in reasonable detail the basis
therefor, at any time and from time to time after (i) the Obligations have been
declared due and payable pursuant to Section 10, (ii) the Administrative Agent
receives notice under Section 8.01(j) of any event for which notice is required
to be delivered for any Real Property or (iii) Patriot REIT, the Borrower, any
of the other Guarantors, or any of their respective Subsidiaries, are not in
compliance with Section 8.06(a) with respect to any Real Property and the
Borrower will provide, at its sole cost and expense, an environmental site
assessment report concerning any such affected Real Property now
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or hereafter owned or operated by Patriot REIT, the Borrower, any of the other
Guarantors or any of their respective Subsidiaries, prepared by an environmental
consulting firm reasonably approved by the Administrative Agent, indicating the
presence or absence of Hazardous Materials and the potential cost of any removal
or remedial action in connection with any Hazardous Materials on such Real
Property. If the Borrower fails to provide the same within 90 days after such
request was made, the Administrative Agent may order the same, and the Borrower
shall grant and hereby grants, to the Administrative Agent and the Lenders and
their agents access to such Real Property and specifically grants, the
Administrative Agent and the Lenders an irrevocable non-exclusive license,
subject to the rights of tenants, to undertake such an assessment, all at the
Borrower's expense.
8.07 ERISA. Within 15 Business Days after Patriot REIT, the
-----
Borrower, any of their respective Subsidiaries or any ERISA Affiliate knows or
has reason to know of the occurrence of any of the following, the Borrower will
deliver to the Administrative Agent and each Lender a certificate of an
Authorized Financial Officer of the Borrower setting forth details as to such
occurrence and the action, if any, that Patriot REIT, the Borrower, such
Subsidiary or such ERISA Affiliate is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by Patriot
REIT, the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred; that an accumulated funding deficiency, under the meaning of
Section 412 of the Code or Section 302 of ERISA, has been incurred or an
application may reasonably be expected to be or has been made to the Secretary
of the Treasury for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of ERISA
with respect to a Single Employer Plan; that any contribution required to be
made by Patriot REIT, the Borrower, any of their respective Subsidiaries or any
ERISA Affiliate to a Single Employer Plan or Foreign Pension Plan has not been
made within 30 Business Days of the date same is due; that a Single Employer
Plan has been or may reasonably be expected to be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA; that a Single
Employer Plan has an Unfunded Current Liability giving rise to a lien on the
assets of Patriot REIT, the Borrower, any of their respective Subsidiaries or
any ERISA Affiliate under ERISA or the Code; that proceedings may reasonably be
expected to be or have been instituted to terminate or appoint a trustee to
administer a Single Employer Plan; that a proceeding has been instituted against
Patriot REIT, the Borrower, any of their respective Subsidiaries or any ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution
to a Plan; that Patriot REIT, the Borrower, any of their respective Subsidiaries
or any ERISA Affiliate will or may reasonably be expected to incur or has
incurred any material liability (including any indirect, contingent, or
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secondary liability) to or on account of the termination of or withdrawal from a
Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with
respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or
Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan
(as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 498-B of the Code; or that Patriot REIT, the Borrower or any of their
respective Subsidiaries may incur any material liability pursuant to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any employee pension benefit plan (as
defined in Section 3(2) of ERISA). The Borrower will deliver to the
Administrative Agent with sufficient copies for each Lender (i) a complete copy
of the annual report (Form 5500) of each Single Employer Plan (including, to the
extent required, the related financial and actuarial statements and opinions and
other supporting statements, certifications, schedules and information) required
to be filed by them with the Internal Revenue Service and (ii) copies of any
records, documents or other information that must be furnished to the PBGC with
respect to any Plan pursuant to Section 4010 of ERISA. In addition to any
certificates or notices delivered to the Administrative Agent pursuant to the
first sentence hereof, copies of annual reports and any material notices
received by Patriot REIT, the Borrower, any of their respective Subsidiaries or
any ERISA Affiliate with respect to any Single Employer Plan or Foreign Pension
Plan shall be delivered to the Administrative Agent (with sufficient copies for
each Lender) no later than 15 Business Days after the date such report has been
filed with the Internal Revenue Service or such notice has been received by
Patriot REIT, the Borrower, the Subsidiary or the ERISA Affiliate, as
applicable.
8.08 End of Fiscal Years; Fiscal Quarters. Patriot REIT and the
------------------------------------
Borrower will cause (i) each of its, and each of their respective Subsidiaries'
(other than PAH Windwatch Partners or PAH Windwatch, LLC, so long as the Hotel
owned by such Person is managed by a Third Party Operator), each other
Guarantors' and each of its Subsidiaries' Fiscal Years to end on December 31 and
(ii) each of its, and each of their respective Subsidiaries' (other than PAH
Windwatch Partners or PAH Windwatch, LLC, so long as the Hotel owned by such
Person is managed by a Third Party Operator), each other Guarantors' and each of
their Subsidiaries' Fiscal Quarters to end on March 31, June 30, September 30
and December 31.
8.09 Performance of Obligations. Patriot REIT and the Borrower will,
--------------------------
will cause each of their respective Subsidiaries, each other Guarantor and its
Subsidiaries to, perform all of its obligations under the terms of each
Management Agreement, ground lease and each mortgage, deed of trust, indenture,
loan agreement or credit agreement and each other material agreement, contract
or instrument by which
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it or any Real Property is bound, except such non-performances as would not
reasonably be expected to have a Material Adverse Effect.
8.10 Payment of Taxes. Patriot REIT and the Borrower will, will
----------------
cause each of their respective Subsidiaries, each other Guarantor and its
Subsidiaries to pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which any penalties attach
thereto, and all lawful claims for sums that have become due and payable which,
if unpaid, might become a lien or charge upon any properties of Patriot REIT,
the Borrower, any such Guarantor, or any of their respective Subsidiaries;
provided that none of Patriot REIT, the Borrower, any such Guarantor, or any of
- --------
their respective Subsidiaries shall be required to pay any such tax, assessment,
charge, levy or claim (i) which is being contested in good faith and by proper
proceedings if it has maintained adequate reserves with respect thereto in
accordance with generally accepted accounting principles or (ii) the failure to
pay which would not be reasonably expected to have a Material Adverse Effect.
8.11 Certain Requirements with Respect to Eligible Hotels. (a) If
----------------------------------------------------
the Borrower desires that any Hotel be added as an Eligible Hotel after the
Effective Date for the purposes of the Borrowing Base, the Borrower shall so
notify the Administrative Agent in writing. Such Hotel shall be included in the
Borrowing Base once the Borrower has delivered to the Administrative Agent the
Borrowing Base Certificate required pursuant to Section 8.01(c), calculating
what the Borrowing Base would be after giving effect to the Hotel being included
as an Eligible Hotel. Such Hotel shall remain included in the Borrowing Base so
long as such Hotel shall meet the requirements for Eligible Hotels specified
herein. Any Hotel which ceases to be an Eligible Hotel as a result of the
second sentence of clause (b) below may be redesignated as an Eligible Hotel
upon the demonstration by the Borrower to the reasonable satisfaction of the
Administrative Agent that such Hotel then meets the requirements for Eligible
Hotels specified herein.
(b) Within three Business Days of the later of the designation of or
acquisition of an Eligible Hotel and, in either event, following the delivery of
the Borrowing Base Certificates pursuant to clause (a), the Borrower shall
deliver the Eligible Hotel Documents relating to such Eligible Hotel to the
Administrative Agent. If any Hotel designated as an Eligible Hotel fails to
meet, in the reasonable judgment of the Administrative Agent and upon written
notice thereof, the criteria for Eligible Hotels, such Hotel shall no longer be
an Eligible Hotel and all representations as to eligibility in respect thereof
shall be deemed withdrawn.
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(c) The Borrower shall promptly notify the Administrative Agent in
writing in the event that at any time the Borrower receives or otherwise gains
knowledge (i) that any Hotel included in a prior Borrowing Base Certificate as
an Eligible Hotel, ceases, for any reason whatsoever, to be an Eligible Hotel,
(ii) that the proportionate share of Aggregate Borrowing Base Value of the
Eligible Hotel is less than 90% of the proportionate share of Aggregate
Borrowing Base Value of the Eligible Hotel reflected in the most recent
Borrowing Base Certificate delivered pursuant hereto or (iii) of the existence
and amount of any Borrowing Base Deficiency.
(d) The Administrative Agent, at the expense of the Lenders (which
expenses shall be borne by the Borrower in the event that a Hotel fails to meet
the requirements for an Eligible Hotel in any material respect), may make
physical and other verifications of any Hotels included as Eligible Hotels in
any reasonable manner and through any medium that the Administrative Agent
considers advisable, and the Borrower shall furnish all such assistance and
information as the Administrative Agent may reasonably require in connection
therewith.
(e) Notwithstanding anything to the contrary set forth herein, a
Hotel shall cease to be an Eligible Hotel if it shall cease to comply with the
requirements therefor set forth herein or the Borrower is unable to make the
representations set forth in Section 7.23 with respect to such Hotel.
8.12 Operators. Patriot REIT and the Borrower will take, and will
---------
cause each of the other Guarantors to take, all action necessary so that each
Eligible Hotel (other than the Ravinia Hotel or the Windwatch Hotel until such
Hotel is transferred to the Borrower, any Guarantor or another Eligible
Borrowing Base Entity) is at all times leased to an Affiliated Operator or a
Third Party Operator pursuant to an Operating Lease.
8.13 Qualified Ground Leases and Operating Leases. (a) The Borrower
--------------------------------------------
shall provide the Administrative Agent with a copy of each Qualified Ground
Lease and each Third Party Operating Lease relating to an Eligible Hotel. With
respect to all Eligible Hotels, the Borrower shall, and shall cause each of the
other Guarantors and Eligible Borrowing Base Entities to, (i) comply in all
material respects with all of their respective obligations under all of their
respective Qualified Ground Leases and Operating Leases now or hereafter held by
them; (ii) not modify, amend, cancel, extend or otherwise change in any
materially adverse manner (A) any of the terms, covenants or conditions of any
such Qualified Ground Leases or (B) with respect to Affiliate Operating Leases,
any material deviation from the term thereof, or (C) with respect to any Third
Party Operating Leases, (a) the term thereof, (b) the rent and fees payable
thereunder, (c) the termination rights thereunder and (d) the lessee thereunder;
(iii) not
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assign any Qualified Ground Leases or sublet any portion of the premises if such
assignment or sublet would be reasonably expected to have a Material Adverse
Effect; (iv) provide the Administrative Agent with a copy of each notice of
default under any Qualified Ground Lease or Operating Lease received by Patriot
REIT, the Borrower or any of the other Guarantors or Eligible Borrowing Base
Entities promptly upon receipt thereof and deliver to the Administrative Agent a
copy of each notice of default sent by Patriot REIT, the Borrower or any of the
other Guarantors or Eligible Borrowing Base Entities under any Qualified Ground
Lease or Operating Lease simultaneously with its delivery of such notice under
such Qualified Ground Lease or Operating Lease except to the extent that such
defaults, in the aggregate, would not be reasonably expected to have a Material
Adverse Effect; (v) notify the Administrative Agent, not later than 30 days
prior to the date of the expiration of the term of any Qualified Ground Lease,
of any such Person's intention either to renew or to not renew any such
Qualified Ground Lease, and if such Person intends to renew such Qualified
Ground Lease, the term and conditions of such renewal; and (vi) maintain each
Operating Lease in full force and effect and enforce the obligations of the
Operating Lessee thereunder, in a timely manner except to the extent that the
failure to do so would not be reasonably expected to have a Material Adverse
Effect.
(b) Each of Patriot REIT and the Borrower shall take all actions and
do all things within its power or control reasonably necessary or required to
cause each Third Party Operator to (i) keep, observe, comply with and perform
all of the terms, provisions, covenants and undertakings on its part required by
each Operating Lease relating to any Hotel, and (ii) to enforce the provisions
of each Operating Lease, if the failure to comply with or enforce such
agreements would be reasonably expected to have a Material Adverse Effect.
8.14 FF&E Reserves. (i) Within 30 days after the Effective Date,
-------------
Patriot REIT, the Borrower, the respective Guarantor or Eligible Borrowing Base
Entity shall have established one or more FF&E Reserve accounts with respect to
Hotels owned or leased pursuant to a ground lease on the Effective Date and (ii)
within 45 days after each acquisition of a Hotel, Patriot REIT, the Borrower,
the respective Guarantor or Eligible Borrowing Base Entity shall have
established an FF&E Reserve, and deposited same in such account or accounts with
respect to such Hotel.
8.15 REIT Requirements. Patriot REIT shall operate its business at
-----------------
all times so as to satisfy all requirements necessary to qualify as a real
estate investment trust under Sections 856 through 860 of the Code. Patriot
REIT will maintain adequate records so as to comply with all record-keeping
requirements relating to the qualification of Patriot REIT as a real estate
investment trust as required by the Code and applicable regulations of the
Department of the Treasury promulgated thereunder
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and will properly prepare and timely file with the IRS all returns and reports
required thereby. Patriot REIT will request from its shareholders all
shareholder information required by the Code and applicable regulations of the
Department of Treasury promulgated thereunder.
8.16 Maintenance of Operating Account. The Borrower shall at all
--------------------------------
times maintain a demand deposit account held by the Administrative Agent (the
"Operating Account") and shall cause funds to be deposited therein in an amount
sufficient to permit the Administrative Agent to automatically deduct therefrom
(and the Borrower hereby irrevocably authorizes the Administrative Agent to so
deduct) the interest payments, any administrative agency fee, the Commitment
Fees, the Letter of Credit Fees and the Facing Fees at 12:00 P.M. on the tenth
day of each month in which each such fee is due.
SECTION 9. Negative Covenants. Each of Patriot REIT and the Borrower
------------------
covenants and agrees that on and after the Effective Date and until the Total
Commitment and all Letters of Credit have terminated and the Loans, Notes and
Unpaid Drawings, together with interest, Fees and all other Obligations incurred
hereunder and thereunder, are paid in full:
9.01 Line of Business. Patriot REIT and the Borrower will not, and
----------------
will not permit any of their respective Subsidiaries or any of the other
Guarantors or their Subsidiaries to, engage (directly or indirectly) in any
business other than Hospitality/Leisure-Related Businesses.
9.02 Consolidation, Merger, Sale of Assets, etc. Patriot REIT and
-------------------------------------------
the Borrower will not, and will not permit any of their respective Subsidiaries
to, or any of the other Guarantors and any of their Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or a
substantial portion of its property or assets except that:
(i) Investments may be made to the extent permitted by Section
9.04;
(ii) (a) the Credit Parties may merge or consolidate with,
liquidate into, or transfer all or any portion of their assets to or among
one another, (b) any Subsidiary of any Credit Party or any Eligible
Borrowing Base Entity may merge or consolidate with, liquidate into, or
transfer all or any portion of their assets to any Credit Party, so long as
such Credit Party is the surviving entity, (c) any Subsidiary of Patriot
REIT or NPOC which is not a Credit Party may transfer all or any portion of
its assets to another Subsidiary of Patriot REIT or
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NPOC which is not a Credit Party and (d) each of the Eligible Borrowing
Base Entities may merge or consolidate with, transfer or otherwise dispose
of all or any portion of their assets to or among one another, so long as
in the case of (a) and (b) above, each Credit Party's obligations with
respect to the Credit Documents are not materially impaired or adversely
affected by such actions;
(iii) Patriot REIT, the Borrower, the other Guarantors, and their
respective Subsidiaries may consummate the Wyndham Transaction pursuant to
the Wyndham Transaction Documents;
(iv) Patriot REIT, the Borrower and the other Guarantors and
their respective Subsidiaries may contribute Hotels to any Person owned and
controlled directly or indirectly by Patriot REIT or the Borrower to
consummate and incur the Term Loan; and
(v) Patriot REIT, the Borrower, the other Guarantors and their
respective Subsidiaries may convey, sell, lease or otherwise dispose of
their assets to any Person (other than to one another) which does not
result in the conveyance, sale, lease or other disposition of all or a
substantial portion of Patriot REIT, the Borrower, the other Guarantors and
their respective Subsidiaries taken as a whole.
9.03 Dividends. Unless otherwise required in order for Patriot
---------
REIT to maintain its status as a real estate investment trust in accordance with
the written advice of independent counsel, Patriot REIT shall not declare or pay
any Dividends on its Stock or Stock Equivalents or any other Dividends;
provided, that, notwithstanding the foregoing, (i) during any period of four
- --------
consecutive Fiscal Quarters, Patriot REIT may pay Dividends for such period in
an aggregate amount not to exceed the greater of (x) 90% of the Adjusted Funds
From Operations, (y) 100% of Cash Available for Distribution and (z) the minimum
amount necessary to maintain tax status as a real estate investment trust and
(ii) if no Event of Default then exists or would arise therefrom, Patriot REIT
may pay Dividends in excess of the amounts permitted under clause (i) above, but
only to the extent necessary to avoid the incurrence of federal, state or local
income or excise tax liability.
9.04 Investments. Patriot REIT and the Borrower will not, and
-----------
will not permit any of their respective Subsidiaries or any of the other
Guarantors or any of their Subsidiaries to, directly or indirectly, lend money
or credit or make advances to any Person, or purchase or acquire any Stock,
Stock Equivalents, obligations or securities of, or any other interest in, or
make any capital contribution to, any other Person,
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(each of the foregoing an "Investment"), including Investments existing on the
Effective Date, except that the following shall be permitted:
(i) Patriot REIT, the Borrower, the other Guarantors and their
respective Subsidiaries may acquire and hold accounts receivables owing to
any of them, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary terms;
(ii) Patriot REIT, NPOC and their respective Subsidiaries may
make cash intercompany loans and contributions among one another;
(iii) Patriot REIT, the Borrower, each of the other Guarantors
and their respective Subsidiaries may make and/or hold Investments in their
respective Wholly-Owned Subsidiaries, other Subsidiaries and Unconsolidated
Entities engaged in Hospitality/Leisure-Related Businesses so long as the
following investment restrictions are met:
(A) the sum of all Investments in non-Wholly-Owned Subsidiaries
and Eligible Borrowing Base Entities (valued at such
Person's pro rata Investment in such Subsidiary or Eligible
Borrowing Base Entity) which are not Subsidiaries shall not
exceed 25% of Total Value; provided no more than 15% of
Total Value may be attributable to any such Persons (i) in
which Patriot REIT, the Borrower or any Guarantor holds an
ownership interest which is less than 90% of the aggregate
ownership interests of such Person and (ii) for which
Patriot REIT, the Borrower or any Guarantor is not the sole
general managing partner;
(B) the sum of all Investments attributable to Mortgage Notes
shall not exceed 7.5% of Total Value;
(C) the sum of all Investments attributable to Limited Service
and/or Extended Stay Hotels shall not exceed 15% of Total
Value;
(D) the sum of all Investments attributable to Hotels located
outside of the United States shall not exceed 15% of Total
Value;
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(E) the sum of all Investments attributable to Independent
Hotels shall not exceed 10% of Total Value;
(F) the sum of all Investments attributable to (and valued at
cost) unimproved land and/or to New Construction shall not
exceed 15% of Total Value;
(G) the sum of all Investments described in clauses (D) and (E)
above shall not exceed 20% of Total Value; and
(H) notwithstanding the Investment restrictions listed in
clauses (A) through (G) above, Patriot REIT, the Borrower,
the other Guarantors and their respective Subsidiaries may
make and/or hold Investments in Unconsolidated Entities
which in the aggregate do not exceed 10% of Total Value.
If any Investment may be categorized as qualifying under more than one
of the investment restrictions listed in clauses (A) through (G) above, such
Investment shall be counted against each of the investment restriction limits
for which it qualifies without regard to the number of such restrictions for
which such Investment may qualify, except that any Investment that would be
counted against clauses (A) and (D) above shall only be counted against clause
(D).
9.05 Transactions with Affiliates. Patriot REIT and the Borrower
----------------------------
will not, and will not permit any of their respective Subsidiaries to, or any of
the other Guarantors or any of their Subsidiaries to enter into any transaction
or series of related transactions with any Affiliate, other than in the ordinary
course of business and on terms and conditions substantially as favorable to
such Person as would reasonably be obtained by such Person at that time in a
comparable arm's-length transaction with a Person other than an Affiliate,
except that:
(i) intercompany transactions may be entered into to the extent
permitted by Section 9.02;
(ii) Dividends may be paid to the extent provided in Section 9.03;
(iii) Investments may be made to the extent permitted by Section
9.04; and
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(iv) Patriot REIT, the Borrower, the other Guarantors and the
Eligible Borrowing Base Entities may enter into the Operating Leases and
Qualified Ground Leases and pay the rentals, fees and other costs and
expenses thereunder.
9.06 Total Interest Coverage. Patriot REIT and the Borrower will not
-----------------------
permit the Total Interest Coverage Ratio to be less than (x) for any Test Period
ending prior to the first anniversary of the Original Effective Date, 2.0:1.0
and (y) for any Test Period ending thereafter, 2.25:1.0.
9.07 Unsecured Interest Coverage. Patriot REIT and the Borrower will
---------------------------
not permit the Unsecured Interest Coverage Ratio to be less than (x) for any
Test Period ending prior to the first anniversary of the Original Effective
Date, 2.0:1.0 and (y) for any Test Period ending thereafter, 2.25:1.0.
9.08 Fixed Charge Coverage. Patriot REIT and the Borrower will not
---------------------
permit the Fixed Charge Coverage Ratio to be less than 2.0:1.0 for any Test
Period.
9.09 Tangible Net Worth. Patriot REIT and the Borrower will not
------------------
permit Tangible Net Worth at any time to be less than Minimum Tangible Net
Worth.
9.10 Limitations on Indebtedness. (a) In addition to the other
---------------------------
restrictions on Indebtedness set forth in this Section 9.10, Patriot REIT and
the Borrower shall not permit Total Indebtedness to be greater than 55% of Total
Value at any time prior to the first anniversary of the Original Effective Date,
and shall not permit Total Indebtedness to be greater than 50% of Total Value at
any time thereafter.
(b) In addition to the other restrictions on Indebtedness set forth in
this Section 9.10, Patriot REIT and the Borrower shall not permit Total Secured
Indebtedness to be greater than 35% of Total Value at any time.
(c) In addition to the other restrictions on Indebtedness set forth in
this Section 9.10, Patriot REIT and the Borrower shall not permit Total Recourse
Secured Indebtedness at any time to be greater than the lesser of (x) 10% of
Total Value at such time and (y) $250,000,000. Additionally, in no event shall
Patriot REIT, the Borrower, any Guarantor, their respective Subsidiaries and
Eligible Borrowing Base Entities incur any Recourse Secured Indebtedness after
the Effective Date where the loan to value ratio for any property or group of
related properties subject to a single financing (based on the value shown in
the most recent Approved Appraisal of the assets secured thereby) relating
thereto exceeds 65%.
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9.11 Limitation on Certain Restrictions. Patriot REIT and the
----------------------------------
Borrower will not permit any Eligible Borrowing Base Entity, Unconsolidated
Entity or Subsidiary that is not a Wholly-Owned Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of it to (a) pay dividends or make any
other distributions on its capital stock or any other interest or participation
in its profits owned by Patriot REIT, the Borrower or any Guarantor or any of
their respective Subsidiaries, or pay any Indebtedness owed to Patriot REIT, the
Borrower, any Guarantor or any of their respective Subsidiaries, (b) make loans
or advances to Patriot REIT, the Borrower or any Guarantor or any of their
respective Subsidiaries or (c) transfer any of its properties or assets to
Patriot REIT, the Borrower or any Guarantor or any of their respective
Subsidiaries or grant liens or security interests thereon, except in each case
for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) this Agreement and the other Credit Documents, (iii)
customary provisions relating to Indebtedness or lease obligations to the extent
restricting (A) the transfer, assignability or the granting of liens, (B) the
making of loans or advances or (C) the paying of Dividends or the making of
other distributions, (iv) commercially reasonable restrictions in the
organizational documents of any such entity which do not prohibit such entity
from disposing or realizing the value of, any Eligible Hotel owned by it, or the
Stock or other form of ownership of any kind, and which (A) limit generally the
amount of Indebtedness which may be incurred by such entity, (B) limit the
amounts of obligations secured by Liens or (C) limit the transferability or
assignability of assets, (v) restrictions on transferability or assignability in
respect to Qualified Ground Leases, and (vi) restrictions created in connection
with the issuance of the preferred stock for the benefit of the holders thereof
in connection with the CHC Acquisition (or similar restrictions (or restrictions
which are more favorable to the Lenders) relating to preferred stock issued in
connection with other acquisitions). It is understood and agreed that any asset
that is Unencumbered shall be deemed not in violation of this Section 9.11.
SECTION 10. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each an "Event of Default"):
10.01 Payments. The Borrower shall (i) default in the payment when
--------
due of any principal of any Loan or any Note or (ii) default, and such default
shall continue unremedied for three or more Business Days, in the payment when
due of any Unpaid Drawings or interest on any Loan or Note, or any Fees or any
other amounts owing hereunder or under any other Credit Document; or
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10.02 Representations, etc. Any representation, warranty or
---------------------
statement made by any Credit Party herein or in any other Credit Document or in
any certificate delivered pursuant hereto or thereto shall prove to be untrue in
any material respect on the date as of which made or deemed made; or
10.03 Covenants. Any Credit Party shall (i) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(g)(i), Section 8.08 or Section 9 or (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in this Agreement (other than as provided in Section 10.01) and such
default shall continue unremedied for a period of 30 days after written notice
to the Borrower by the Administrative Agent or the Required Lenders; or
10.04 Default Under Other Agreements. (i) Patriot REIT, the
------------------------------
Borrower, any of the other Guarantors, or any of their respective Subsidiaries
shall (x) default in any payment of any Indebtedness (other than the Obligations
or any Non-Recourse Indebtedness) beyond the period of grace, if any, provided
in the instrument or agreement under which such Indebtedness was created or (y)
default in the observance or performance of any agreement or condition relating
to any Indebtedness (other than the Obligations or any Non-Recourse
Indebtedness) or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause (determined without regard to whether any
notice is required), any such Indebtedness to become due prior to its stated
maturity, (ii) any Indebtedness (other than the Obligations or any Non-Recourse
Indebtedness) of Patriot REIT, the Borrower, any of the other Guarantors, or any
of their respective Subsidiaries shall be declared to be due and payable, or
required to be prepaid other than by a regularly scheduled required prepayment,
prior to the stated maturity thereof, or (iii) there shall exist an Event of
Default under the Term Loan Agreement; provided that it shall not be a Default
--------
or an Event of Default under clauses (i) or (ii) of this Section 10.04 unless
the aggregate outstanding principal amount of all such Indebtedness as described
in such clauses (i) and (ii) is at least $10,000,000; or
10.05 Bankruptcy, etc. Patriot REIT, the Borrower, any of the other
----------------
Guarantors, or any of their respective Subsidiaries shall commence a voluntary
case concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries and the petition is not controverted within 60 days, or is not
dismissed within 60 days, after commencement of the case;
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or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or substantially all of the property of Patriot REIT, the
Borrower, any of the other Guarantors, or any of their respective Subsidiaries
or Patriot REIT, the Borrower, any of the other Guarantors, or any of their
respective Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to Patriot REIT, the Borrower, any of the other Guarantors, or
any of their respective Subsidiaries, or there is commenced against Patriot
REIT, the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries any such proceeding which remains undismissed for a period of 60
days, or Patriot REIT, the Borrower, any of the other Guarantors, or any of
their respective Subsidiaries is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is entered and is
not vacated or stayed within 60 days; or Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 60 days; Patriot
REIT, the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries makes a general assignment for the benefit of creditors; or any
trust, partnership and/or corporate action is taken by Patriot REIT, the
Borrower, any of the other Guarantors, or any of their respective Subsidiaries
for the purpose of effecting any of the foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
-----
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation 4043.61 (without regard to subparagraph (b)(1)
thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or
.68 or PBGC Regulation Section 4043 shall be reasonably expected to occur with
respect to such Plan within the following 30 days, any Plan shall have had or is
likely to have a trustee appointed to administer such Plan, any Plan is, shall
have been or is likely to be terminated or to be the subject of termination
proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a
contribution required to be made by Patriot REIT, the Borrower, any of their
respective Subsidiaries or any ERISA Affiliate to a Plan or a Foreign Pension
Plan has not been timely made, Patriot REIT, the Borrower or any of their
respective Subsidiaries or ERISA Affiliates has incurred or is likely to incur a
liability to or on account of a Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971,
4975 or 4980 of the Code or on account of a group health plan (as
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defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 4980B of the Code, or Patriot REIT, the Borrower or any of their
respective Subsidiaries or ERISA Affiliates has incurred or is likely to incur
liabilities pursuant to one or more employee welfare benefit plans (as defined
in Section 3(1) of ERISA) that provide benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or employee
pension benefit plans (as defined in Section 3(2) of ERISA) or Foreign Pension
Plans; (b) there shall result from any such event or events the imposition of a
lien, the granting of a security interest, or a liability or a material risk of
incurring a liability; and (c) such lien, security interest or liability,
individually and/or in the aggregate, will have a Material Adverse Effect; or
10.07 REIT Status. Patriot REIT shall cease, for any reason, to
-----------
maintain its status as a real estate investment trust under Sections 856 through
860 of the Code; or
10.08 Guaranties. The Patriot REIT Guaranty or the Amended and
----------
Restated Affiliate Guaranty shall cease to be in full force or effect as to any
Guarantor (except as expressly provided in the Amended and Restated Affiliate
Guaranty), or any Guarantor or Person acting by or on behalf of such Guarantor
shall deny or disaffirm such Guarantor's obligations under its Guaranty or any
Guarantor Event of Default shall occur; or
10.09 Judgments. One or more judgments or decrees shall be entered
---------
against Patriot REIT, the Borrower, any of the other Guarantors or any of their
respective Subsidiaries involving in the aggregate for Patriot REIT, the
Borrower, the other Guarantors and their respective Subsidiaries a liability
(not paid or not fully covered by a reputable and solvent insurance company) and
such judgments and decrees either shall be final and non-appealable or shall not
be vacated, discharged or stayed or bonded pending appeal for any period of 60
consecutive days, and the aggregate amount of all such judgments exceeds
$10,000,000; or
10.10 Change of Control. A Change of Control shall occur; or
-----------------
10.11 General Partner Status. Patriot REIT or a Wholly-Owned
----------------------
Subsidiary of Patriot REIT shall cease at any time to be the sole general
partner of the Borrower;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Lenders, shall by written notice to the Borrower, take any or all
of the following actions, without prejudice to the rights of the Administrative
Agent, any Lender or the
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holder of any Note to enforce its claims against any Credit Party (provided,
--------
that, if an Event of Default specified in Section 10.05 shall occur with respect
to the Borrower, the result which would occur upon the giving of written notice
by the Administrative Agent to the Borrower as specified in clauses (i) and (ii)
below shall occur automatically without the giving of any such notice): (i)
declare the Total Commitment terminated, whereupon all of the Commitments of
each Lender shall forthwith terminate immediately and any Commitment Fee shall
forthwith become due and payable without any other notice of any kind; and (ii)
declare the principal of and any accrued interest in respect of all Loans and
the Notes and all Obligations owing hereunder and thereunder to be, whereupon
the same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Credit Party; (iii) terminate any Letter of Credit which may be terminated in
accordance with its terms; and (iv) apply any cash collateral held pursuant to
this agreement to the payment of Obligations.
SECTION 11. Definitions and Accounting Terms.
--------------------------------
11.01 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acceptable Financial Information" shall mean financial information
which is audited, reviewed by accountants or in a form which is acceptable to
the Administrative Agent.
"Addition Date" shall mean with respect to any Eligible Hotels
acquired or designated after the Effective Date pursuant to Section 8.11, the
date on which such Eligible Hotel is so designated.
"Adjusted Actual NOI" shall mean, with respect to any Eligible Hotel
owned or leased pursuant to a Qualified Ground Lease by Patriot REIT, the
Borrower, any other Guarantor or any Eligible Borrowing Base Entity for any
period, (a) the aggregate Hotel Net Operating Income or Lease Net Operating
Income received by such Person from the operation of such Eligible Hotel, less a
deduction for FF&E Reserves for such Eligible Hotel (b) multiplied, in the case
of any Eligible Hotel owned or leased by such Person, by the Allocation
Percentage applicable to such Person.
"Adjusted Funds From Operations" shall mean, for any period, Patriot
REIT Net Income plus (a) the sum of the following amounts for such period to the
extent and on the same basis included in the determination of Patriot REIT Net
Income:
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(i) depreciation expense, (ii) amortization expense and other non-cash charges
with respect to real estate assets for such period, (iii) losses from Asset
Sales, losses resulting from restructuring of Indebtedness and other
extraordinary losses, and (iv) minority interests attributable to Borrower OP
Units; less (b) the sum of the following amounts for such period to the extent
and on the same basis included in the determination of Patriot REIT Net Income:
(i) gains from sales or dispositions of assets, gains resulting from
restructuring of Indebtedness and other extraordinary gains, and (ii) the
applicable shares of net income of Patriot REIT's and its Subsidiaries'
Unconsolidated Entities; plus (c) Patriot REIT's and its Subsidiaries'
Allocation Percentage of funds from operations (determined in a manner
consistent with this definition of Adjusted Funds From Operations) of Patriot
REIT's and its Subsidiaries' Unconsolidated Entities.
"Adjusted Hotel NOI" shall mean for any period with respect to any
Hotel that has Hotel Net Operating Income, the product of (a) the Allocation
Percentage of the owner (or lessee pursuant to a Qualified Ground Lease or other
ground lease) of such Hotel, times (b) the total with respect to such Hotel of
(i) Hotel Net Operating Income, plus (ii) actual Management Fees, plus (iii)
actual Franchise Fees, less (iv) the greater of 3% of Hotel Operating Revenues
or actual Management Fees, less (v) the greater of 7% of Gross Room Revenues or
actual Franchise Fees, and less (vi) the greater of 4% of Hotel Operating
Revenue and the FF&E Reserve.
"Adjusted Lease NOI" shall mean for any period with respect to any
Hotel that has Lease Net Operating Income, the product of (a) the Allocation
Percentage of the owner (or lessee pursuant to a Qualified Ground Lease or other
ground lease) of such Hotel, times (b) the total with respect to such Hotel of
(i) Lease Net Operating Income, plus (ii) actual Lessee Leakage, plus (iii)
actual Management Fees, less (iv) the greater of (A) the sum of actual Lessee
Leakage plus actual Management Fees and (B) 3% of Hotel Operating Revenues, and
less (v) the greater of 4% of Hotel Operating Revenue and the FF&E Reserve.
"Adjusted Total Commitment" shall mean at any time the Total
Commitment less the aggregate Commitments of all Defaulting Lenders.
"Administrative Agent" shall mean Chase, in its capacity as
Administrative Agent for the Lenders hereunder, and shall include any successor
to the Administrative Agent appointed pursuant to Section 12.09.
"Affiliate" shall mean, with respect to any Person, any other Person
(i) directly or indirectly controlling (including, but not limited to, all
directors, officers and partners of such Person) controlled by, or under direct
or indirect common control
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<PAGE>
with, such Person or (ii) that directly or indirectly owns more than 5% of any
class of the voting securities or capital stock of or equity interests in such
Person. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Affiliate Guarantor" shall mean (i) on the Effective Date, each
Subsidiary of Patriot REIT in existence on the Original Effective Date other
than the Borrower, PA Ravinia Partners, PAH Ravinia, Inc., PAH Windwatch
Partners, PAH Windwatch, LLC, PAH-DT Allen Partners, L.P., RLP, RLP II, PAH
Chicago O'Hare Partners, L.P., PAH-DT Miami Airport Partners, L.P., PAH-DT
Tallahassee Partners, L.P., PAH-DT Minneapolis Suites Partners, L.P., PAH-DT
Park Place Partners, L.P., PAH-DT Tulsa Partners, L.P., PAH Boulders, Inc.,
PAH Carefree, L.P., Carefree Resorts Corporation, RLP Telluride Inc., CV
Ranch-RLP II, Inc., PAH-Westlake, L.L.C., PAH-Akron, L.L.C., PAH-Beachwood I,
L.L.C. and PAH-Beachwood II, L.L.C., (ii) on the Effective Date, NPOC and each
of its Subsidiaries in existence on the Original Effective Date other than
Patriot Holding LLC and Patriot Horse Racing LLC and (iii) at any time, any
other Subsidiary of Patriot REIT or NPOC created or acquired after the Original
Effective Date which, at the election of Patriot REIT, executes and delivers to
the Administrative Agent a counterpart of the Amended and Restated Affiliate
Guaranty.
"Affiliated Operating Lease" shall mean an Operating Lease with an
Affiliated Operator substantially in the form delivered to, and found acceptable
by, the Administrative Agent.
"Affiliated Operator" shall mean a lessee under an Operating Lease
which is (i) NPOC or (ii) a Subsidiary of Patriot REIT or NPOC or any Eligible
Borrowing Base Entity.
"Aggregate Borrowing Base Value" shall mean at any time of
determination the sum of:
(i) in respect of Eligible Hotels owned or leased pursuant to a
Qualified Ground Lease by Patriot REIT, the Borrower, any other Guarantor
or any Eligible Borrowing Base Entity on such date (other than the Hotels
described in clause (ii) below), the sum of Adjusted Hotel NOI or Adjusted
Lease NOI (based on Acceptable Financial Information) from all such
Eligible Hotels for the preceding four Fiscal Quarters (including Fiscal
Quarters before acquisition of an ownership or leasehold interest by such
Person) capitalized at 10%; plus
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(ii) in respect of Eligible Hotels owned or leased pursuant to a
Qualified Ground Lease by Patriot REIT, the Borrower, any other Guarantor
or any Eligible Borrowing Base Entity on such date, (I) with respect to
which the Borrower has certified in writing to the Administrative Agent
either (i) that Patriot REIT, the Borrower or the respective Guarantor or
Eligible Borrowing Base Entity does not have, or is not able to reasonably
obtain financial information audited or reviewed by accountants for the
previous four Fiscal Quarters (including Fiscal Quarters before acquisition
of an ownership or leasehold interest by such Person) with respect to such
Eligible Hotels or (ii) the Borrower believes that the financial
information covering such Eligible Hotel (to the extent not audited or
reviewed by accountants) does not accurately reflect the historical
financial performance of such Eligible Hotel and (II) any Eligible Hotels
which are Refurbishment Hotels or Turnaround Hotels owned by such Person,
the sum of (a) 95% of such Person's Undepreciated Cost Basis in each such
Eligible Hotel, (b) multiplied in the case of each such Eligible Hotel by
the Allocation Percentage applicable to the Person which owns or ground
leases such Eligible Hotel; provided, that (x) no more than 15% of
--------
Aggregate Borrowing Base Value may be attributable to Refurbishment Hotels,
(y) no more than 7.5% of Aggregate Borrowing Base Value may be attributable
to Turnaround Hotels and (z) no more than 25% of Aggregate Borrowing Base
Value may be attributable to Eligible Hotels pursuant to this clause (ii);
plus
(iii) an amount equal to (a) the aggregate Eligible Service Fee
Revenue earned by Patriot REIT, the Borrower, any Guarantor or any Eligible
Borrowing Base Entity during the four Fiscal Quarters ending prior to such
date (b) multiplied by 3.5; provided, that the percentage of Aggregate
--------
Borrowing Base Value derived from such revenue paid by third parties
pursuant to this clause (iii) shall not exceed 10% of Aggregate Borrowing
Base Value;
provided further, that no more than 15% of Aggregate Borrowing Base Value may be
- ----------------
derived from Hotels located outside of the United States.
"Aggregate FF&E Reserve Contribution" shall mean for any period, the
total of (a) for Patriot REIT, the Borrower and each of the other Guarantors,
the FF&E Reserve, if any, of such Person, and (b) for each Subsidiary and
Unconsolidated Entity, (i) the FF&E Reserve, if any, of such Person, times (ii)
the applicable Allocation Percentage.
"Agreement" shall mean this Credit Agreement, as amended, modified or
supplemented from time to time.
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<PAGE>
"Allocation Percentage" shall mean, (i) with respect to Patriot REIT,
the Borrower or any other Guarantor, 100% and (ii) for any other Person, with
respect to such Person's Subsidiaries and Unconsolidated Entities, the
percentage ownership interest of such Person in such Subsidiary or
Unconsolidated Entity, respectively, provided that, for purposes of determining
any Person's Allocation Percentage of the Indebtedness of a Subsidiary or
Unconsolidated Entity for which such person is a general partner, such Person's
Allocation Percentage with respect to such Subsidiary or Unconsolidated Entity
shall be the percentage of the general partner interests owned by such Person in
such Subsidiary or Unconsolidated Entity with respect to any Indebtedness for
which recourse may be made against any general partner of such Subsidiary or
Unconsolidated Entity.
"Amended and Restated Affiliate Guaranty" shall have the meaning
provided in Section 5.05.
"Applicable Margin" shall mean, with respect to each Loan or
Commitment Fee at any date, the applicable percentage per annum set forth below
based upon the Status then in effect, it being understood that (x)(A) from the
Effective Date through February 15, 1998, the Applicable Margin shall be based
on the Status applicable on the Effective Date, (B) if on any date Level I
Status through Level IV Status is then in effect, the Applicable Margin shall be
based on the Status in effect on such date, and (C) if Level I Status through
Level IV Status is not then in effect, the Applicable Margin shall be based on
the Status in effect on the 45th day following the end of each Fiscal Quarter,
and such Applicable Margin shall be set until the Status is redetermined
pursuant to this clause (C) or until Level I Status through Level IV Status is
in existence, and (y) the Applicable Margin for (i) Base Rate Loans shall be the
percentage set forth under the column "Base Rate Loans", (ii) Eurodollar Rate
Loans shall be the percentage set forth under the column "Eurodollar Rate
Loans", and (iii) the Commitment Fee shall be the percentage set forth under the
column "Commitment Fee":
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<PAGE>
<TABLE>
<CAPTION>
Base Rate Eurodollar Commitment
Loans Rate Loans Fee
---------- ---------- ----------
<S> <C> <C> <C>
Level I 0% 1.00% 0.125%
Status
Level II 0% 1.125% 0.15%
Status
Level III 0% 1.25% 0.15%
Status
Level IV 0% 1.375% 0.20%
Status
Level V 0% 1.50% 0.20%
Status
Level VI 0.20% 1.70% 0.25%
Status
Level VII 0.35% 1.85% 0.30%
Status
Level VIII 0.50% 2.00% 0.35%
Status
</TABLE>
"Approved Appraisal" shall mean a FIRREA appraisal prepared by an MAI
appraiser reasonably satisfactory to the Administrative Agent.
"Approved Lender" shall have the meaning provided in the definition of
"Cash Equivalents."
"Appurtenant Rights" shall mean (i) all easements, rights of way or
use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to each Hotel or the improvements thereon, including, without limitation, the
use of any streets, ways, alleys, vaults or strips of land adjoining, abutting,
adjacent or contiguous to such Hotel and (ii) all permits, licenses and rights,
whether or not of record, appurtenant to such Hotel.
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<PAGE>
"Arranger" shall mean each of Paine Webber Real Estate Securities,
Inc. and The Chase Manhattan Bank.
"Asset Encumbrance" shall mean the placement of any Lien, claim or
encumbrance on any Hotel or any other assets, or group of related assets, with a
fair market value equal to or greater than $25,000,000 of Patriot REIT, the
Borrower, any other Guarantor or any of their respective Subsidiaries or
Unconsolidated Entities.
"Asset Sale" shall mean any sale, conveyance, transfer, assignment,
lease or other disposition (including, without limitation, by merger or
consolidation, and by condemnation, eminent domain, loss, damage, or
destruction, and whether by operation of law or otherwise) by Patriot REIT, the
Borrower, any of the other Guarantors or any of their respective Subsidiaries or
Unconsolidated Entities to any Person (other than to Patriot REIT, the Borrower,
any of the other Guarantors or any of their respective Subsidiaries or
Unconsolidated Entities) of any Stock (other than new issuances of Stock) of any
of its Subsidiaries, any Stock Equivalents (other than new issuances of Stock
Equivalents) of any of its Subsidiaries or any Hotel or any other assets, or
group of related assets, the fair market value of which is equal to or greater
than $25,000,000.
"Assignment and Assumption Agreement" shall mean an Assignment and
Assumption Agreement substantially in the form of Exhibit K (appropriately
completed).
"Authorized Financial Officer" of any Credit Party shall mean any of
the Chairman, President, Chief Financial Officer, the Treasurer or the Chief
Accounting Officer of such Credit Party, or in the case of the Borrower, the
Authorized Financial Officer of the general partner of the Borrower.
"Authorized Officer" of any Credit Party shall mean any of the
President, any Authorized Financial Officer or any Vice-President of such Credit
Party or any other officer of such Credit Party which is designated in writing
to the Administrative Agent by any of the foregoing officers of such Credit
Party as being authorized to give such notices under this Agreement.
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Base Rate" at any time shall mean the higher of (i) the rate of
interest announced publicly by Chase at its principal office, from time to time,
as Chase's base rate and (ii) the sum (adjusted to the nearest 1/8 of 1% or, if
there is no nearest 1/8 of
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<PAGE>
1%, to the next higher 1/8 of 1%) of (x) 1/2 of 1% per annum plus (y) the
Federal Funds Rate.
"Base Rate Loan" shall mean each Loan designated or deemed designated
as such by the Borrower at the time of the incurrence thereof or conversion
thereto.
"Best Knowledge" shall mean, with respect to any Person, the actual
knowledge of any member of the Senior Management of such Person.
"Borrower" shall have the meaning set forth in the first paragraph of
this Agreement.
"Borrower OP Units" shall mean the partnership units of the Borrower.
"Borrowing" shall mean the borrowing of one Type of Loan from all the
Lenders on a given date (or resulting from a conversion or conversions on such
date) having in the case of Eurodollar Loans the same Interest Period, provided
--------
that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered
part of the related Borrowing of Eurodollar Loans.
"Borrowing Base" shall mean (i) 55% of Aggregate Borrowing Base Value
prior to the first anniversary of the Original Effective Date and 50% of
Aggregate Borrowing Base Value thereafter, less (ii) the aggregate principal
amount of all unsecured Indebtedness for borrowed money (other than the Loans)
of, and the maximum amount available to be drawn under letters of credit
(excluding Letters of Credit) issued for the account of, Patriot REIT, the
Borrower, any other Guarantor or any Eligible Borrowing Base Entity.
"Borrowing Base Certificate" shall mean a certificate signed by an
Authorized Financial Officer of the Borrower in the form of Exhibit I.
"Borrowing Base Deficiency" shall have the meaning provided in Section
4.02(b).
"Brand Fees" shall mean the following items paid by an owner, lessee,
or operator of a Hotel other than an Independent Hotel to a franchisor: (a)
royalties, trademark, licensing, sales representation or other fees for the use
of a brand name for a chain or system of hotels and for participation in chain
or system marketing activities; (b) fees or other charges for access or use of
reservation systems and (c) preferred guest programs, mandatory franchisor
reimbursed costs and required advertising programs.
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<PAGE>
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and between
banks in the New York interbank Euro dollar market.
"Calculation Period" shall mean the period of four consecutive Fiscal
Quarters last ended before the date of the respective event or incurrence which
requires calculations to be made on a Pro Forma Basis.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under generally accepted accounting principles, are or will
be required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.
"Cash Available for Distribution" shall mean, for any period (i)
Adjusted Funds From Operations less (ii) the FF&E Reserves with respect to
Patriot REIT, its Subsidiaries and Unconsolidated Entities, multiplied by the
applicable Allocation Percentage.
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
--------
States of America is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any Lender or
(y) any bank whose short-term commercial paper rating from S&P is at least A-1
or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank or Lender, an "Approved Lender"), in each case with
maturities of not more than six months from the date of acquisition, (iii)
commercial paper issued by any Approved Lender or by the parent company of any
Approved Lender and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing within six months after
the date of acquisition, (iv) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing
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<PAGE>
within six months from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either S&P or
Moody's, (v) proceeds from the sale of any asset of Patriot REIT, the Borrower
or any other Guarantor or any of their respective Subsidiaries held in trust by
any Approved Lender or other Person satisfactory to the Administrative Agent for
not more than six months in connection with a proposed like-kind transaction
under Section 1031 of the Code and (vi) investments in money market funds
substantially all the assets of which are comprised of securities of the types
described in clauses (i) through (iv) above.
"Casualty Event" shall mean any theft, loss, physical destruction,
damage or similar event with respect to any Hotel (or any portion thereof).
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.CA. (S) 9601 et seq.
-- ----
"Change of Control" shall mean any of the following events: (i) the
failure of Patriot REIT, or a Wholly-Owned Subsidiary of Patriot REIT, to be the
sole general partner of the Borrower; (ii) the acquisition, directly or
indirectly, by any one "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) of more than 30% of the common stock of Patriot REIT;
or (iii) during any period of 24 consecutive calendar months, individuals who at
the beginning of such period constituted the Board of Directors of Patriot REIT
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders or members, as the case may
be, of Patriot REIT was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of such Board of Directors then in office;
provided, that no Change of Control shall be deemed to have occurred as a result
- --------
of the Wyndham Transaction.
"Chase" shall mean The Chase Manhattan Bank, in its individual
capacity.
"CHC Acquisition" shall mean the acquisition by Patriot REIT and its
Affiliates of Carnival Hotel Corporation, Inc. and its Affiliates, including
without limitation the transactions contemplated pursuant to a certain Agreement
and Plan of Merger by and among Patriot REIT, the Borrower and CHC
International, Inc.
"Claims" shall have the meaning provided in the definition of
"Environmental Claims."
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<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder. Section references to
the Code are to the Code, as in effect at the date of this Agreement, and to any
subsequent provision of the Code, amendatory thereof, supplemental thereto or
substituted therefor.
"Commitment" shall mean, for each Lender, (i) prior to the Increase
Effective Date, the amount set forth opposite such Lender's name in Schedule I-A
hereto, and (ii) upon the occurrence of the Increase Effective Date, the amount
set forth on Schedule I-B hereto (it being understood and agreed that any change
in the Commitments evidenced thereby shall occur automatically on the Increase
Effective Date and shall not be contingent on the occurrence of any other event
or any consent or action by any party), in each case as such amount may be (x)
reduced from time to time pursuant to Sections 3.02, 3.03, and/or 10 or (y)
adjusted from time to time as a result of assignments to or from such Lender
pursuant to Section 1.13 or 13.04(b).
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
"Company Combined Basis" shall mean, with respect to any financial
statement, that such statement is calculated on a consolidated basis for each of
Patriot REIT and its Subsidiaries and NPOC and its Subsidiaries and that such
calculations are then combined in accordance with GAAP.
"Condemnation Proceeds" shall mean all compensation, awards, damages,
rights of action and proceeds awarded to any Credit Party by reason of any
Taking.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee (including, without
limitation, as a result of such Person being a general partner of the other
Person, unless the underlying obligation is expressly made non-recourse as to
such general partner) any Indebtedness, leases, dividends or other obligations
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of any
such primary obligation or (y) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the holder of such primary obligation
against loss in respect thereof in the manner of a guaranty; pro-
----
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<PAGE>
vided, however, that the term Contingent Obligation shall not include
- ----- -------
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Credit Documents" shall mean this Agreement and, after the execution
and delivery thereof pursuant to the terms of this Agreement, each Note and the
Amended and Restated Affiliate Guaranty.
"Credit Event" shall mean the making of any Loan or the issuance of
any Letter of Credit.
"Credit Party" shall mean Patriot REIT, the Borrower and each other
Guarantor.
"Crow Transaction" shall mean the transaction by which Patriot REIT
shall acquire certain hotel assets pursuant to the acquisition agreement (as
amended, the "Crow Acquisition Agreement") entered into by Patriot REIT dated
April 14, 1997.
"Crow Transaction Documents" shall mean the Crow Acquisition
Agreement and all other documents and agreements entered into in connection with
the Crow Transaction.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
"Determination Date" shall have the meaning provided in the definition
of Pro Forma Basis.
"Dividends" with respect to any Person shall mean that such Person has
declared or paid a dividend or returned any equity capital to its stockholders
or partners or authorized or made any other distribution, payment or delivery of
property (other than common stock of such Person) or cash to its stockholders or
partners as such, or redeemed, retired, purchased or otherwise acquired,
directly or indirectly, for a consideration any shares of any class of its
capital stock or any partnership interests
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<PAGE>
outstanding on or after the Effective Date (or any options or warrants issued by
such Person with respect to its capital stock or partnership interest), or set
aside any funds for any of the foregoing purposes, or shall have permitted any
of its Subsidiaries to purchase or otherwise acquire for a consideration any
shares of any class of the capital stock or any partnership interests of such
Person outstanding on or after the Effective Date (or any options or warrants
issued by such Person with respect to its capital stock or partnership
interest).
"Documentation Agent" shall mean PaineWebber Real Estate Securities,
Inc.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Drawing" shall have the meaning provided in Section 2.04(a).
"EBITDA" shall mean, for any Person for any period, the net income of
such Person for such period, plus (a) the sum of the following amounts of such
Person for such period determined in conformity with GAAP to the extent included
in the determination of such net income: (i) depreciation expense, (ii)
amortization expense and other non-cash charges, (iii) interest expense, (iv)
income tax expense, (v) extraordinary losses (and other losses on Asset Sales
not otherwise included in extraordinary losses determined in conformity with
GAAP), and (vi) minority interests attributable to the OP Units, less (b)
extraordinary gains of such Person determined in conformity with GAAP to the
extent included in the determination of such net income (and other gains on
sales or other dispositions or assets not otherwise included in extraordinary
gains determined in conformity with GAAP).
"Effective Date" shall have the meaning provided in Section 13.10
"Eligible Borrowing Base Entity" shall mean any joint venture,
corporation, partnership or other business entity which is not the Borrower or a
Guarantor in which Patriot REIT, the Borrower or any Guarantor (i) owns directly
or indirectly at least 50%, but less than 100%, of the ownership interest
therein, (ii) is the managing general partner, or equivalent thereof, for such
entity and/or (iii) has the sole and exclusive authority and power to encumber
any Hotel owned or leased by such entity; provided, that the following shall
--------
also be Eligible Borrowing Base Entities: PAH Ravinia, Inc. and PAH Windwatch,
LLC.
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<PAGE>
"Eligible Hotel" shall mean each Hotel owned or leased pursuant to a
Qualified Ground Lease by Patriot REIT, the Borrower, any of the other
Guarantors, or any Eligible Borrowing Base Entity as shall meet at any time and
from time to time, each of the following minimum criteria:
(a) such Hotel is Unencumbered;
(b) such Hotel is free of all material structural and title defects;
(c) such Hotel is (i) in compliance, in all material respects, with
all applicable Environmental Laws, and (ii) not subject to any
material Environment Claims;
(d) such Hotel is fully-operating with less than 20% of rooms out of
service due to casualty;
(e) such Hotel is either a Refurbishment Hotel or a Turnaround Hotel
or is operating free of material construction or structural
renovation, such that no more than 25% of rooms are out of
service;
(f) such Hotel is leased to an Operator pursuant to an Operating
Lease; and
(g) such Hotel is (i) owned in fee simple or (ii) leased pursuant to
a Qualified Ground Lease in favor of, Patriot REIT, the Borrower,
a Guarantor or an Eligible Borrowing Base Entity;
provided that, if a Hotel is owned by an Eligible Borrowing Base Entity which
owns more than a single Hotel, such Hotel shall only be an Eligible Hotel if all
such Hotels are Eligible Hotels.
"Eligible Hotel Documents" shall mean, with respect to each Eligible
Hotel, each of the following:
(i) A copy of the most recent ALTA or other prescribed form of
Owner's Policy of Title Insurance (or commitment to issue such a policy to
the Credit Party owning or to own such Hotel) relating to such Hotel
showing the identity of the fee titleholder thereto and all matters of
record as of its date;
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<PAGE>
(ii) recent Phase I environmental assessments on such Hotel from an
independent environmental firm dated no earlier than one year prior to the
date of such request, and any additional environmental studies or
assessments available to the Borrower performed with respect to such Hotel;
(iii) copies of all engineering, mechanical, structural and
maintenance studies performed by third party consultants with respect to
such Hotel;
(iv) a true and correct copy of any Third Party Operating Lease for
such Hotel;
(v) true and correct copies of any management agreements or
franchise agreements entered into in respect of such Hotel to the extent
not included in the Operating Lease; and
(vi) if such Hotel is owned pursuant to a Qualified Ground Lease, a
copy of such lease together with all and any amendments thereto or
modifications thereof.
"Eligible Service EBITDA" shall mean for any period, 50% of Eligible
Service Fee Revenue for such period.
"Eligible Service Fee Revenue" shall mean for any period with respect
to Patriot REIT, the Borrower, any other Guarantor or any Eligible Borrowing
Base Entity:
(a) without duplication, and to the extent Unencumbered (i) with
respect to Hotels managed or franchised by such Person pursuant to an
Affiliated Operating Lease the revenues received during such period by such
Person with respect to such Hotels, calculated as (x) a Management Fee
equal to the greater of (A) 3% of Hotel Operating Revenues and (B) actual
Management Fees and (y) with respect to Hotels which are franchised to a
brand controlled by Patriot REIT, any other Guarantor or any Eligible
Borrowing Base Entity, franchise costs equal to the greater of (A) 7% of
Gross Room Revenues and (B) actual Brand Fees, (ii) Lessee Leakage received
by such Person in respect of Non-Owned Hotel Operating Leases, (iii)
recurring accounting asset management and purchasing fees received from any
Person and (iv) with respect to Hotels managed or franchised by such Person
pursuant to a management, franchise or license agreement with parties which
are not Affiliates of such Person, the revenues received during such period
by such Person pursuant to such management, franchise or license agreement
which is satisfactory to the
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Administrative Agent with respect to (w) the term thereof, (x) the fees
payable thereunder, (y) the termination rights thereunder and (z) the
identity of the other parties to such agreement. Notwithstanding the
foregoing, Eligible Service Fee Revenue with respect to agreements
described in clause (iv) above shall exclude the following: (1) all such
revenues (or the portion thereof) that shall be subject to reduction,
repayment or adjustment in any subsequent period other than normal year-end
adjustments, (2) all such revenues (or the portion thereof) that shall
constitute payments of principal, interest, dividends or other amounts in
respect of the return of or return on any investment or guaranty, as
determined by the Administrative Agent in its sole discretion, (3) all such
revenues (or the portion thereof) that are payable in consideration of or
otherwise in respect of the amendment, modification, extension, expiration,
cancellation or termination of such management agreement or franchise
agreement, as the case may be, (4) except as expressly described in clause
(a)(iii) above, all such revenues (or the portion thereof) that are payable
in consideration of or otherwise in respect of the performance of any
service not directly related to the management or operation of a hotel
property, including, without limitation, fees or other amounts payable for
design, construction management and construction purchasing services and
(5) fees or charges received on a nonrecurring basis from the management,
leasing, franchising, or licensing of Hotels or Hotel related services or
intellectual property; and
(b) multiplied as to each component by the Allocation Percentage
applicable to such Person.
"Eligible Transferee" shall mean (i) a commercial bank or Federal
savings bank organized under the laws of the United States, or any State
thereof, and having total assets in excess of $5,000,000,000; (ii) a commercial
bank organized under the laws of any other country which is a member of the
OECD, or a political subdivision of any such country, and having total assets in
excess of $5,000,000,000, provided that such bank is acting through a branch or
agency located in the country in which it is organized or another country which
is also a member of the OECD or the Cayman Islands; (iii) the central bank of
any country which is a member of the OECD; corporation organized under the laws
of the United States, or any State thereof, and having total assets in excess of
$3,000,000,000; (iv) an insurance company organized under the laws of the United
States, or any State thereof, and having total assets in excess of
$5,000,000,000; (v) any Lender; (vi) any Affiliate of any Lender; and (vii) any
Person other than an Affiliate of a Credit Party, in each case acceptable (a) to
the Administrative Agent, and (b) provided no Default or Event of Default
exists, to the Borrower, which acceptance will not be unreasonably withheld,
conditioned or delayed.
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"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any Environmental Law (hereafter "Claims") or any permit issued
under any such law, including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any applicable Federal, state, foreign
or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgement relating to the environment, employee health
and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA;
the Federal Water Pollution Control Act, 33 U.S.CA. (S) 2601 et seq., the Clean
-- ----
Air Act, 42 U.S.CA. (S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.CA.
-- ----
(S) 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.CA. (S) 2701 et seq.;
-- ---- -- ----
the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.CA.
(S) 11001 et seq., the Hazardous Material Transportation Act, 49 U.S.CA. (S)
-- ----
1801 et seq. and the Occupational Safety and Health Act, 29 U.S.CA. (S) 651 et
-- ---- --
seq. (to the extent it regulates occupational exposure to Hazardous Materials);
- ----
and any state and local or foreign counterparts or equivalents, in each case as
amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with Patriot REIT, the Borrower, any Guarantor or any
Subsidiary of any such Person would be deemed to be a "single employer" within
the meaning of Section 414(b),(c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean each Loan designated as such by the
Borrower at the time of the incurrence thereof or conversion thereto.
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"Eurodollar Rate" means, for any Interest Period, an interest rate per
annum equal to the rate per annum obtained by multiplying (a) a rate per annum
equal to the rate for U.S. dollar deposits with maturities comparable to such
Interest Period which appears on Telerate Page 3750 as of 11:00 a.m., London
time, two (2) Business Days prior to the commencement of such Interest Period,
provided, however, that if such rate does not appear on Telerate Page 3750, the
"Eurodollar Rate" applicable to a particular Interest Period shall mean a rate
per annum equal to the rate at which U.S. dollar deposits in an amount
approximately equal to the Principal Balance (or the portion thereof which will
bear interest at a rate determined by reference to the Eurodollar Rate during
the Interest Period to which such Eurodollar Rate is applicable in accordance
with the provisions hereof), and with maturities comparable to the last day of
the Interest Period with respect to which such Eurodollar Rate is applicable,
are offered in immediately available funds in the London Interbank Market to the
London office of Chase by leading banks in the Eurodollar market at 11:00 a.m.,
London time, two (2) Business Days prior to the commencement of the Interest
Period to which such Eurodollar Rate is applicable, by (b) a fraction (expressed
as a decimal) the numerator of which shall be the number one and the denominator
of which shall be the number one minus the Eurodollar Rate Reserve Percentage
for such Interest Period.
"Eurodollar Rate Reserve Percentage" for any Interest Period means the
aggregate reserve percentages (expressed as a decimal) from time to time
established by the Board of Governors of the Federal Reserve System of the
United States and any other banking authority to which any of the Lenders are
now or hereafter subject, including, but not limited to any reserve on
Eurocurrency Liabilities as defined in Regulation D of the Board of Governors of
the Federal Reserve System of the United States at the ratios provided in such
Regulation from time to time, it being agreed that any portion of the Principal
Balance bearing interest at a rate determined by reference to the Eurodollar
Rate shall be deemed to constitute Eurocurrency Liabilities, as defined by such
Regulation, and it being further agreed that such Eurocurrency Liabilities shall
be deemed to be subject to such reserve requirements without benefit of or
credit for prorations, exceptions or offsets that may be available to any of the
Lenders from time to time under such Regulation and irrespective of whether such
Lender actually maintains all or any portion of such reserve.
"Event of Default" shall have the meaning provided in Section 10.
"Excluded Unconsolidated Entity" shall mean any Person which would be
an Unconsolidated Entity (without giving effect to the parenthetical in the
definition thereof) designated as an Excluded Unconsolidated Entity by written
notice from the Borrower to the Administrative Agent so long as (i) the maximum
liability of Patriot REIT, the Borrower, the other Guarantors, their respective
Subsidiaries and the
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Unconsolidated Entities to or on the behalf of such Excluded Unconsolidated
Entity is limited to the Investments made, or to be made by such Person in
compliance with all the limitations on such Investments under this Agreement, in
such Excluded Unconsolidated Entity and (ii) the obligations of such Excluded
Unconsolidated Entity are otherwise without recourse (other than claims in
respect of customary indemnities and non-recourse covenants) to Patriot REIT,
the Borrower, the other Guarantors, their respective Subsidiaries and the
Unconsolidated Entities, and/or any of their respective assets.
"Existing Indebtedness" shall have the meaning provided in Section
7.19.
"Extended-Stay Hotel" shall mean a Hotel which may reasonably be
categorized as one which (i) primarily services guests needing accommodations
for a period of five days or longer, (ii) offers limited or no food or beverage
facilities or meeting space, (iii) offers services and facilities designed to
appeal to longer-term residents, such as grocery shopping and laundry services,
(iv) offers some type of kitchen facility, and (v) quotes rates on a weekly or
monthly basis (e.g., hotels operated as Residence Inns by Marriott, Homewood
Suites, Candlewood Suites and Suburban Lodges).
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 3.01.
"FF&E" shall mean, with respect to any Hotel, any furniture, fixtures
and equipment, including any beds, lamps, bedding, tables, chairs, sofas,
curtains, carpeting, smoke detectors, mini bars, paintings, decorations,
televisions, telephones, radios, desks, dressers, towels, bathroom equipment,
heating, cooling, lighting, laundry, incinerating, loading, swimming pool,
landscaping, garage and power equipment, machinery, engines, vehicles, fire
prevention, refrigerating, ventilating and
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communications apparatus, carts, dollies, elevators, escalators, kitchen
appliances, restaurant equipment, computers, reservation systems, software, cash
registers, switchboards, cleaning equipment or any other items of furniture,
fixtures and equipment typically used in hotel properties (including furniture,
fixtures and equipment used in guest rooms, lobbies and common areas).
"FF&E Reserve" shall mean, with respect to any Hotel for any period,
the actual reserve required under the Operating Lease for such Hotel, provided,
--------
that if the Operating Lease does not create contractual FF&E obligations, or
such Hotel is not subject to an Operating Lease, the FF&E Reserve for such Hotel
shall be a reserve equal to 4% of Gross Revenues from such Hotel for such
period.
"Fiscal Quarter" shall mean each fiscal quarter of the Borrower ending
on March 31, June 30, September 30 and December 31 of each calendar year.
"Fiscal Year" shall mean each fiscal year of the Borrower ending on
December 31 of each calendar year.
"Fixed Charge Coverage Ratio" shall mean, for any Test Period, the
ratio of (i) Total Adjusted EBITDA for such Test Period plus EBITDA of each
Excluded Unconsolidated Entity multiplied by the applicable Allocation
Percentage to (ii) the sum of (w) Total Interest Expense for such Test Period,
(x) all scheduled principal amortization payments (excluding final payments due
at maturity) on Total Indebtedness made during such Test Period, (y) preferred
stock dividends (excluding dividends in respect of preferred stock issued in
connection with the CHC Acquisition or other acquisitions to the extent such
dividends are paid on a non-fixed basis which is the functional equivalent of
paying dividends in respect of the common stock of Patriot REIT (or on a basis
which is more favorable to the Lenders)) accrued by Patriot REIT or NPOC during
such Test Period and (z) interest expense (including capitalized interest) and
scheduled principal amortization payments (excluding final payments due at
maturity) on Indebtedness of Excluded Unconsolidated Entities multiplied by the
applicable Allocation Percentage.
"Foreign Pension Plan" means any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by the Borrower or any one or
more of its Affiliates primarily for the benefit of employees of the Borrower or
such Affiliates residing outside the United States of America, which plan, fund
or other similar program provides, or results in, retirement income, a deferral
of income in contemplation of retirement or payments to be made upon termination
of employment, and which plan
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is not subject to ERISA or the Code, and as to which plan Patriot REIT, the
Borrower or any Guarantor has any material liability.
"Forward Purchase Obligations" shall mean obligations to purchase
Hotels and related property upon the completion of construction or renovation
thereof, or upon the occurrence of another future contingency (excluding
obligations under purchase, sale and acquisition agreements entered into in the
ordinary course of business).
"Franchise Fees" shall mean the sum of (a) in respect of Hotels other
than Independent Hotels, Brand Fees plus (b) in respect of Independent Hotels,
Hotel Marketing Expenses.
"Full-Service Hotel" shall mean a Hotel (including an all-suites
Hotel) which may reasonably be categorized as one which offers customary food
and beverage facilities and room service.
"GAAP" shall have the meaning provided in Section 13.07(a).
"Gross Revenues" shall mean all revenues derived from the operation of
Hospitality/Leisure-Related Businesses.
"Gross Room Revenues" shall mean revenues derived from the sale of
room nights.
"Guaranteed Obligations" shall mean all obligations of the Borrower to
each Lender for the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of the principal and interest on each
Note issued by the Borrower to such Lender, and Loans made, under this Agreement
and all reimbursement obligations and Unpaid Drawings with respect to Letters
of Credit, together with all the other obligations and liabilities (including,
without limitation, indemnities, fees and interest thereon) of the Borrower to
such Lender now existing or hereafter incurred under, arising out of or in
connection with the Agreement or any other Credit Document and the due
performance and compliance with all the terms, conditions and agreements
contained in the Credit Documents by the Borrower.
"Guarantor" shall mean each Affiliate Guarantor and Patriot REIT, in
its capacity as guarantor under Section 14.
"Guarantor Event of Default" shall have the meaning provided in the
Amended and Restated Affiliate Guaranty.
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"Guaranty" shall mean and include each of the Amended and Restated
Affiliate Guaranty and the Patriot REIT Guaranty.
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law.
"Hospitality/Leisure-Related Business" shall mean the hotel, resort,
extended stay lodging, other hospitality, vacation or timeshare business or any
casino (but only if part of a Hotel and not as a stand-alone or primary
business), senior living (excluding congregate care) or recreational business
and other businesses incidental to, or in support of such business, including
without limitation, (i) developing, managing, operating, improving or acquiring
lodging facilities, restaurants and other food-service facilities, golf
facilities or other entertainment facilities or club, convention or meeting
facilities and marketing services or reservation systems related thereto, and
(ii) acquiring, developing, managing or improving any real estate ancillary or
connected to any hotel, resort, extended stay lodging, other hospitality-related
business, casino (but only if a part of a Hotel and not as a stand-alone or
primary business), senior living (excluding congregate care) or recreational
business or reservation system constructed, leased, owned, managed or operated
(or proposed to be constructed, leased, owned, managed or operated) by Patriot
REIT, the Borrower, the other Guarantors or any of their Subsidiaries at any
time; provided, that the operation of a horse racing facility and pari-mutuel
wagering in the manner so operated on the Effective Date shall be permitted.
"Hotel" shall mean any Real Property (including Improvements thereon
and any retail, golf, tennis, spa or other resort amenities appurtenant thereto)
comprising an operating facility offering hotel or lodging services.
"Hotel Marketing Expenses" shall mean expenses (excluding wages and
salaries) accrued by an owner, lessee, or operator of a Hotel (including an
Independent Hotel) for the following: (a) promotional and advertising expenses;
(b) direct sales activities; (c) costs for promotional items or events,
including the occupancy or use of Hotel facilities on a discounted or free
basis; (d) fees, charges, or other costs of any reservation or referral system,
or joint marketing arrangement; and (e) other expenses
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(excluding wages and salaries) directly and substantially related to the
marketing of the Hotel and the sale of room, food and beverage, or other
services or facilities of the Hotel.
"Hotel Net Operating Income" shall mean, with respect to any Hotel
owned or leased pursuant to a Qualified Ground Lease or ground lease by any
Person, for any period, Hotel Operating Revenues less Hotel Operating Expenses.
"Hotel Operating Expenses" shall mean with respect to any Hotel, all
fixed and variable operating expenses relating specifically to such Hotel except
for (i) depreciation, amortization, or other noncash charges, (ii) principal or
interest payments on account of any indebtedness related to the Hotel or rent
payable under any capital lease, (iii) rent or other charges payable to the
lessor under any Operating Lease, (iv) income taxes, (v) extraordinary losses,
and (vi) capital expenditures of any kind as determined in accordance with GAAP.
"Hotel Operating Revenues" shall mean, for any Hotel all cash revenues
and receipts of every kind derived from operating such Hotel and parts thereof,
including, but not limited to: income (from both cash and credit transactions),
before commissions and discounts for prompt or cash payments, from rental or
sales of rooms, gift shops, meeting, exhibit, conference center or sales space
of every kind; retail operations; license, lease and concession fees and rentals
(not including gross receipts of licensees, lessees and concessionaires); golf,
club and spa operations; income from telephone and facsimile charges; income
from vending machines; food and beverage sales; sales of merchandise (other than
proceeds from the sale of FF&E no longer necessary to the operation of such
Hotel); service charges, to the extent not distributed to the employees at such
Hotel as, or in lieu of, gratuities; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Hotel
-------- -------
Operating Revenues shall not include the following: gratuities to employees of
such Hotel, federal, state or municipal excise, sales, use or similar taxes
collected directly from patrons or guests or included as part of the sales price
of any goods or services; insurance proceeds (other than proceeds from business
interruption or other loss of income insurance); condemnation proceeds; any
proceeds from any sale or other disposition of such Hotel.
"Improvements" shall mean all buildings, structures, fixtures, tenant
improvements and other improvements of every kind and description now or
hereafter located in or on or attached to any Real Property, including all
building materials, water, sanitary and storm sewers, drainage, electricity,
steam, gas, telephone and other utility facilities, parking areas, roads,
driveways, walks and other site improvements;
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and all additions and betterments thereto and all renewals, substitutions and
replacements thereof.
"Increase Effective Date" shall mean such date, occurring after the
Effective Date and on or before January 31, 1998, upon which the Administrative
Agent shall have received a certificate, signed by an Authorized Officer of
Patriot REIT, in the form of Exhibit F-2 with appropriate insertions, which
certificate shall represent and warrant that (i) the Wyndham Transaction has
been consummated, (ii) the Wyndham Documents have been duly executed and
delivered by the parties thereto and shall be in full force and effect, (iii)
all conditions precedent to the Wyndham Transaction as set forth in the Wyndham
Documents have been satisfied, and not waived except with the consent (which
will not be unreasonably withheld) of each Arranger, to the satisfaction of each
Arranger, (iv) the Wyndham Transaction has been consummated in accordance with
the Wyndham Documents and all applicable law (excluding violations of law which
could not reasonably be expected to have, in the aggregate for all such
violations, a Material Adverse Effect), and (v) true and correct copies of the
Wyndham Documents have been delivered to the Arrangers; provided, that the
--------
Increase Effective Date shall not occur on such date unless, after giving effect
to the Wyndham Transaction, nothing shall have occurred (and neither the Lenders
nor the Arrangers shall have become aware of any facts or conditions not
previously known) which the Arrangers or the Required Lenders determine (i) has,
or is reasonably likely to have, a material adverse effect on the rights or
remedies of the Lenders or the Arrangers, or on the ability of the Credit
Parties to perform their obligations to them, or (ii) has, or is reasonably
likely to have, a Material Adverse Effect.
"Increasing Lender" shall mean each Lender whose Commitment is
increased on the Increase Effective Date as set forth on Schedule I-B.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property
(including Forward Purchase Obligations) or services, (ii) the maximum amount
available to be drawn under all letters of credit issued for the account of such
Person and all unpaid drawings in respect of such letters of credit, (iii) all
Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or
(vii) of this definition secured by any Lien on any property owned by such
Person, whether or not such Indebtedness has been assumed by such Person, (iv)
the aggregate amount required to be capitalized in accordance with GAAP under
leases under which such Person is the lessee, (v) all obligations of such person
to pay a specified purchase price for goods or services, whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all
----
Contingent Obligations of such Person, and (vii) all obligations under any
Interest Rate Protection Agreement or
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under any similar type of agreement or arrangement; provided, that Indebtedness
--------
shall not include (a) trade payables incurred in the ordinary course of
business, (b) operating lease obligations (including, without limitation, the
lessee's obligations under (i) the eleven (11) Lease Agreements dated as of May
2, 1996 and/or May 3, 1996 originally between HPTWN Corporation, as lessor, and
Garden Hotel Associates Two LP, as lessee (subsequently assigned to GHALP
Corporation, as lessee), (ii) the Lease dated as of January 8, 1997 originally
between HPTSLC Corporation, as lessor, and WHC Salt Lake City Corporation, as
lessee, and (iii) any other operating lease pursuant to which Patriot REIT, the
Borrower, any of the other Guarantors or any of their respective Subsidiaries or
Unconsolidated Entities, as lessee, leases all or any portion of a Hotel from
the holder of a superior interest in such Hotel, as lessor), (c) short term
notes evidencing earnest money deposits until delivered to the payee and (d) at
the time of determination of outstanding Indebtedness at any time, the aggregate
amount of Forward Purchase Obligations not in excess of $150,000,000 then
outstanding.
"Independent Hotel" shall mean a Hotel which is not associated or
designated to become associated within six months of such designation with a
nationally or regionally recognized hotel or resort brand or franchise or hotel
membership organization encompassing at least 5 Hotels, provided, that
--------
notwithstanding the foregoing, Hotels operating under any of the names of Grand
Heritage, Carefree, and to the extent the right to use or ownership is acquired,
West Coast, Homegate, Club House, Grand Bay, Registry and Carnival shall not be
considered Independent Hotels.
"Initial Eligible Hotels" shall mean the Hotels listed on Schedule IV
and designated as Eligible Hotels.
"Insurance Proceeds" shall mean all insurance proceeds, damages,
claims and rights of action and the right thereto under any insurance policies
relating to any portion of any Hotel.
"Intangible Asset" shall mean, with respect to any Person, a long-
lived asset that is useful in the operations of such Person, that is not
directly used in revenue generation and is not held for sale, and is without
physical qualities, including but not limited to patents, copyrights and
goodwill, but excluding capitalized costs associated with the acquisition of
brand names, franchises and trademarks, franchise agreements and management
agreements.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
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"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedging agreement, interest rate floor agreement or other similar agreement
or arrangement.
"Investment" shall have the meaning provided in Section 9.04.
"Issuing Lender" shall mean the Administrative Agent and any Lender
which at the request of the Borrower and with the consent of the Administrative
Agent agrees, in such Lender's sole discretion, to become an Issuing Lender for
the purpose of issuing Letter of Credit pursuant to Section 2.
"L/C Supportable Obligations" shall mean (i) obligations of Patriot
REIT, the Borrower, the other Guarantors, or any of their respective
Subsidiaries incurred in the ordinary course of business with respect to
insurance obligations and workers' compensation, surety bonds and other similar
statutory obligations, (ii) earnest money or performance obligations in respect
of acquisitions permitted pursuant to the terms of this Agreement and (iii) such
other obligations of Patriot REIT, the Borrower, the other Guarantors, or any of
their respective Subsidiaries as are permitted to exist pursuant to the terms of
this Agreement.
"Lease Net Operating Income" shall mean, with respect to any Hotel
owned or leased pursuant to a Qualified Ground Lease or other ground lease by
any Person for any period, and leased pursuant to a Third Party Operating Lease,
the sum of the following (without duplication): (a) all gross income, revenues,
receipts and all other consideration received by such Person under the Operating
Lease for such Hotel, including, without limitation, base rent, percentage and
similar rentals, late charges and interest payments, but excluding extraordinary
income and, until earned, security deposits, prepaid rents and other refundable
receipts, minus (b) all expenses incurred by such Person during such period
pursuant to its obligations as lessor under the Operating Lease for such Hotel,
including, without limitation, real estate taxes, personal property taxes,
maintenance and repair costs of a non-capital nature for the structural portions
of such Hotels and premiums payable for insurance required to be carried by such
Person on or with respect to such Hotels pursuant to the Operating Lease
therefor, but excluding extraordinary expenses.
"Leasehold" of any Person shall mean all of the right, title and
interest of such Person as lessee or licensee in, to and under any lease or
license of land, improvements and/or fixtures.
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"Legal Requirements" shall mean all Federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting each Hotel, the improvements on
such Hotel or the demolition, construction, use or alteration thereof, whether
now or hereafter enacted and in force, including any that require repairs,
modifications or alterations in or to such Hotel or in any way limit the use and
enjoyment thereof (including all building, zoning and fire codes and the
Americans with Disabilities Act of 1990, 42 U.S.C. (S) 12101 et seq. and any
-- ----
other similar Federal, state or local laws or ordinances and the regulations
promulgated thereunder) and any that may relate to environmental requirements
(including all Environmental Laws), and all permits, certificates of occupancy,
licenses, authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances affecting such Hotel, the Appurtenant
Rights and any easements, licenses or other agreements entered respect to such
Hotel.
"Lender" shall mean each financial institution listed on Schedule I-A
or I-B, as the case may be, and any Person which becomes a "Lender" hereunder
pursuant to Sections 1.13 and/or 13.04(b).
"Lender Default" shall mean (i) the refusal (which has not been
retracted) of a Lender to make available its portion of any Borrowing or to fund
its portion of any unreimbursed payment under Section 2.03(c) or (ii) a Lender
having notified in writing the Borrower and/or the Administrative Agent that it
does not intend to comply with its obligations under Section 1.01 or Section 2,
in each case for any reason including, without limitation, as a result of any
takeover of such Lender by any regulatory authority or agency.
"Lessee Leakage" shall mean, with respect to any Hotel owned or leased
pursuant to a Qualified Ground Lease or other ground lease to any Person for any
period, and leased pursuant to an Operating Lease, (a) Hotel Net Operating
Income, plus (b) all Hotel Operating Expenses paid by the lessor with respect to
such Hotel less (c) all gross income, revenues, receipts and all other
consideration paid by the Operator pursuant to the Operating Lease for such
Hotel.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).
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"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a).
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other) or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing and excluding any
equipment operating leases and any precautionary filings related thereto).
"Limited-Service Hotel" shall mean a Hotel which may reasonably be
categorized as one which (i) offers either no, or very limited, meeting space
and food and beverage facilities such as restaurants, lounges and catering
facilities, (ii) may be described as a "rooms-only" property, and (iii) does not
have amenities such as bell-service, health spas or entertainment facilities
(e.g., hotels operated as Hampton Inns, Comfort Inns, La Quinta Inns and Red
Roof Inns). For the purpose of this agreement, Limited-Service Hotels shall not
include Hotels where the majority of rentable rooms are suites and the average
daily room rate over the preceding 12 months was $80 or more.
"Loan" shall have the meaning provided in Section 1.01.
"LTV Ratio" shall mean, at any time, the ratio of (i) Total
Indebtedness at such time to (ii) Total Value at such time.
"Management Agreement" shall mean any agreement pursuant to which any
Hotel is managed, operated, franchised or licensed and which (i) with respect to
the management or operation of such Hotel, is between Patriot REIT, the
Borrower, any other Guarantor or any Eligible Borrowing Base Entity on one hand
and the Operator of such Hotel on the other hand, and (ii) with respect to the
franchising or licensing of such Hotel, is in favor of either Patriot REIT, the
Borrower, any other Guarantor or the Operator of such Hotel and which permits
the use of hotel system trademarks, trade names and any related rights in
connection with the ownership or operation of such Hotel.
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"Management Fees" shall mean base or incentive management fees paid by
an owner or lessee of a Hotel to an Operator by way of compensation for
providing hotel management services, exclusive of reimbursement of the
Operator's expenses, fees or charges for special or nonrecurring services (such
as for construction management), termination fees or penalties, payments
pursuant to any indemnification obligation to the Operator, interest, late
charges, or other damages, or any other extraordinary payment.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, operations, property or condition (financial or otherwise) of Patriot
REIT, the Borrower, the other Guarantors, and their respective Subsidiaries,
taken as a whole.
"Maturity Date" shall mean July 18, 2000.
"Minimum Borrowing Amount" shall mean, for each Loan, $1,000,000.
"Minimum Tangible Net Worth" shall mean, at any time, the sum of (a)
75% of Tangible Net Worth as of the Original Effective Date plus (b) 60% of the
aggregate net proceeds received by Patriot REIT, the Borrower or any of the
other Guarantors after the Original Effective Date in connection with any
issuance of Stock, Stock Equivalents or any OP Units, in each case to any Person
other than the Borrower or any Guarantor.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage Note" shall mean a duly authorized, executed and delivered
promissory note, which promissory note (i) is secured by a first priority
mortgage lien encumbering a Hotel that is owned or leased pursuant to a
Qualified Ground Lease by the obligor under such promissory note, (ii) is not in
default beyond applicable notice and cure periods, (iii) bears cash interest
after the Effective Date at minimum rate of at least 7% per annum and is payable
at least quarterly and (iv) is not an obligation of Patriot REIT, the Borrower,
any other Guarantor, any of their Subsidiaries or any Unconsolidated Entity.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA subject to Title IV of ERISA.
"New Construction" shall mean any of the following: (i) the
construction of any new Hotels, (ii) any conversion of any property to Hotel
use, or (iii) the addition
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of rooms to any Hotel which requires such Hotel to shut down for any period of
time or which increases the number of rooms of such Hotel by 50% or more.
"New Lender" shall mean each of the Persons Listed on Schedule I-A
that is not an Original Lender.
"New Patriot Operating Partnership" shall mean Patriot American
Hospitality Operating Partnership, L.P., a Delaware limited partnership.
"New Patriot Operating Partnership OP Units" shall mean the
partnership units of New Patriot Operating Partnership.
"Non-Defaulting Lender" shall mean and include each Lender other than
a Defaulting Lender.
"Non-Owned Hotel Operating Lease" shall mean an operating lease of a
Hotel between a Guarantor, and a Subsidiary of the Borrower or any Guarantor, or
any Unconsolidated Entity, as lessee, and a third party as lessor, approved by
the Administrative Agent.
"Non-Recourse Indebtedness" shall mean Indebtedness with respect to
which no portion is guaranteed by, and no recourse claim (other than claims in
respect of customary indemnities and non-recourse carveouts) can be made
against, Patriot REIT, the Borrower, any other Guarantor, or any of their
respective Subsidiaries.
"Note" shall have the meaning provided in Section 1.05(a).
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at 380 Madison Avenue, New York, New York 10017, Attention: Fred
Hammer, or such other office as the Administrative Agent may hereafter designate
in writing as such to the other parties hereto.
"NPOC" shall mean Patriot American Hospitality Operating Company, a
Delaware Corporation.
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"Obligations" shall mean all amounts owing to the Administrative
Agent, any Arranger or any Lender pursuant to the terms of this Agreement or any
other Credit Document.
"OECD" shall mean the Organization for Economic Cooperation and
Development.
"OP Units" shall mean and include Borrower OP Units and New Patriot
Operating Partnership OP Units.
"Operating Account" shall have the meaning provided in Section 8.16.
"Operating Lease" shall mean a lease or sublease relating to all or
substantially all of any Hotel, between Patriot REIT, the Borrower, any of the
other Guarantors or any of their respective Subsidiaries or Unconsolidated
Entities, as lessor, and an Operator, substantially in the form approved by the
Administrative Agent.
"Operator" shall mean and include each Affiliated Operator and each
Third Party Operator.
"Original Credit Agreement" shall have the meaning provided in the
first WHEREAS clause to this Agreement.
"Original Effective Date" shall mean July 18, 1997.
"Original Lenders" shall mean each Person which was a Lender under,
and as defined in, the Original Credit Agreement.
"Original Letters of Credit" shall mean the letters of credit
previously issued under the Original Credit Agreement and listed on Schedule VII
hereto.
"Original Loans" shall mean the "Loans" under, and as defined in, the
Original Credit Agreement.
"PaineWebber" shall mean Paine Webber Real Estate Securities, Inc. in
its individual capacity.
"Participant" shall have the meaning provided in Section 2.03(a).
"Patriot REIT" shall have the meaning provided in the first paragraph
to this Agreement.
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"Patriot REIT Guaranty" shall mean the guaranty of Patriot REIT
pursuant to Section 14 of this Agreement.
"Patriot REIT Net Income" shall mean (i) net income of Patriot REIT,
determined on a consolidated basis in accordance with GAAP, plus (ii) to the
extent not accounted for in clause (i), net income of each of Patriot REIT's
Unconsolidated Entities times the applicable Allocation Percentage.
"Payment Office" shall mean the office of the Administrative Agent
located at 380 Madison Avenue, New York, New York 10017, or such other office as
the Administrative Agent may hereafter designate in writing as such to the other
parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Commitment of such
Lender at such time and the denominator of which is the Total Commitment at such
time, provided that if the Percentage of any Lender is to be determined after
--------
the Total Commitment has been terminated, then the Percentages of the Lenders
shall be determined immediately prior (and without giving effect) to such
termination.
"Permitted Liens" shall mean, collectively:
(a) Liens arising by operation of law in favor of materialmen,
mechanics, warehousemen, carriers, lessors or other similar Persons
incurred by Patriot REIT, the Borrower, any of their respective
Subsidiaries, any of the other Guarantors, any of their Subsidiaries or any
Eligible Borrowing Base Entity in the ordinary course of business which
secure its obligations to such Person; provided, however, that (i) Patriot
REIT, the Borrower, such Guarantor or such Subsidiary or Eligible Borrowing
Base Entity is not in default with respect to such payment obligation to
such Person, or (ii) Patriot REIT, the Borrower, such Guarantor or such
Subsidiary or Eligible Borrowing Base Entity is in good faith and by
appropriate actions, measures or proceedings diligently contesting such
obligation and adequate provision is made for the payment thereof;
(b) Liens securing taxes, assessments or governmental charges or
levies (excluding Environmental liens) and any Lien which is being
contested in good faith and by proper proceedings if adequate reserves have
been
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maintained with respect thereto in accordance with generally accepted
accounting principles; provided, however, that neither Patriot REIT, the
Borrower nor any of its Subsidiaries, any of the other Guarantors nor any
of their Subsidiaries nor any of the Eligible Borrowing Base Entities is in
default in respect of any payment obligation with respect thereto;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, performance and
return of money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(d) zoning restrictions, subleases, licenses or concessions for
restaurants, bars, gift shops, antennas, communications equipment and
similar agreements entered into in the ordinary course of such Person's
business in connection with the ownership and operation of a Hotel; and
easements, licenses, reservations, restrictions on the use of real property
or minor irregularities incident thereto which do not in the aggregate
materially detract from (x) the value of the property or assets of, or (y)
the use of such property for the purposes for which such property is held
by, the Borrower, the Guarantors or any of their Subsidiaries, in each case
taken as a whole;
(e) Liens securing Indebtedness of not more than $500,000 in the
aggregate incurred solely for the purpose of acquiring personal property;
provided, however, that no such purchase money security interest shall
-------- -------
extend to any property other than the particular property so acquired;
provided further, that the amount of any such purchase money Indebtedness
----------------
shall not exceed the fair value of such property at the time of
acquisition;
(f) Liens in favor of other Credit Parties, so long as such Person
remains a Credit Party and such Lien is not transferred to any other Person
other than another Credit Party; and
(g) Liens encumbering Hotels which Liens, in the reasonable
judgment of the Administrative Agent, are not material.
"Person" shall mean any individual, partnership, limited liability
company, joint venture, firm, corporation, association, trust or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
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"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) Patriot REIT, the Borrower or any of their
respective Subsidiaries or ERISA Affiliates, and each such plan for the five-
year period immediately following the latest date on which Patriot REIT, the
Borrower or any of their respective Subsidiaries or ERISA Affiliates maintained,
contributed to or had an obligation to contribute to such plan.
"Principal Balance" shall mean the outstanding principal amount of the
Loans.
"Pro Forma Basis" shall mean, with respect to any incurrence of
Indebtedness, issuance of preferred stock by Patriot REIT or NPOC or acquisition
of a Hotel (or the equity interest of the Person or Persons owning such Hotel),
the calculation of the consolidated results of Patriot REIT, the Borrower, the
other Guarantors and their respective Subsidiaries otherwise determined in
accordance with this Agreement as if the respective Indebtedness, issuance of
preferred stock or acquisition (and all other Indebtedness incurred, other
preferred stock issued or other such acquisition effected during the respective
Calculation Period or thereafter and on or prior to the date of determination)
(each such date, a "Determination Date") had been effected on the first day of
the respective Calculation Period; provided that all such calculations shall
take into account the following assumptions:
(i) pro forma effect shall be given to (1) any Indebtedness
--- -----
incurred or preferred stock issued subsequent to the end of the Calculation
Period and prior to the date of determination, (2) any Indebtedness
incurred or preferred stock issued during such period to the extent such
Indebtedness or preferred stock is outstanding at the date of determination
and (3) any Indebtedness to be incurred or preferred stock to be issued on
the date of determination, in each case as if such Indebtedness had been
incurred or such preferred stock had been issued on the first day of such
Calculation Period and after giving effect to the application of the
proceeds thereof;
(ii) interest expense attributable to interest on any
Indebtedness (whether existing or being incurred) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness if such Interest Rate Protection Agreement
has a remaining term in excess of 12 months) had been the applicable rate
for the entire period;
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(iii) except as provided in preceding clause (ii), there shall be
excluded from interest expense any interest expense related to any amount
of Indebtedness that was outstanding during such Calculation Period or
thereafter but that is not outstanding or is to be permanently repaid on
the date of determination;
(iv) there shall be excluded from preferred stock dividends any
preferred stock dividends related to any preferred stock issued or
outstanding during such Calculation Period or thereafter but that is not
outstanding or is to be redeemed on the date of determination; and
(v) pro forma effect shall be given to all sales and
--- -----
acquisitions of Hotel that occur during such Calculation Period or
thereafter and on or prior to the Determination Date (including any
Indebtedness assumed or acquired in connection therewith) as if they had
occurred on the first day of such Calculation Period, provided that in
connection with any such acquisitions, pro forma effect (for periods prior
to such acquisition) shall be given to the management fees payable pursuant
to the respective Management Agreement as if such management fees had been
payable throughout the Calculation Period.
"Projections" shall have the meaning provided in Section 5.09.
"Qualified Ground Lease" shall mean (i) the leases described on
Schedule VIII and (ii) any lease (a) which is a direct ground lease (or indirect
ground lease, so long as each ground lease in the chain of title meets the
following criteria) granted by the fee owner of real property, (b) which may be
transferred and/or assigned without the consent of the lessor (or as to which
the lease expressly provides that (i) such lease may be transferred and/or
assigned with the consent of the lessor and (ii) such consent shall not be
unreasonably withheld or delayed), (c) which has a remaining term (including any
renewal terms exercisable at the sole option of the lessee) of at least 40
years, (d) under which no material default has occurred and is continuing, (e)
with respect to which a security interest may be granted without the consent of
the lessor (or as to which the lease expressly provides that (i) a security
interest may be granted with respect to such lease with the consent of the
lessor and (ii) such consent shall not be unreasonably withheld or delayed), and
(f) which contains lender protection provisions reasonably acceptable to the
Administrative Agent including, without limitation, provisions to the effect
that (A) the lessor shall notify any holder of a security interest in such lease
of the occurrence of any default by the lessee under such lease and shall afford
such holder the right to cure such default, and (B) in the event that such lease
is terminated, such holder shall have the option to enter into a new lease
having terms substantially identical to those contained in the terminated lease.
Upon the submission
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to the Administrative Agent of a written request for approval of the lender
protection provisions and other terms of a proposed Qualified Ground Lease, the
Administrative Agent may waive any non-compliances with the foregoing which it
considers in its reasonable judgment not to be material and adverse with respect
to the eligibility of the Hotel subject to the Qualified Ground Lease, and shall
use its best effort to accept or reject such proposal within five Business Days,
and shall accept or reject such proposal within ten Business Days, in each case
following receipt of such request.
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. (S) 6901 et seq.
-- ----
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recourse Secured Indebtedness" shall mean Indebtedness which is
secured or collateralized by any asset of, and all or a portion of which is
guaranteed by, or for which a recourse claim (other than claims in respect of
customary indemnities and non-recourse carveouts) may be made against, Patriot
REIT, the Borrower, any other Guarantor, or any of their respective Subsidiaries
or Unconsolidated Entities.
"Refurbishment Hotels" shall mean new or recently acquired Hotels (i)
which will experience or are experiencing a disruption in hotel operations due
to refurbishment, (ii) which are continuously operating with at least 55% of its
rooms in service at all times, and (iii) which are either (A) Hotels owned by
Patriot REIT, the Borrower, any other Guarantor, any of their respective
Subsidiaries or Unconsolidated Entities as of the Original Effective Date or (B)
Hotels acquired by any such Person after the Original Effective Date and for
which the Borrower shall elect to characterize as Refurbishment Hotels for the
purpose of calculating the Aggregate Borrowing Base Value and Total Value within
the first four Fiscal Quarters following the Original Effective Date or the date
of such acquisition. Any given Hotel may only be characterized as a
Refurbishment Hotel for a maximum of six consecutive Fiscal Quarters.
"Register" shall have the meaning provided in Section 13.16.
"Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and
X, respectively, of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof.
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"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration into the environment.
"Replaced Lender" shall have the meaning provided in Section 1.13.
"Replacement Lender" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Single Employer Plan other than those events as to which
the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of
PBGC Regulation Section 4043.
"Required Lenders" shall mean Non-Defaulting Lenders the sum of whose
Commitments (or after the termination thereof, outstanding Loans and Percentages
of Letter of Credit Outstandings) represent an amount greater than 50% of the
Adjusted Total Commitment (or after the termination thereof, outstanding Loans
and the aggregate Percentages Letter of Credit Outstandings) of all Non-
Defaulting Lenders.
"Returns" shall have the meaning provided in Section 7.09.
"S&P" shall mean Standard & Poor's Ratings Services.
"SEC" shall have the meaning provided in Section 8.01(i).
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Senior Management" shall mean with respect to any Person, any of the
Chairman of the Board of Directors, the President and the Chief Financial
Officer of such Person, provided, that the Senior Management of Patriot REIT
--------
shall in any event include Paul A. Nussbaum, William W. Evans, III and Rex E.
Stewart for so long as such individuals are employed by Patriot REIT, the
Borrower or any of the other Guarantors.
"Single Employer Plan" shall have the meaning set forth in Section
7.10.
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"Stated Amount" of each Letter of Credit shall, at any time, mean the
maximum amount available to be drawn thereunder (in each case determined without
regard to whether any conditions to drawing could then be met).
"Status" shall mean the existence of Level I Status, Level II Status,
Level III Status, Level IV Status, Level V Status, Level VI Status, Level VII
Status or Level VIII Status, as the case may be;
"Level I Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of A- or better from S&P or A3 or better from Moody's;
"Level II Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of BBB+ from S&P or Baa1 from Moody's; and
"Level III Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of BBB from S&P or Baa2 from Moody's;
"Level IV Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of BBB- from S&P or Baa3 from Moody's;
"Level V Status" exists on any date if, on such date (x) none of
Level I Status through Level IV Status exist and (y) the LTV Ratio is less
than 35%;
"Level VI Status" exists on any date if, on such date (x) none of
Level I Status through Level IV Status exist and (y) the LTV Ratio is equal
to or greater than 35% but less than 45%;
"Level VII Status" exists on any date if, on such date (x) none
of Level I Status through Level IV Status exist and (y) the LTV Ratio is
equal to or greater than 45% but less than 50%;
"Level VIII Status" exists on any date if, on such date (x) none
of Level I Status through Level IV Status exist and (y) the LTV Ratio is
equal to or greater than 50% but less than 55%;
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provided that (i) if S&P and/or Moody's shall cease to issue ratings of debt
securities of real estate investment trusts generally, then the Administrative
Agent and the Borrower shall negotiate in good faith to agree upon a substitute
rating agency or agencies (and to correlate the system of ratings of each
substitute rating agency with that of the rating agency for which it is
substituting) and (a) until such substitute rating agency or agencies are agreed
upon, Status shall be determined on the basis of the rating assigned by the
other rating agency (or, if both S&P and Moody's shall have so ceased to issue
such ratings, on the basis of the Status in effect immediately prior thereto)
and (b) after such substitute rating agency or agencies are agreed upon, Status
shall be determined on the basis of the rating assigned by the other rating
agency and such substitute rating agency or the two substitute rating agencies,
as the case may be; (ii) if the long term senior unsecured actual or implied
debt ratings of Patriot REIT by S&P and Moody's are not equivalent, the higher
rating will apply for the purposes of determining Status; and (iii) if the long
term senior unsecured actual or implied debt ratings of Patriot REIT by S&P and
Moody's are two or more Levels apart, the rating one Level below the higher
rating will apply for the purposes of determining Status.
"Stock" shall mean shares of capital stock, beneficial or partnership
interests, participations or other equivalents (regardless of how designated) of
or in a corporation or equivalent entity, whether voting or non-voting, and
includes, without limitation, common stock and preferred stock.
"Stock Equivalents" shall mean all securities (other than Stock)
convertible into or exchangeable for Stock and all warrants, options or other
rights to purchase or subscribe for any stock, whether or not presently
convertible, exchangeable or exercisable.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, limited liability
company, association, joint venture or other entity in which such Person and/or
one or more Subsidiaries of such Person has more than a 50% equity interest at
the time.
"Supermajority Lenders" shall mean those Non-Defaulting Lenders which
would constitute the Required Lenders under, and as defined in, this Agreement
if the percentage "50%" contained therein were changed to "66-2/3%".
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"Taking" shall mean the taking or appropriation (including by deed in
lieu of condemnation or by voluntary sale or transfer under threat of
condemnation or while legal proceedings for condemnation are pending) of any
Hotel, or any part thereof or interest therein, for public or quasi-public use
under the power of eminent domain, by reason of any public improvement or
condemnation proceeding, or in any other manner or any damage or injury or
diminution in value through condemnation, inverse condemnation or other exercise
of the power of eminent domain.
"Tangible Net Worth" shall mean, without duplication, (a) the sum of
(i) the shareholders' equity of Patriot REIT and NPOC on a combined basis in
accordance with GAAP, and (ii) the value of all OP Units owned by Persons other
than Patriot REIT or NPOC, or Wholly-Owned Subsidiaries thereof minus (b) the
sum of all Intangible Assets (net of accumulated amortization) of Patriot REIT,
the Borrower and the other Guarantors, each as shown on the balance sheets of
Patriot REIT and NPOC on a Company Combined Basis as of such date.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Term Loan Agreement" shall have the meaning provided in Section 5.13.
"Test Period" shall mean (i) for any determination made on and prior
to September 30, 1998, the four consecutive Fiscal Quarters then last ended
calculated on a Pro Forma Basis on the last day of such Test Period (in each
case taken as one accounting period), and (ii) for any determination made
thereafter, the four consecutive Fiscal Quarters then last ended, in each case
taken as one accounting period.
"Third Party Operator" shall mean either a lessee under an Operating
Lease or an Affiliate of such Person which operates the respective Hotel, which
is not Patriot REIT, NPOC or any of their respective Subsidiaries and which is
satisfactory to the Administrative Agent.
"Third Party Operating Lease" shall mean an Operating Lease with a
Third Party Operator or an Affiliate of such Person and which Operating Lease is
satisfactory to the Administrative Agent with respect to (i) the term thereof,
(ii) the rent and fees payable thereunder, (iii) the termination rights
thereunder and (iv) the lessee thereunder (including the ability of such Person
to assign its obligations).
"Total Adjusted EBITDA" shall mean, for any period, the sum of (i) (a)
EBITDA of Patriot REIT and its Subsidiaries and Unconsolidated Entities, NPOC
and its Unconsolidated Entities, all on a combined basis in accordance with GAAP
for such
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period (b) multiplied, in the case of each such Person, by the Allocation
Percentage applicable to such Person, less (ii) the Aggregate FF&E Reserve
Contribution for such Period.
"Total Commitment" shall mean, at any time, the sum of the Commitments
of each of the Lenders.
"Total Indebtedness" shall mean the sum (without duplication) of all
Indebtedness of Patriot REIT, the Borrower, the other Guarantors plus the
Allocation Percentage of Indebtedness of all Eligible Borrowing Base Entities,
other Subsidiaries and Unconsolidated Entities of such Persons, determined on a
Company Combined Basis (adjusted to exclude the portion of Indebtedness of
Eligible Borrowing Base Entities, other Subsidiaries and Unconsolidated Entities
in excess of the Allocation Percentages of such Persons' Indebtedness).
"Total Interest Coverage Ratio" shall mean, for any Test Period, the
ratio of (i) Total Adjusted EBITDA for such Test Period to (ii) Total Interest
Expense for such Test Period.
"Total Interest Expense" shall mean the sum of the total interest
expense in respect of Total Indebtedness for such period determined in
conformity with GAAP, plus, without duplication, capitalized interest.
"Total Recourse Secured Indebtedness" shall mean any portion of Total
Secured Indebtedness all or any portion of which is guaranteed by, or for which
a recourse claim (other than claims in respect of customary indemnities and non-
recourse carveouts) can be made against, Patriot REIT, the Borrower, the other
Guarantors and their respective Subsidiaries and Unconsolidated Entities.
"Total Secured Indebtedness" shall mean for any period any portion of
Total Indebtedness which is secured or collateralized by any asset of the
obligor thereunder.
"Total Service Fee Revenue" shall mean for any period with respect to
Patriot REIT, the Borrower, any other Guarantor, any Eligible Borrowing Base
Entity, any of their respective Subsidiaries or any Unconsolidated Entity:
(a) without duplication (i) with respect to Hotels managed or
franchised by such Person pursuant to an Affiliated Operating Lease the
revenues received during such period by such Person with respect to such
Hotels, calculated as (x) a Management Fee equal to the greater of (A) 3%
of
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Hotel Operating Revenues and (B) actual Management Fees management fees,
(y) with respect to Hotels which are franchised to a brand controlled by
Patriot REIT, any other Guarantor or any Eligible Borrowing Base Entity,
franchise costs equal to the greater of (A) 7% of Gross Room Revenues and
(B) actual Brand Fees, (ii) Lessee Leakage received by such Person in
respect of Non-Owned Hotel Operating Leases, (iii) recurring accounting,
asset management and purchasing fees received from any Person and (iv) with
respect to Hotels managed or franchised by such Person pursuant to a
management, franchise or license agreement with parties which are not
Affiliates of such Person, the revenues received during such period by such
Person pursuant to such management, franchise or license agreement which is
satisfactory to the Administrative Agent with respect to (w) the term
thereof, (x) the fees payable thereunder, (y) the termination rights
thereunder and (z) the identity of the other parties to such agreement.
Notwithstanding the foregoing, Total Service Fee Revenue with respect to
agreements described in clause (iv) above shall exclude the following: (1)
all such revenues (or the portion thereof) that shall be subject to
reduction, repayment or adjustment in any subsequent period other than
normal year-end adjustments, (2) all such revenues (or the portion thereof)
that shall constitute payments of principal, interest, dividends or other
amounts in respect of the return of or return on any investment or
guaranty, as determined by the Administrative Agent in its sole discretion,
(3) all such revenues (or the portion thereof) that are payable in
consideration of or otherwise in respect of the amendment, modification,
extension, expiration, cancellation or termination of such management
agreement or franchise agreement, as the case may be, (4) except as
expressly provided in clause (a)(iii) above, all such revenues (or the
portion thereof) that are payable in consideration of or otherwise in
respect of the performance of any service not directly related to the
management or operation of a hotel property, including, without limitation,
fees or other amounts payable for design, construction management and
construction purchasing services and (5) fees or charges received on a
nonrecurring basis from the management, leasing, franchising, or licensing
of Hotels or Hotel related services or intellectual property;
and (b) multiplied as to each component by the Allocation
Percentage applicable to such Person.
"Total Unutilized Commitment" shall mean, at any time, an amount
equal to the remainder of (x) the Total Commitment then in effect less (y) the
aggregate principal amount of Loans outstanding plus the Letter of Credit
Outstandings.
"Total Value" shall mean at any time of determination the sum of:
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(i) in respect of Hotels owned or leased pursuant to a Qualified
Ground Lease or other ground lease by Patriot REIT, the Borrower, any other
Guarantor, their respective Subsidiaries and Unconsolidated Entities on
such date (other than Hotels described in clause (ii) below), the sum of
Adjusted Hotel NOI or Adjusted Lease NOI (based on Acceptable Financial
Information) from all such Hotels for the preceding four Fiscal Quarters
(including Fiscal Quarters before acquisition of an ownership or leasehold
interest by such Person) capitalized at 10%; plus
(ii) in respect of any Hotel owned or leased pursuant to a Qualified
Ground Lease or other ground lease by Patriot REIT, the Borrower, any other
Guarantor, and their respective Subsidiaries and Unconsolidated Entities on
such date, (I) with respect to which the Borrower has certified in writing
to the Administrative Agent that either (i) Patriot REIT, the Borrower or
the respective Guarantor or Eligible Borrowing Base Entity does not have,
or is not able to reasonably obtain financial information audited or
reviewed by accountants for the previous four Fiscal Quarters (including
Fiscal Quarters before acquisition of an ownership or leasehold interest by
such Person) with respect to such Eligible Hotel or (ii) the Borrower
believes that the financial information covering such Eligible Hotel (to
the extent not audited or reviewed by accountants) does not accurately
reflect the historical financial performance of such Eligible Hotel, and
(II) any Refurbishment Hotel or Turnaround Hotel owned by such Persons, the
sum of (a) 95% of all such Persons' Undepreciated Cost Basis in each such
Hotel on such date (b) multiplied in the case of each Hotel by the
Allocation Percentage applicable to the Person which owns or ground leases
such Hotel; provided, that (x) no more than 15% of Total Value may be
--------
attributable to Refurbishment Hotels, (y) no more than 7.5% of Total Value
may be attributable to Turnaround Hotels and (z) no more than 25% of Total
Value may be attributable to Hotels pursuant to this (ii); plus
(iii) an amount equal to (a) Total Service Fee Revenue earned by
Patriot REIT, the Borrower, any other Guarantor, and their respective
Subsidiaries and Unconsolidated Entities during the four Fiscal Quarters
ending prior to such date (b) multiplied by 3.5; provided, that the
--------
percentage of Total Value derived from such revenues from third parties
pursuant to this clause (iii) shall not exceed 10% of Total Value; plus
(iv) the amount equal to (a) all cash or Cash Equivalents owned or
held by Patriot REIT, the Borrower, any other Guarantor or any Subsidiary
thereof on such date (b) multiplied by the Allocation Percentage applicable
to the Person which holds same; plus
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(v) an amount equal to (a) 95% of the acquisition cost of all
Mortgage Notes owned or held by Patriot REIT, the Borrower, any other
Guarantor or any Subsidiary thereof (b) multiplied by the Allocation
Percentage applicable to such Person which holds same on such date.
"Treasury Regulation" shall mean regulations promulgated under the
Code.
"Turnaround Hotels" shall mean Hotels acquired by Patriot REIT, the
Borrower, any other Guarantor, any of their respective Subsidiaries or
Unconsolidated Entities after the Effective Date or designated as a Turnaround
Hotel on Schedule IV which are expected by the Borrower to experience a
significant initial improvement in operations and which the Borrower shall elect
to characterize as Turnaround Hotels on the date of such acquisition for the
purpose of calculating the Aggregate Borrowing Base Value and Total Value. Any
given Hotel may only be characterized as a Turnaround Hotel for a maximum of six
consecutive Fiscal Quarters. Any Hotel characterized as a Turnaround Hotel shall
not be characterized as a Refurbishment Hotel at any time.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
----
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unconsolidated Entity" shall mean, with respect to any Person, at
any date, any other Person (excluding any Excluded Unconsolidated Entity) in
whom such Person holds an Investment, and whose financial results would not be
consolidated under GAAP with the financial results of such Person on the
consolidated financial statements of such Person, if such statements were
prepared as of such date.
"Undepreciated Cost Basis" in respect of any Hotel means the purchase
price paid for such Hotel plus the actual amounts paid and capitalized in
respect of improvements thereon (without giving effect to any depreciation),
plus reasonable capitalized acquisition costs.
"Unencumbered" shall mean, with respect to any Hotel, Operating Lease
or to Management Agreements, other management agreements, franchise agreements
or time share agreements, at any date of determination, the circumstance that
such Hotel or such agreement, as the case may be, on such date:
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(a) is not subject to any Liens (including restrictions on
transferability or assignability, other than commercially reasonable
restrictions in the organizational documents of any Eligible Borrowing Base
Entity which do not prohibit such Eligible Borrowing Base Entity from
disposing or realizing the value of, any Eligible Hotel owned by it, or the
Stock or other form of ownership of any kind (including any such Lien or
restriction imposed by (i) any agreement governing Indebtedness, and (ii)
the organizational documents of Patriot REIT, the Borrower, any of the
other Guarantors or any Eligible Borrowing Base Entity)) other than
Permitted Liens, and, in the case of any Qualified Ground Lease (to the
extent permitted by the definition thereof), restrictions on
transferability or assignability in respect of such Qualified Ground Lease;
(b) (x) is not subject to any agreement (including (i) any
agreement governing Indebtedness, and (ii) if applicable, the
organizational documents of Patriot REIT, the Borrower, any of the other
Guarantors or any Eligible Borrowing Base Entity) which prohibits or limits
the ability of such Person to create, incur, assume or suffer to exist any
Lien upon such Hotel or such agreement, as the case may be, other than
Permitted Liens (excluding any agreement or organizational document (x)
which limits generally the amount of Indebtedness which may be incurred by
such Person or (y) which limits the amount of obligations secured by Liens
upon such Hotel in a manner which would not prohibit a Lien securing
Obligations in an amount equal to such Person's pro rata share of the value
of such Hotel); and
(c) is not subject to any agreement (including any agreement
governing Indebtedness) which entitles any Person to the benefit of any
Lien, other than Permitted Liens, on such Hotel or such agreement, as the
case may be, or would entitle any Person to the benefit of any such Lien
upon the occurrence of any contingency (including, without limitation,
pursuant to an "equal and ratable" clause).
For the purposes of this Agreement, any Hotel owned by a Guarantor (other than
Patriot REIT) or Eligible Borrowing Base Entity shall not be deemed to be
Unencumbered unless both (i) such Hotel and (ii) all Stock or other form of
ownership owned directly or indirectly by Patriot REIT or the Borrower in such
Eligible Borrowing Base Entity or Guarantor, is Unencumbered.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets
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allocable thereto, each determined in accordance with Statement of Financial
Accounting Standards No. 87, based upon the actuarial assumptions used by the
Plan's actuary in the most recent annual valuation of the Plan.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided in Section 2.04(a).
"Unsecured Interest Coverage Ratio" shall mean, for any Test Period,
the ratio of (i) the sum of (x) Adjusted Actual NOI from all Eligible Hotels for
such Test Period plus (y) Eligible Service EBITDA for such Test Period to (ii)
Unsecured Interest Expense for such Test Period.
"Unsecured Interest Expense" shall mean that portion of Total
Interest Expense which is attributable to Indebtedness which is unsecured.
"Unutilized Commitment" with respect to any Lender, at any time,
shall mean such Lender's Commitment at such time less the sum of (i) the
aggregate outstanding principal amount of Loans made by such Lender and (ii)
such Lender's Percentage of the Letter of Credit Outstandings in respect of
Letters of Credit issued under this Agreement.
"W/C Loans" shall have the meaning provided in Section 1.01.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person (ii) any partnership, limited liability company,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time and (iii) any Subsidiary or Patriot REIT or NPOC shall also be considered a
Wholly-Owned Subsidiary of each such Person if (x) 100% of such Subsidiary's
capital stock (other than director's qualifying shares) is at the time owned by
both such Persons and/or one or more Wholly-Owned Subsidiaries of such Persons
and (y) if such Subsidiary is a partnership, limited liability company,
association, joint venture or any other noncorporate entity, both such Persons
and/or one or more Wholly-Owned Subsidiaries of such Persons have a 100% equity
interest in such Subsidiary at such time.
"Wyndham Transaction" shall mean the transaction by which the Wyndham
Hotel Corporation will merge with and into Patriot REIT with Patriot REIT
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being the surviving entity pursuant to the merger agreement (the "Wyndham Merger
Agreement") and related stockholders agreement entered into by Patriot REIT
dated April 14, 1997.
"Wyndham Transaction Documents" shall mean the Wyndham Merger
Agreement and all other documents and agreements entered into in connection with
the consummation of the Wyndham Transaction.
SECTION 12. The Agents.
----------
12.01 Appointment. The Lenders hereby designate Chase as
-----------
Administrative Agent to act as specified herein and in the other Credit
Documents. The Lenders hereby designate PaineWebber as Documentation Agent to
act as specified herein and in the other Credit Documents. Chase and PaineWebber
are together referred to in such capacities as the Agents (which for purposes
hereof shall also include Chase and PaineWebber in their capacities as
Arrangers). Each Lender hereby irrevocably authorizes, and each holder of any
Note by the acceptance of such Note shall be deemed irrevocably to authorize,
any Agent to take such action on its behalf under the provisions of this
Agreement, the other Credit Documents and any other instruments and agreements
referred to herein or therein and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or required of
such Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto. Each Agent may perform any of its duties
hereunder by or through its respective officers, directors, agents, employees or
affiliates.
12.02 Nature of Duties. No Agent shall have any duties or
----------------
responsibilities except those expressly set forth in this Agreement and in the
other Credit Documents. Neither any Agent nor any of its respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its gross negligence or
willful misconduct. The duties of each Agent shall be mechanical and
administrative in nature; no Agent shall have by reason of this Agreement or any
other Credit Document a fiduciary relationship in respect of any Lender or the
holder of any Note; and nothing in this Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose upon
any Agent any obligations in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein.
12.03 Lack of Reliance on the Agents. Independently and without
------------------------------
reliance upon any Agent, each Lender and the holder of each Note, to the extent
it
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deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of each Credit Party and
each of their Subsidiaries in connection with the making and the continuance of
the Loans, participation in Letters of Credit and the taking or not taking of
any action in connection herewith and (ii) its own appraisal of the
creditworthiness of each Credit Party and each of their Subsidiaries and, except
as expressly provided in this Agreement, no Agent shall have any duty or
responsibility, either initially or on a continuing basis, to provide any Lender
or the holder of any Note with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or
issuance of Letters of Credit or at any time or times thereafter. No Agent shall
be responsible to any Lender or the holder of any Note for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of any Credit Party or any of its
Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document, or the financial condition of any Credit
Party or any of its Subsidiaries or the existence or possible existence of any
Default or Event of Default.
12.04 Certain Rights of the Agents. If any Agent shall request
----------------------------
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until such Agent shall have received instructions from the
Required Lenders; and such Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender or the
holder of any Note shall have any right of action whatsoever against any Agent
as a result of such Agent acting or refraining from acting hereunder or under
any other Credit Document in accordance with the instructions of the Required
Lenders.
12.05 Reliance. Each Agent shall be entitled to rely, and shall be
--------
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person, and, with respect
to all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by such
Agent (which may be counsel for the Borrower or any other Credit Party).
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12.06 Indemnification. To the extent any Agent is not reimbursed
---------------
and indemnified by the Borrower, the Lenders will reimburse and indemnify such
Agent, in proportion to their respective "percentages" as used in determining
the Required Lenders, for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by such Agent in performing its respective duties hereunder
or under any other Credit Document, in any way relating to or arising out of
this Agreement or any other Credit Document; provided that no Lender shall be
--------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Agent's gross negligence or willful misconduct.
12.07 Each Agent in its Individual Capacity. With respect to its
-------------------------------------
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include each Agent in its
individual capacity. Each Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with any Credit
Party or any Affiliate of any Credit Party as if they were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrower or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Lenders.
12.08 Holders. Each Agent may deem and treat the payee of any Note
-------
as the owner thereof for all purposes hereof unless and until a written notice
of the assignment, transfer or endorsement thereof, as the case may be, shall
have been filed with such Agent. Any request, authority or consent of any
Person who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
12.09 Removal of or Resignation by Either of the Agents. (a) The
-------------------------------------------------
Administrative Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
20 Business Days' prior written notice to the Borrower and the Lenders. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
Furthermore, in the event that at any time the Administrative Agent assigns its
entire interest as a Lender hereunder to an Eligible Transferee as permitted by
Section 13.04(b) hereof, which Eligible Transferee
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is not an Affiliate of the Administrative Agent, then the Administrative Agent
shall offer to resign as Administrative Agent, which resignation shall become
effective only if (i) the Required Lenders accept such resignation in writing
within 20 Business Days after it has been tendered by the Administrative Agent,
and (ii) so long as there exists no Event of Default at such time, the Borrower
has given its consent with respect to the proposed successor Administrative
Agent. If the Required Lenders do not timely accept such resignation, then the
resignation offer shall be deemed withdrawn and the Administrative Agent shall
continue as the Administrative Agent pursuant to the terms hereof unless the
Administrative Agent has indicated in its notice that said resignation is
intended to be irrevocable, in which case such resignation shall take effect
upon the appointment of a successor Administrative Agent pursuant to clauses (b)
and (c) below or as otherwise provided below. Each Agent may resign from the
performance of all of its other functions and duties hereunder and/or under the
other Credit Documents at any time by giving notice to the Borrower, the
Administrative Agent and the Lenders. Such resignation shall take effect upon
delivery of such notice.
(b) Upon any such notice of resignation by the Administrative
Agent, the Required Lenders shall appoint a successor Administrative Agent
hereunder or thereunder who shall be a commercial bank or trust company
reasonably acceptable to the Borrower.
(c) If a successor Administrative Agent shall not have been so
appointed within such 20 Business Day period, the Administrative Agent, with the
consent of the Borrower, shall then appoint a successor Administrative Agent who
shall serve as Administrative Agent hereunder or thereunder until such time, if
any, as the Required Lenders appoint a successor Administrative Agent as
provided above.
(d) If no successor Administrative Agent has been appointed
pursuant to clause (b) or (c) above by the 25th Business Day after the date such
notice of resignation was given by the Administrative Agent, the Administrative
Agent's resignation shall become effective and the Agents (if one or more so
agrees), or if there are no Agents or no Agent so agrees, then the Required
Lenders, shall thereafter perform all the duties of the Administrative Agent
hereunder and/or under any other Credit Document until such time, if any, as the
Required Lenders appoint a successor Administrative Agent as provided above.
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SECTION 13. Miscellaneous.
-------------
13.01 Payment of Expenses, etc. (a) The Borrower agrees that it
-------------------------
shall: (i) whether or not the transactions contemplated herein are consummated,
and subject to the obligations of the Lender or the Arrangers to pay their own
costs and expenses set forth in Section 8.02, pay all reasonable out-of-pocket
costs and expenses of the Arrangers (including, without limitation, the
reasonable fees and disbursements of White & Case, Weil, Gotshal & Manges, LLP,
and, to the extent reasonably necessary, local counsel and environmental,
engineering, real estate and insurance independent consultants retained by the
Administrative Agent; provided, that once the Effective Date has occurred and
--------
all of the documentation related thereto has been completed, the Borrower shall,
except as expressly provided below, only be obligated to pay the fees and
disbursements of one counsel for the Arrangers for work performed after such
date) in connection with the preparation, execution, delivery and performance of
this Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein, any amendment, waiver or consent relating hereto
or thereto, of the Arrangers in connection with their primary syndication
efforts with respect to this Agreement and, upon the occurrence and during the
continuance of an Event of Default, the reasonable costs and expenses of each of
the Lenders in connection with the enforcement of this Agreement and the other
Credit Documents and the documents and instruments referred to herein and
therein (including, without limitation, the reasonable fees and disbursements
of counsel for the Arrangers and, following an Event of Default, for each of the
Lenders); (ii) pay and hold each of the Lenders harmless from and against any
and all present and future stamp, excise and other similar taxes with respect to
the foregoing matters and save each of the Lenders harmless from and against any
and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to such Lender) to pay such taxes; and
(iii) indemnify each Arranger and each Lender, and each of their respective
officers, directors, employees, representatives and agents from and hold each of
them harmless against any and all liabilities, obligations (including removal or
remedial actions), losses, damages, penalties, claims, actions, judgments,
suits, costs, expenses and disbursements (including reasonable attorneys' and
consultants' fees and disbursements) incurred by, imposed on or assessed against
any of them as a result of, or arising out of, or in any way related to, or by
reason of, (a) any investigation, litigation or other proceeding (whether or not
such Arranger or any Lender is a party thereto) related to the entering into
and/or performance of this Agreement or any other Credit Document or the use of
any Letter of Credit or the proceeds of any Loans hereunder or the consummation
of any transactions contemplated herein or in any other Credit Document or the
exercise of any of their rights or remedies provided herein or in the other
Credit Documents, or (b) the actual or alleged presence of Hazardous Materials
in the air, surface water or groundwater or on the surface or subsurface of
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any Real Property owned or at any time operated by any Credit Party or any of
its Subsidiaries, the Release, generation, storage, transportation, handling or
disposal of Hazardous Materials at any location, whether or not owned or
operated by any Credit Party or any of its Subsidiaries, the non-compliance of
any Real Property with foreign, federal, state and local laws, regulations, and
ordinances (including applicable permits thereunder) applicable to any Real
Property, or any Environmental Claim asserted against any Credit Party, any of
its Subsidiaries or any Real Property owned or at any time operated by any
Credit Party or any of its Subsidiaries, including, in each case, without
limitation, the reasonable fees and disbursements of counsel and other
consultants incurred in connection with any such investigation, litigation or
other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified). To the extent that the undertaking
to indemnify, pay or hold harmless any Arranger or any Lender set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Borrower shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
(b) Notwithstanding anything in paragraph (a) to the contrary,
promptly after receipt by an indemnified person of notice of any loss, claim,
damage or liability or the commencement or threat of any action or proceeding,
such indemnified person shall, if a claim in respect thereof is to be made by
such indemnified person against the Borrower pursuant to this Section 13.01,
notify the Borrower in writing of the loss, claim, damage or liability or the
commencement or threat of the action or proceeding; provided, however, that the
failure to notify the Borrower shall not relieve the Borrower from any liability
which it may have under this paragraph except to the extent that it has been
materially prejudiced by such failure and, provided further, that the failure to
----------------
notify the Borrower shall not relieve it from any liability which it may have
to an indemnified person otherwise than under the indemnification provisions of
this Section 13.01. If any such claim, action or proceeding shall be brought or
threatened against an indemnified person, and such indemnified person shall
notify the Borrower thereof, the Borrower shall be entitled to participate
therein and, to the extent that the Borrower wishes, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified person. In the
event the Borrower assumes the defense of an indemnified person, it may not
thereafter dispute its liability hereunder for any liability the defense of
which the Borrower has assumed which may be imposed upon an indemnified person
in connection with such claim, action or proceeding; provided, however, the
Borrower shall give prompt notice of any election to assume or not assume the
defense of any claim, action or proceeding. After notice from the Borrower to
such indemnified person of its election to assume the defense of such claim,
action or proceeding, the Borrower shall not be liable to such indemnified
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person under this Section 13.01 for any legal or other expenses subsequently
incurred by such indemnified person in connection with the defense thereof
except as provided in the following sentence. The indemnified person shall have
the right to employ separate counsel with respect to any such claim, action or
proceeding and to participate in the defense thereof but the fees and expenses
of such counsel shall be at the expense of such indemnified person unless: (i)
the employment thereof has been specifically authorized by the Borrower in
writing; or (ii) with respect to such claim, action or proceeding there is, in
the opinion of independent counsel, a conflict concerning any material issue
between the position of the Borrower and such indemnified person, in which case
if such indemnified person notifies the Borrower in writing that such indem-
nified person elects to employ separate counsel at the expense of the Borrower,
the Borrower shall not have the right to assume the defense of such claim,
action or proceeding on behalf of such indemnified person; provided, however,
that unless an actual or potential conflict exists between two or more
indemnified persons, the Borrower shall not be required to pay the fees and
disbursements of more than one separate counsel for all indemnified persons.
Nothing set forth herein is intended to or shall impair the right of any
indemnified person to retain separate counsel at its own expense. Without the
prior written consent of such indemnified person, neither the Borrower nor any
of its affiliates will settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding in respect of
which indemnification may be sought hereunder (whether or not any indemnified
person is an actual or potential party to such claim, action or proceeding)
unless (a) the Borrower shall have given each such indemnified person reasonable
prior written notice thereof and used all reasonable efforts, after consultation
with such indemnified person, to obtain an unconditional release of such
indemnified person and each other indemnified person from all liability arising
out of such claim, action, suit or proceedings, or (b) the Borrower reaffirms in
writing its indemnity obligations hereunder. As long as the Borrower has
complied with its obligations to defend and indemnify hereunder, it shall not be
liable hereunder for any settlement made by such indemnified person or any other
indemnified person without the Borrower's consent.
13.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Lender is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Lender (including,
without limitation, by branches and agencies of such Lender wherever located) to
or for the credit or the account of any Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Lender under this
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Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Lender pursuant to
Section 13.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Lender shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
13.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to the Borrower, at
the Borrower's address specified opposite its signature below; if to Patriot
REIT, at Patriot REIT' address specified opposite its signature below; if to any
Arranger or Lender, at its address specified opposite its name on Schedule II;
and if to the Administrative Agent, at its Notice Office; or, as to the Borrower
or any Arranger, at such other address as shall be designated by such party in a
written notice to the other parties hereto and, as to each Lender, at such other
address as shall be designated by such Lender in a written notice to the
Borrower and the Administrative Agent. All such notices and communications
shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by
overnight courier, be effective when deposited in the mails, delivered to the
telegraph company, cable company or overnight courier, as the case may be, or
sent by telex or telecopier, except that notices and communications to the
Arranger and the Borrower shall not be effective until received by the Arranger
or the Borrower, as the case may be.
13.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, however, the Borrower may not
-------- -------
assign or transfer any of its rights, obligations or interest hereunder or under
any other Credit Document without the prior written consent of the Lenders and,
provided further, that, although any Lender may transfer, assign or grant
- ----------------
participations in its rights hereunder, such Lender shall remain a "Lender" for
all purposes hereunder (and may not transfer or assign all or any portion of its
Commitments hereunder except as provided in Section 13.04(b)) and the
transferee, assignee or participant, as the case may be, shall not constitute a
"Lender" hereunder and, provided further, that no Lender shall transfer or grant
----------------
any participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is
not extended beyond the Maturity Date) in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees thereon (except in connection with a waiver of applicability of any post-
default increase in interest rates) or reduce the principal
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amount thereof, or increase the amount of the participant's participation over
the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment
or any amendment to the Borrowing Base shall not constitute a change in the
terms of such participation, and that an increase in any Commitment or Loan
shall be permitted without the consent of any participant if the participant's
participation is not increased as a result thereof) or (ii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement. In the case of any such participation, the participant
shall not have any rights under this Agreement or any of the other Credit
Documents (the participant's rights against such Lender in respect of such
participation to be those set forth in the agreement executed by such Lender in
favor of the participant relating thereto) and all amounts payable by the
Borrower hereunder shall be determined as if such Lender had not sold such
participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender together
with one or more other Lenders) may (x) assign all or a portion of its
Commitment (and related outstanding Obligations hereunder) to its parent company
and/or any affiliate of such Lender which is at least 50% owned by such Lender
or its parent company or to one or more Lenders and (y) assign a constant, and
not a varying, ratable percentage of all of the assigning Lender's Commitment,
and all of its rights and obligations under this Agreement, to an Eligible
Transferee, and, in the case of a partial assignment of such Commitment, shall
be in a minimum amount of $5,000,000 (and the assignor shall maintain a minimum
amount of $5,000,000 for its own account unless the assignor shall assign its
entire interest), and all assignees shall become a party to this Agreement as a
Lender by execution of an Assignment and Assumption Agreement substantially in
the form of Exhibit K, provided that (i) at such time Schedule I-A or I-B, as
--------
the case may be, shall be deemed modified to reflect the Commitments of such new
Lender and of the existing Lenders, (ii) upon surrender of the old Notes, new
Notes will be issued to such new Lender and to the assigning Lender, such new
Notes to be in conformity with the requirements of Section 1.05 (with
appropriate modifications) to the extent needed to reflect the revised
Commitments, (iii) the consent of the Administrative Agent shall be required in
connection with any such assignment pursuant to clause (y) above (which consent
shall not be unreasonably withheld), (iv) the Administrative Agent shall receive
at the time of each such assignment, from the assigning or assignee Lender, the
payment of a non-refundable assignment fee of $3,500, and (v) upon the
occurrence and continuance of an Event of Default, none of the restrictions on
assignments contained in clause (y) above shall apply, provided, however, that
while an Event of Default (other than an Event of Default that shall have
required that the Administrative Agent shall have delivered a notice of the
underlying Default) shall be continuing but prior to acceleration of the Loans,
the applicable Lender shall give the Borrower five (5) days' written notice by
telecopy of its intention
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to assign any or all of its interest in this Agreement and, provided further,
----------------
that such transfer or assignment will not be effective until recorded by the
Administrative Agent on the Register pursuant to Section 13.16. To the extent
of any assignment pursuant to this Section 13.04(b), the assigning Lender shall
be relieved of its obligations hereunder with respect to its assigned
Commitments. At the time of each assignment pursuant to this Section 13.04(b)
to a Person which is not already a Lender hereunder and which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
Federal income tax purposes, the respective assignee Lender shall provide to the
Borrower and the Administrative Agent the appropriate Internal Revenue Service
Forms (and, if applicable a Section 4.04(b)(ii) Certificate) described in
Section 4.04(b). To the extent that an assignment of all or any portion of a
Lender's Commitments and related outstanding Obligations pursuant to Section
1.13 or this Section 13.04(b) would, at the time of such assignment, result in
increased costs under Section 1.10, 1.11, 2.05 or 4.04 from those being charged
by the respective assigning Lender prior to such assignment, then the Borrower
shall not be obligated to pay or reimburse such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
assignment).
(c) Nothing in this Agreement shall prevent or prohibit any Lender
from pledging its Loans and Note hereunder to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank.
13.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of any Arranger or any Lender or any holder of any Note in exercising any
right, power or privilege hereunder or under any other Credit Document and no
course of dealing between any Borrower or any other Credit Party and any
Arranger or any Lender or the holder of any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights, powers and remedies herein or in any other
Credit Document expressly provided are cumulative and not exclusive of any
rights, powers or remedies which any Arranger or any Lender or the holder of any
Note would otherwise have. No notice to or demand on any Credit Party in any
case shall entitle any Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of any
Arranger or any Lender or the holder of any Note to any other or further action
in any circumstances without notice or demand.
13.06 Payments Pro Rata. (a) Except as otherwise provided in this
-----------------
Agreement, the Administrative Agent agrees that promptly after its receipt of
each
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payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Lenders (other than any
Lender that has consented in writing to waive its pro rata share of any such
--- ----
payment) pro rata based upon their respective shares, if any, of the Obligations
--- ----
with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings, Commitment Fees or Letter of Credit Fees, of a
sum which with respect to the related sum or sums received by other Lenders is
in a greater proportion than the total of such Obligation then owed and due to
such Lender bears to the total of such Obligation then owed and due to all of
the Lenders immediately prior to such receipt, then such Lender receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Lenders an interest in the Obligations of the respective Credit Party to
such Lenders in such amount as shall result in a proportional participation by
all the Lenders in such amount; provided that if all or any portion of such
--------
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 13.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
13.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Lenders) ("GAAP"); provided that, (i) except as otherwise specifically provided
--------
herein, all computations determining compliance with Sections 9.06 through
9.10, inclusive, shall utilize accounting principles and policies in conformity
with those used to prepare the annual financial statements first delivered to
the Lenders pursuant to Section 8.01(b) and (ii) PAH Ravinia, Inc. and PAH
Windwatch, L.L.C. shall be treated as Subsidiaries.
(b) All computations of interest, Commitment Fees, and other Fees
hereunder shall be made on the basis of a year of 360 days for the actual number
of
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days (including the first day but excluding the last day) occurring in the
period for which such interest, Commitment Fees or other Fees are payable;
provided, that the computation of interest payable on Base Rate Loans shall be
- --------
made on the basis of a year of 365 days.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
-----------------------------------------------------------
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
- ----------
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF PATRIOT REIT AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH OF PATRIOT REIT AND THE BORROWER
HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK
JURISDICTION OVER SUCH CREDIT PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS
JURISDICTION OVER SUCH CREDIT PARTY. EACH OF PATRIOT REIT AND THE BORROWER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH CREDIT PARTY
AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF PATRIOT REIT AND THE BORROWER
HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING
COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS
WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY ARRANGER UNDER THIS AGREEMENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION.
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(b) EACH OF PATRIOT REIT AND THE BORROWER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
13.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which (i) Patriot REIT, the Borrower, each
Arranger, each Increasing Lender and the Required Banks (determined immediately
before the occurrence of the Effective Date) shall have signed a counterpart
hereof (whether the same or different counterparts) and shall have delivered the
same to the Administrative Agent at its Notice Office or, in the case of the
Lenders, shall have given to the Administrative Agent telephonic (confirmed in
writing), written or telex notice (actually received) at such office that the
same has been signed and mailed to it and (ii) the conditions contained in
Sections 5, 6 and 13.17 are met to the satisfaction of the Arrangers and the
Required Lenders (determined immediately after the occurrence of the Effective
Date). Unless the Administrative Agent has received actual notice from any
Lender that the conditions described in clause (ii) of the preceding sentence
have not been met to its satisfaction, upon the satisfaction of the condition
described in clause (i) of the immediately preceding sentence and upon the
Arrangers' good faith determination that the conditions described in clause (ii)
of the immediately preceding sentence have been met, then the Effective Date
shall have deemed to have occurred, regardless of any subsequent determination
that one or more of the conditions thereto had not been met (although the
occurrence of the Effective Date shall not release the Borrower from any
liability for failure to satisfy one or more of the applicable
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conditions contained in Sections 5, 6 and 13.17). The Administrative Agent will
give Patriot REIT, the Borrower, each Arranger and each Lender prompt written
notice of the occurrence of the Effective Date.
13.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any
-------------------------
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Lenders, provided that no such change, waiver, discharge or termination
--------
shall, without the consent of each Lender (other than a Defaulting Lender) with
Obligations being directly modified thereby, (i) extend the final scheduled
maturity of any Loan or Note or extend the stated maturity of any Letter of
Credit (unless such Letter of Credit is not extended beyond the Maturity Date),
or reduce the rate or extend the time of payment of interest (except in
connection with a waiver of applicability of any post-default increase in
interest rates) or Fees thereon, or reduce the principal amount thereof (except
to the extent repaid in cash), (ii) amend, modify or waive any provision of this
Section 13.12, (iii) reduce the percentage specified in the definition of
Required Lenders (it being understood that, with the consent of the Required
Lenders, additional extensions of credit pursuant to this Agreement may be
included in the determination of the Required Lenders on substantially the same
basis as the extensions of Commitments are included on the Effective Date), (iv)
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement or (v) release any of Patriot REIT, NPOC or New
Patriot Operating Partnership from its obligations as a Guarantor under this
Agreement or any other Credit Document; provided further, that no such change,
----------------
waiver, discharge or termination shall (w) increase the Commitment of any Lender
over the amount thereof then in effect without the consent of such Lender (it
being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory reduction in the
Total Commitment shall not constitute an increase of the Commitment of any
Lender, and that an increase in the available portion of any Commitment of any
Lender, including as a result of amendments to the Borrowing Base, shall not
constitute an increase in the Commitment of such Lender), (x) without the
consent of each Agent affected thereby, amend, modify or waive any provision of
Section 12 as same applies to such Agent or any other provision as same relates
to the rights or obligations of such Agent, (y) without the consent of Chase or
the respective Issuing Lender, amend, modify or waive any provision of Section 2
or alter its rights or obligations with respect to Letters of Credit or (z)
without the consent of the Supermajority Lenders, change the definitions of
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Borrowing Base, Aggregate Borrowing Base Value, Eligible Hotel (as to the
definition therefor, but not as to the qualification of any individual Hotel as
an Eligible Hotel), Eligible Borrowing Base Entity or Supermajority Lenders
(provided that the foregoing shall not apply to changes in any defined terms
used in such definitions).
(b) If, in connection with any proposed change, waiver, discharge or
termination with respect to any of the provisions of this Agreement as
contemplated by clauses (i) through (iv), inclusive, of the first proviso to
Section 13.12(a), the consent of the Required Lenders is obtained but the
consent of one or more of such other Lenders whose consent is required is not
obtained, then the Borrower shall have the right, so long as all non-consenting
Lenders whose individual consent is required are treated as described below, to
replace each such non-consenting Lender or Lenders with one or more Replacement
Lenders pursuant to Section 1.13 so long as at the time of such replacement,
each such Replacement Lender consents to the proposed change, waiver, discharge
or termination, provided, that in any event the Borrower shall not have the
--------
right to replace a Lender solely as a result of the exercise of such Lender's
rights (and the withholding of any required consent by such Lender) pursuant to
the second proviso to Section 13.12(a).
13.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06 shall survive
the execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Loans.
13.14 Domicile of Loans. Each Lender may transfer and carry its
-----------------
Loans at, to or for the account of any office, Subsidiary or Affiliate of such
Lender. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 13.14 would, at the
time of such transfer, result in increased costs under Section 1.10, 1.11, 2.05
or 4.04 from those being charged by the respective Lender prior to such
transfer, then the Borrower shall not be obligated to pay such increased costs
(although the Borrower shall be obligated to pay any other increased costs of
the type described above resulting from changes after the date of the respective
transfer).
13.15 Confidentiality. (a) Subject to the provisions of clause (b)
---------------
of this Section 13.15, each Lender agrees that it will use its reasonable
efforts not to disclose without the prior consent of the Borrower (other than to
its employees, auditors, advisors or counsel or to another Lender if the Lender
or such Lender's holding or parent company in its sole discretion determines
that any such party should have access to such information, provided such
Persons shall be subject to the provisions of this Section 13.15 to the same
extent as such Lender) any information with respect to any
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Credit Party or any of its Subsidiaries which is now or in the future furnished
pursuant to this Agreement or any other Credit Document, provided that any
--------
Lender may disclose any such information (a) as has become generally available
to the public, (b) as may be required or appropriate in any report, statement or
testimony submitted to any municipal, state or Federal regulatory body having or
claiming to have jurisdiction over such Lender or to the Federal reserve Board
or the Federal Deposit Insurance Corporation or similar organizations (whether
in the United States or elsewhere) or their successors, (c) as may be required
or appropriate in respect to any summons or subpoena or in connection with any
litigation, (d) in order to comply with any law, order, regulation or ruling
applicable to such Lender, (e) to any Arranger and (f) to any prospective or
actual transferee or participant in connection with any contemplated transfer or
participation or any of the Notes or Commitments or any interest therein by such
Lender, provided, that such prosepective transferee agrees with such Lender to
--------
be subject to the provisions of this Section 13.15(a).
(b) Patriot REIT and the Borrower hereby acknowledge and agree that
each Lender may share with any of its affiliates any information related to
Credit Parties or any of their respective Subsidiaries (including, without
limitation, any non public customer information regarding the creditworthiness
of the Credit Parties and their respective Subsidiaries, provided such Persons
shall be subject to the provisions of this Section 13.15 to the same extent as
such Lender), it being understood that for purposes of this Section 13.15(b) the
term "affiliate" shall mean any direct or indirect holding company of a Lender
as well as any direct or indirect Subsidiary of such holding company.
13.16 Register. The Borrower hereby designates the Administrative
--------
Agent to serve as the Borrower's agent, solely for purposes of this Section
13.16, to maintain a register (the "Register") on which it will record the
Commitments from time to time of each of the Lenders, the Loans made by each of
the Lenders and each repayment in respect of the principal amount of the Loans
of each Lender. Failure to make any such recordation, or any error in such
recordation shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Lender, the transfer of the Commitments of such
Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Commitments shall not be effective until such transfer is
recorded on the Register maintained by the Administrative Agent with respect to
ownership of such Commitments and Loans and prior to such recordation all
amounts owing to the transferor with respect to such Commitments and Loans shall
remain owing to the transferor. The registration of assignment or transfer of
all or part of any Commitments and Loans shall be recorded by the Administrative
Agent on the Register only upon the acceptance by the Administrative Agent of a
properly executed and delivered Assignment and Assumption Agreement pursuant to
Section 13.04(b).
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Coincident with the delivery of such an Assignment and Assumption Agreement to
the Administrative Agent for acceptance and registration of assignment or
transfer of all or part of a Loan, or as soon thereafter as practicable, the
assigning or transferor Lender shall surrender the Note evidencing such Loan,
and thereupon one or more new Notes in the same aggregate principal amount shall
be issued to the assigning or transferor Lender and/or the new Lender. The
Borrower agrees to indemnify the Administrative Agent from and against any and
all losses, claims, damages and liabilities of whatsoever nature which may be
imposed on, asserted against or incurred by the Administrative Agent in
performing its duties under this Section 13.16, provided that the Borrower shall
have no obligation to indemnify the Administrative Agent for any loss, claim,
damage, liability or expense to the extent resulting solely from the gross
negligence, willful misconduct or breach of agreement of the Administrative
Agent.
13.17 Addition of New Lenders, Amendment and Restatement of Original
--------------------------------------------------------------
Credit Agreement. On and as of the occurrence of the Effective Date in
- ----------------
accordance with Section 13.10, (a) each New Lender shall become a "Lender"
under, and for all purposes of, this Agreement and the other Credit Documents,
and (b) the Original Credit Agreement shall be deemed to be amended and restated
in its entirety, and superceded by to this Agreement.
SECTION 14. Patriot REIT Guaranty.
---------------------
14.01 The Guaranty. In order to induce each Arranger and the Lenders
------------
to enter into this Agreement and to extend credit hereunder and in recognition
of the direct benefits to be received by Patriot REIT from the proceeds of the
Loans, Patriot REIT hereby agrees with each Arranger and the Lenders as follows:
Patriot REIT hereby unconditionally and irrevocably guarantees as primary
obligor and not merely as surety the full and prompt payment when due, whether
upon maturity, by acceleration ation or otherwise, of any and all of the
Guaranteed Obligations of the Borrower to each Lender. If any or all of the
Guaranteed Obligations becomes due and payable hereunder, Patriot REIT
unconditionally promises to pay such indebtedness to the Lenders or order, on
written demand, together with any and all reasonable expenses which may be
incurred by the Lenders in collecting any of the Guaranteed Obligations.
14.02 Bankruptcy. Additionally, Patriot REIT unconditionally and
----------
irrevocably guarantees the payment of any and all of the Guaranteed Obligations
of the Borrower to the Lenders whether or not then due or payable by the
Borrower upon the occurrence in respect of the Borrower of any of the events
specified in Section 10.05, and unconditionally and irrevocably promises to pay
such Guaranteed Obligations to the
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Lenders, or order, on demand, in lawful money of the United States. This
Guaranty shall constitute a guaranty of payment, and not of collection.
14.03 Nature of Liability. The liability of Patriot REIT hereunder
-------------------
is exclusive and independent of any security for or other guaranty of the
Guaranteed Obligations of the Borrower whether executed by Patriot REIT, any
other guarantor or by any other party, and the liability of Patriot REIT
hereunder shall not be affected or impaired by (a) any direction as to
application of payment by the Borrower or by any other party, or (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor
or of any other party as to the Guaranteed Obligations of the Borrower, or (c)
any payment on or in reduction of any such other guaranty or under taking, or
(d) any dissolution, termination or increase, decrease or change in personnel by
the Borrower, or (e) any payment made to any Arranger or the other Lenders on
the indebtedness which such Arranger or such other Lenders repay the Borrower
pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Patriot REIT waives any right
to the deferral or modification of its obligations hereunder by reason of any
such proceeding.
14.04 Independent Obligation. The obligations of Patriot REIT
----------------------
hereunder are independent of the obligations of any other guarantor or the
Borrower, and a separate action or actions may be brought and prosecuted against
Patriot REIT whether or not action is brought against any other guarantor or the
Borrower and whether or not any other guarantor or the Borrower be joined in any
such action or actions. Any payment by the Borrower or other circumstance which
operates to toll any statute of limitations as to the Borrower shall operate to
toll the statute of limitations as to Patriot REIT.
14.05 Authorization. Patriot REIT authorizes each Arranger and the
-------------
other Lenders without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Guaranteed Obligations (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Guaranty herein made
shall apply to the Guaranteed Obligations as so changed, extended, renewed
or altered;
(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in
-122-
<PAGE>
any manner and in any order any property by whomsoever at any time pledged
or mortgaged to secure, or howsoever securing, the Guaranteed Obligations
or any liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower, any other Credit Party or any other Person or otherwise act or
refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors;
(e) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to its creditors other than
the Lenders;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Lenders regardless of what
liability or liabilities of the Borrower remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any of the instruments or agreements
referred to herein, or otherwise amend, modify or supplement this Agreement
or any of such other instruments or agreements; and/or
(h) take any other lawful action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable
discharge of Patriot REIT from its liabilities under this Section 14.
14.06 Reliance. It is not necessary for any Arranger or the other
--------
Lenders to inquire into the capacity or powers of the Borrower or any other
Credit Party or the officers, directors, partners or agents acting or purporting
to act on its behalf, and any Guaranteed Obligations made or created in reliance
upon the professed exercise of such powers shall be guaranteed hereunder.
14.07 Subordination. Any of the indebtedness of the Borrower now or
-------------
hereafter owing to Patriot REIT is hereby subordinated to the Guaranteed
Obligations of the Borrower owing to the Arrangers and the other Lenders; and if
the Administrative Arranger so requests at a time when an Event of Default
exists, all such
-123-
<PAGE>
indebtedness of the Borrower to Patriot REIT shall be collected, enforced and
received by Patriot REIT for the benefit of the Lenders and be paid over to the
Administrative Arranger on behalf of the Lenders on account of the Guaranteed
Obligations of the Borrower to the Lenders, but without affecting or impairing
in any manner the liability of Patriot REIT under the other provisions of this
Guaranty. Prior to the transfer by Patriot REIT of any note or negotiable
instrument evidencing any of the indebtedness relating to the Guaranteed
Obligations of the Borrower to Patriot REIT, Patriot REIT shall mark such note
or negotiable instrument with a legend that the same is subject to this
subordination. Without limiting the generality of the foregoing, Patriot REIT
hereby agrees with the Lenders that it will not exercise any right of
subrogation which it may at any time otherwise have as a result of this Guaranty
(whether contractual, under Section 509 of the Bankruptcy Code, or otherwise)
until all Guaranteed Obligations have been paid in full in cash (it being
understood that Patriot REIT is not waiving any right of subrogation that it may
otherwise have but is only waiving the exercise thereof as provided above).
14.08 Waiver. (a) Patriot REIT waives any right (except as shall be
------
required by applicable law and cannot be waived) to require any Arranger or the
other Lenders to (i) proceed against the Borrower, any other guarantor or any
other party, (ii) proceed against or exhaust any security held from the
Borrower, any other guarantor or any other party or (iii) pursue any other
remedy in such Arranger's or the other Lenders' power whatsoever. Patriot REIT
waives (except as shall be required by applicable law and cannot be waived) any
defense to its obligations under this Section 14 based on or arising out of any
defense of the Borrower, any other guarantor or any other party, other than
payment in full of the Guaranteed Obligations, based on or arising out of the
disability of the Borrower, any other guarantor or any other party, or the
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Borrower other
than payment in full of the Guaranteed Obligations. Each Arranger and the other
Lenders may, at their election, foreclose on any security held by such Arranger,
the Administrative Agent or the other Lenders by one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
reasonable (to the extent such sale is permitted by applicable law), or exercise
any other right or remedy any Arranger and the other Lenders may have against
the Borrower or any other party, or any security, without affecting or impairing
in any way the liability of Patriot REIT hereunder except to the extent the
Guaranteed Obligations have been paid. Patriot REIT waives any defense arising
out of any such election by any Arranger and the other Lenders, even though such
election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of Patriot REIT against the Borrower or any
other party or any security.
-124-
<PAGE>
(b) Patriot REIT waives, except as shall be required by applicable
law and cannot be waived, all presentments, demands for performance, protests
and notices, including without limitation notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty, and
notices of the existence, creation or incurring of new or additional Guaranteed
Obligations. Patriot REIT assumes all responsibility for being and keeping
itself informed of the Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which Patriot REIT
assumes and incurs hereunder, and agrees that the Arrangers and the other
Lenders shall have no duty to advise Patriot REIT of information known to them
regarding such circumstances or risks.
Patriot REIT warrants and agrees that each of the waives set forth above is made
with full knowledge of its significance and consequences and that if any of such
waivers are determined to be contrary to any applicable law or public policy,
such waivers shall be effective only to the maximum extent permitted by law. All
such waivers in this Section apply only to the matters described in this Section
and shall not operate as a waiver of any other rights of Patriot REIT or the
Borrower.
14.09 Nature of Liability. It is the desire and intent of Patriot REIT
-------------------
and the Lenders that this Guaranty shall be enforced against Patriot REIT to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. If, however, and to the extent
that, the obligations of Patriot REIT under this Guaranty shall be adjudicated
to be invalid or unenforceable for any reason (including,without limitation,
because of any applicable state or federal law relating to fraudulent
conveyances or transfers), then the amount of the Guaranteed Obligations shall
be deemed to be reduced and Patriot REIT shall pay the maximum amount of the
Guaranteed Obligations which would be permissible under applicable law.
-125-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
- -------
1950 Stemmons Freeway PATRIOT AMERICAN
Suite 6001 HOSPITALITY, INC.
Dallas, Texas 75207
Telephone No.: (214) 863-1000
Telecopier No.: (214) 863-1527
Attention: Rex Stewart By /s/ William W. Evans III
-------------------------
Title: Chairman
1950 Stemmons Freeway PATRIOT AMERICAN
Suite 6001 HOSPITALITY PARTNERSHIP, L.P.
Dallas, Texas 75207
Telephone No.: (214) 863-1000 By: PAH GP, INC., its
Telecopier No.: (214) 863-1527 General Partner
Attention: Rex Stewart
By /s/ William W. Evans III
-------------------------
Title: President and
Secretary
<PAGE>
1285 Avenue of the Americas PAINE WEBBER REAL ESTATE
19th Floor SECURITIES, INC., Individually,
New York, New York 10019 an Arranger and the Documentation
Telephone No.: (212) 713-2000 Agent
Telecopier No.: (212) 713-7949
Attention: Christopher S. Johnson
By /s/ Christopher S. Johnson
---------------------------------
Title: Senior Vice President
<PAGE>
380 Madison Avenue THE CHASE MANHATTAN BANK
New York, New York 10017 Individually, as an Arranger
Telephone No.: (212) 622-3250 and the Administrative Agent
Telecopier No.: (212) 622-3395
Attention: Fred Hammer
By /s/ James Rolison
---------------------------
Title: Vice President
<PAGE>
130 Liberty Street BANKERS TRUST COMPANY,
New York, New York 10006 Individually and as a Co-Arranger
Telephone No.: (212) 250-2500
Telecopier No.: (212) 454-0743
Attention: Garrett Thelander By /s/ Garrett Thelander
------------------------------
Title: Vice President
<PAGE>
399 Park Avenue CITIBANK, N.A.,
New York, New York 10043 Individually and as a Co-Arranger
Telephone No.: (212) 559-1000
Telecopier No.: (212) 935-2019
Attention: Jeff Warner By: /s/ Jeffrey A. Warner
-------------------------
Title: Attorney In-Fact
<PAGE>
World Financial Center MERRILL LYNCH CAPITAL CORP.,
North Tower Individually and as a Co-Arranger
New York, New York 10281
Telephone No.: (212) 449-1000
Telecopier No.: (212) 449-8230
Attention: Brian O'Callahan By: /s/ Brian O'Callahan
-----------------------
Title: Vice President
<PAGE>
BANKBOSTON, N.A.
By /s/ Jeff Warwick
-------------------------
Title: Director
<PAGE>
BAYERISCHE HYPOTHEKEN-
UND WECHSEL-BANK
AKTIENGESELLSCHAFT
By /s/ Margret Boomers
-------------------------------
Title: Assistant Vice President
By /s/ Robert Rengifo
-------------------------------
Title: Assistant Treasurer
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By /s/ John B. Lamb
----------------------------
Title: Senior Vice President
<PAGE>
PACIFIC LIFE INSURANCE COMPANY
By /s/ Marc D. Ley
-------------------------------
Title: Assistant Vice President
By /s/ C.S. Dillion
-------------------------------
Title: Assistant Secretary
<PAGE>
SOCIETE GENERALE, SOUTHWEST
AGENCY
By /s/ Thomas K. Day
-------------------------
Title: Vice President
<PAGE>
ALLIED IRISH BANKS PLC
Cayman Island Branch
By /s/ William J. Strickland
-------------------------------
Title: Senior Vice President
By /s/ Kevin O'Shea
-------------------------------
Title: Assistant Vice President
<PAGE>
BANK HAPOALIM B.M.
By /s/ Laura Anne Raffa
-------------------------------
Title: First Vice President and
Corporate Manager
By /s/ Marc Bosc
-------------------------------
Title: Assistant Vice President
<PAGE>
BANK ONE, TEXAS, NATIONAL
ASSOCIATION, A NATIONAL
BANKING ASSOCIATION
By /s/ Eddie Hodges
-------------------------------
Title: Assistant Vice President
<PAGE>
BANK UNITED
By /s/ Mario Chiodetti
-------------------------
Title: Director
<PAGE>
CIBC INC.
By /s/ Cheryl L. Boot
-----------------------------------
Title: Director, Oppenheimer Corp.,
As Agent
<PAGE>
DRESDNER BANK AG,
NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By /s/ Michael A. Seton
-------------------------------
Title: Assistant Vice President
By /s/ Neil J. Crawford
---------------------------
Title: Vice President
<PAGE>
FIRST AMERICAN BANK TEXAS, SSB
By /s/ Jeffrey C. Schultz
---------------------------
Title: Vice President
<PAGE>
FIRST NATIONAL BANK OF COMMERCE
By /s/ Honore Aschaffenburg
-------------------------------
Title: Assistant Vice President
<PAGE>
HIBERNIA NATIONAL BANK
By /s/ Edward K. Santos
-------------------------------
Title: Assistant Vice President
<PAGE>
SIAM COMMERCIAL BANK PUBLIC
COMPANY LIMITED, NEW YORK
AGENCY
By /s/ Casesar B. Bolante
-------------------------------
Title: Co General Manager
By /s/ Chulatip Nitibhon
-------------------------------
Title: SVP & Area Manager
North America and Europe
<PAGE>
SUMMIT BANK
By /s/ Gregory A. Haines
------------------------------
Title: Regional Vice President
<PAGE>
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., NEW YORK BRANCH
By /s/ Ismail Ibrahim
-----------------------------
Title: Deputy General Manager
<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Takeo Yamori
----------------------------
Title: Joint General Manager
<PAGE>
THE TOYO TRUST & BANKING
COMPANY, LTD.
By /s/ Kenji Fujikawa
--------------------------------
Title: Agent and General Manager
<PAGE>
EXHIBIT 10.3
================================================================================
TERM LOAN AGREEMENT
among
PATRIOT AMERICAN HOSPITALITY, INC.,
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.,
VARIOUS LENDERS,
THE CHASE MANHATTAN BANK,
as Arranger and Administrative Agent
and
PAINE WEBBER REAL ESTATE SECURITIES, INC.,
as Arranger and Documentation Agent
__________________________________
Dated as of December 16, 1997
__________________________________
$350,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit............................................................... 1
1.01 The Commitments........................................................................... 1
1.02 Minimum Amount of Each Borrowing.......................................................... 2
1.03 Notice of Borrowing....................................................................... 2
1.04 Disbursement of Funds..................................................................... 2
1.05 Notes..................................................................................... 3
1.06 Conversions............................................................................... 4
1.07 Pro Rata Borrowings....................................................................... 4
1.08 Interest.................................................................................. 5
1.09 Interest Periods.......................................................................... 5
1.10 Increased Costs, Illegality, etc.......................................................... 7
1.11 Compensation.............................................................................. 9
1.12 Change of Lending Office.................................................................. 10
1.13 Replacement of Lenders.................................................................... 10
SECTION 2. Fees; Reductions of Commitment........................................................... 11
2.01 Fees...................................................................................... 11
2.02 Mandatory Termination and Reduction of Commitments........................................ 11
SECTION 3. Prepayments; Payments; Taxes............................................................. 11
3.01 Voluntary Prepayments..................................................................... 11
3.02 Mandatory Repayments...................................................................... 12
3.03 Method and Place of Payment............................................................... 13
3.04 Net Payments; Taxes....................................................................... 13
SECTION 4. Conditions Precedent to Effective Date................................................... 15
4.01 Execution of Agreement; Notes............................................................. 15
4.02 Fees, etc................................................................................. 15
4.03 Opinions of Counsel....................................................................... 15
4.04 Trust, Corporate, Limited Liability Company and Partnership
Documents; Proceedings; etc........................................................... 15
4.05 Affiliate Guaranty........................................................................ 16
4.06 Adverse Change; Approvals................................................................. 16
4.07 Litigation................................................................................ 16
4.08 Solvency Certificate; Insurance Certificates.............................................. 17
4.09 Pro Forma Balance Sheets; Projections..................................................... 17
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.10 Initial Borrowing Base Certificate........................................................ 17
4.11 Eligible Hotel Documents.................................................................. 17
4.12 No Default; Representations and Warranties................................................ 17
4.13 Amendment and Restatement of the Revolving Credit
Agreement............................................................................. 18
4.14 Notice of Borrowing....................................................................... 18
4.15 Crow Transaction.......................................................................... 18
SECTION 5. Representations and Warranties........................................................... 18
5.01 Trust, Corporate, Limited Liability Company and Partnership
Status................................................................................ 19
5.02 Trust, Corporate, Limited Liability Company or Partnership
Power and Authority................................................................... 19
5.03 No Violation.............................................................................. 20
5.04 Governmental Approvals.................................................................... 20
5.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc......................................................... 20
5.06 Litigation................................................................................ 22
5.07 True and Complete Disclosure.............................................................. 22
5.08 Use of Proceeds; Margin Regulations....................................................... 23
5.09 Tax Returns and Payments.................................................................. 23
5.10 Compliance with ERISA..................................................................... 23
5.11 Real Properties........................................................................... 25
5.12 Subsidiaries.............................................................................. 25
5.13 Compliance with Statutes, etc............................................................. 26
5.14 Investment Company Act.................................................................... 26
5.15 Public Utility Holding Company Act........................................................ 26
5.16 Environmental Matters..................................................................... 26
5.17 Labor Relations........................................................................... 27
5.18 Intellectual Property..................................................................... 27
5.19 Indebtedness.............................................................................. 28
5.20 Ground Leases............................................................................. 28
5.21 Status as REIT............................................................................ 28
5.22 Operators................................................................................. 28
5.23 Eligible Hotels........................................................................... 28
SECTION 6. Affirmative Covenants.................................................................... 29
6.01 Information Covenants..................................................................... 29
6.02 Books, Records and Inspections............................................................ 34
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.03 Maintenance of Property; Insurance........................................................ 34
6.04 Corporate Franchises...................................................................... 34
6.05 Compliance with Statutes, etc............................................................. 35
6.06 Compliance with Environmental Laws........................................................ 35
6.07 ERISA..................................................................................... 36
6.08 End of Fiscal Years; Fiscal Quarters...................................................... 37
6.09 Performance of Obligations................................................................ 37
6.10 Payment of Taxes.......................................................................... 38
6.11 Certain Requirements with Respect to Eligible Hotels...................................... 38
6.12 Operators................................................................................. 39
6.13 Qualified Ground Leases and Operating Leases.............................................. 39
6.14 FF&E Reserves............................................................................. 40
6.15 REIT Requirements......................................................................... 40
6.16 Maintenance of Operating Account.......................................................... 41
SECTION 7. Negative Covenants....................................................................... 41
7.01 Line of Business.......................................................................... 41
7.02 Consolidation, Merger, Sale of Assets, etc................................................ 41
7.03 Dividends................................................................................. 42
7.04 Investments............................................................................... 42
7.05 Transactions with Affiliates.............................................................. 44
7.06 Total Interest Coverage................................................................... 44
7.07 Unsecured Interest Coverage............................................................... 45
7.08 Fixed Charge Coverage..................................................................... 45
7.09 Tangible Net Worth........................................................................ 45
7.10 Limitations on Indebtedness............................................................... 45
7.11 Borrowing Base............................................................................ 45
7.12 Limitation on Certain Restrictions........................................................ 45
SECTION 8. Events of Default........................................................................ 46
8.01 Payments.................................................................................. 46
8.02 Representations, etc...................................................................... 46
8.03 Covenants................................................................................. 47
8.04 Default Under Other Agreements............................................................ 47
8.05 Bankruptcy, etc........................................................................... 47
8.06 ERISA..................................................................................... 48
8.07 REIT Status............................................................................... 49
8.08 Guaranties................................................................................ 49
8.09 Judgments................................................................................. 49
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.10 Change of Control......................................................................... 49
8.11 General Partner Status.................................................................... 49
SECTION 9. Definitions and Accounting Terms......................................................... 50
9.01 Defined Terms............................................................................. 50
SECTION 10. The Agents.............................................................................. 92
10.01 Appointment.............................................................................. 92
10.02 Nature of Duties......................................................................... 93
10.03 Lack of Reliance on the Agents........................................................... 93
10.04 Certain Rights of the Agents............................................................. 94
10.05 Reliance................................................................................. 94
10.06 Indemnification.......................................................................... 94
10.07 Each Agent in its Individual Capacity.................................................... 94
10.08 Holders.................................................................................. 95
10.09 Removal of or Resignation by Either of the Agents........................................ 95
SECTION 11. Miscellaneous........................................................................... 96
11.01 Payment of Expenses, etc................................................................. 96
11.02 Right of Setoff.......................................................................... 99
11.03 Notices.................................................................................. 99
11.04 Benefit of Agreement.....................................................................100
11.05 No Waiver; Remedies Cumulative...........................................................102
11.06 Payments Pro Rata........................................................................102
11.07 Calculations; Computations...............................................................103
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE; WAIVER OF JURY TRIAL...........................................................103
11.09 Counterparts.............................................................................104
11.10 Effectiveness............................................................................105
11.11 Headings Descriptive.....................................................................105
11.12 Amendment or Waiver; etc.................................................................105
11.13 Survival.................................................................................106
11.14 Domicile of Loans........................................................................106
11.15 Confidentiality..........................................................................107
11.16 Register.................................................................................107
SECTION 12. Patriot REIT Guaranty...................................................................108
12.01 The Guaranty.............................................................................108
12.02 Bankruptcy...............................................................................108
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
12.03 Nature of Liability......................................................................109
12.04 Independent Obligation...................................................................109
12.05 Authorization............................................................................109
12.06 Reliance.................................................................................110
12.07 Subordination............................................................................110
12.08 Waiver...................................................................................111
12.09 Nature of Liability......................................................................112
</TABLE>
SCHEDULE I Commitments
SCHEDULE II Lender Addresses
SCHEDULE III Litigation
SCHEDULE IV Initial Hotels and Real Property
SCHEDULE V Subsidiaries
SCHEDULE VI Existing Indebtedness
SCHEDULE VII Qualified Ground Leases
EXHIBIT A Notice of Borrowing
EXHIBIT B Note
EXHIBIT C Section 3.04(b)(ii) Certificate
EXHIBIT D Opinion of Counsel to the Credit Parties
EXHIBIT E Officers' Certificate
EXHIBIT F Affiliate Guaranty
EXHIBIT G Officer's Solvency Certificate
EXHIBIT H Borrowing Base Certificate
EXHIBIT I Compliance Certificate
EXHIBIT J Assignment and Assumption Agreement
(v)
<PAGE>
TERM LOAN AGREEMENT, dated as of December 16, 1997, among PATRIOT
AMERICAN HOSPITALITY, INC., a Delaware corporation ("Patriot REIT"), PATRIOT
AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Virginia limited partnership (the
"Borrower"), the Lenders party hereto from time to time, PAINE WEBBER REAL
ESTATE SECURITIES, INC. and THE CHASE MANHATTAN BANK, as Arrangers, PAINEWEBBER,
as Documentation Agent, and CHASE, as Administrative Agent (all capitalized
terms used herein and defined in Section 9 are used herein as therein defined).
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested the following extensions of credit
from the Lenders;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 The Commitments. Subject to and upon the terms and conditions
---------------
set forth herein, each Lender severally agrees, to make on the Effective Date a
term loan or term loans (each, a "Loan" and, collectively, the "Loans") to the
Borrower, which Loans (i) shall, at the option of the Borrower, be Base Rate
Loans or Eurodollar Loans, provided that except as otherwise specifically
--------
provided in Section 1.10(b), all Loans comprising the same Borrowing shall at
all times be of the same Type and (ii) shall be made by each Lender in that
initial aggregate principal amount as is equal to the Commitment of such Lender
on such date (before giving effect to any reductions thereto on such date
pursuant to Section 2.02(b)). Once repaid, Loans incurred hereunder may not be
reborrowed.
1.02 Minimum Amount of Each Borrowing. The aggregate principal
--------------------------------
amount of each Borrowing of Loans shall not be less than the Minimum Borrowing
Amount applicable thereto. More than one Borrowing may occur on the same date,
but at no time shall there be outstanding more than ten Borrowings of Eurodollar
Loans.
1.03 Notice of Borrowing. (a) When the Borrower desires to incur
-------------------
the Loans hereunder, the Borrower shall give the Administrative Agent at its
Notice Office
<PAGE>
at least one Business Day's prior written notice (or telephonic notice promptly
confirmed in writing) in the case of Base Rate Loans and at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
in the case of Eurodollar Loans to be made hereunder, provided that any such
--------
notice shall be deemed to have been given on a certain day only if given before
11:00 A.M. (New York time) on such day. Such written notice or written
confirmation of telephonic notice (the "Notice of Borrowing"), except as
otherwise expressly provided in Section 1.10, shall be given by the Borrower in
the form of Exhibit A, completed to specify (i) the aggregate principal amount
of the Loans to be incurred pursuant to such Borrowing, (ii) the date of such
Borrowing (which shall be a Business Day) and (iii) whether the Loans being
incurred pursuant to such Borrowing are to be initially maintained as Base Rate
Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period
to be applicable thereto. The Administrative Agent shall promptly give each
Lender notice of such proposed Borrowing, of such Lender's proportionate share
thereof and of the other matters required by the immediately preceding sentence
to be specified in the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice of any Borrowing of Loans, the
Administrative Agent may act without liability upon the basis of telephonic
notice of such Borrowing believed by the Administrative Agent in good faith to
be from an Authorized Officer of the Borrower prior to receipt of written
confirmation. In each such case, the Borrower hereby waives the right to
dispute the Administrative Agent's record of the terms of such telephonic notice
of such Borrowing.
1.04 Disbursement of Funds. No later than 1:00 P.M. (New York time)
---------------------
on the Effective Date, each Lender will disburse its pro rata portion of the
--- ----
Loans to be made on such date. All such amounts shall be disbursed in Dollars
and in immediately available funds at the Payment Office of the Administrative
Agent, and the Administrative Agent will promptly disburse to the Borrower at
the Payment Office, in Dollars and in immediately available funds, the aggregate
of the amounts so made available by the Lenders. Unless the Administrative
Agent shall have been notified by any Lender prior to the Effective Date that
such Lender does not intend to disburse to the Administrative Agent such
Lender's portion of any Borrowing to be made on such date, the Administrative
Agent may assume that such Lender has disbursed such amount to the
Administrative Agent on the Effective Date and the Administrative Agent may, in
reliance upon such assumption, disburse to the Borrower a corresponding amount.
If such corresponding amount is not in fact disbursed to the Administrative
Agent by such Lender, the Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Administrative Agent's demand
therefor, the Administrative
-2-
<PAGE>
Agent shall promptly notify the Borrower and the Borrower shall within one
Business Day thereafter pay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to recover on demand
from such Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was disbursed by the Administrative Agent to the Borrower until the date
such corresponding amount is recovered by the Administrative Agent, at a rate
per annum equal to (i) if recovered from such Lender, at the overnight Federal
Funds Rate and (ii) if recovered from the Borrower, the rate of interest
applicable to the respective Borrowing, as determined pursuant to Section 1.08.
Nothing in this Section 1.04 shall be deemed to relieve any Lender from its
obligation to make Loans hereunder or to prejudice any rights which the Borrower
may have against any Lender as a result of any failure by such Lender to make
Loans hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of,
-----
and interest on, the Loans made by each Lender shall be evidenced by a
promissory note duly executed and delivered by the Borrower substantially in the
form of Exhibit B with blanks appropriately completed in conformity herewith
(each, a "Note" and, collectively, the "Notes"). The Note issued to each Lender
shall (i) be executed by the Borrower, (ii) be payable to the order of such
Lender and be dated the Effective Date (or, if issued after the Effective Date,
be dated the date of the issuance thereof), (iii) be in a stated principal
amount equal to the principal amount of the Loans made by such Lender and be
payable in the principal amount of the outstanding Loans evidenced thereby, (iv)
mature on the Maturity Date, (v) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans,
as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment
and mandatory repayment as provided in Sections 3.01 and 3.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(b) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of its Note properly endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation (or any error in any such notation) shall not affect the
Borrower's obligations to the holder from time to time of each Note in respect
of such Loans.
1.06 Conversions. The Borrower shall have the option to convert, on
-----------
any Business Day, all or a portion equal to at least the applicable Minimum
Borrowing Amount of the outstanding principal amount of Loans made to the
Borrower into a Borrowing or Borrowings of another Type of Loan, provided that
--------
(i) except as otherwise provided in Section 1.10(b), Eurodollar Loans may be
converted into Base Rate
-3-
<PAGE>
Loans only on the last day of an Interest Period applicable to the Loans being
converted and no partial conversion of a Borrowing of Eurodollar Loans shall
reduce the outstanding principal amount of such Eurodollar Loans made pursuant
to a single Borrowing to less than the Minimum Borrowing Amount applicable
thereto, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no
Event of Default is in existence on the date of the conversion and (iii) no
conversion pursuant to this Section 1.06 shall result in a greater number of
Borrowings of Eurodollar Loans than is permitted under Section 1.02. Each such
conversion shall be effected by the Borrower by giving the Administrative Agent
at its Notice Office prior to 11:00 A.M. (New York time) at least three Business
Days' prior written notice (each a "Notice of Conversion") specifying the Loans
to be so converted (or one Business Day's prior written notice in the case of a
conversion of Eurodollar Loans into Base Rate Loans), the Borrowing or
Borrowings pursuant to which such Loans were made and, if to be converted into
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Lender prompt notice of any such proposed
con version affecting any of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Loans shall be incurred
-------------------
from the Lenders pro rata on the basis of their respective Commitments. It is
--- ----
understood that no Lender shall be responsible for any default by any other
Lender of its obligation to make Loans hereunder and that each Lender shall be
obligated to make the Loans provided to be made by it hereunder, regardless of
the failure of any other Lender to make its Loans hereunder.
1.08 Interest. (a) The Borrower agrees to pay interest in respect
--------
of the unpaid principal amount of each Base Rate Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Base Rate Loan and (ii) the
conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06,
at a rate per annum which shall be equal to the sum of the Applicable Margin
plus the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan from the date the proceeds thereof are
made available to the Borrower until the earlier of (i) the maturity (whether by
acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of
such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10,
as applicable, at a rate per annum which shall, during each Interest Period
applicable thereto, be equal to the sum of the Applicable Margin plus the
Eurodollar Rate for such Interest Period.
-4-
<PAGE>
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable hereunder
shall, in each case, bear interest at a rate per annum equal to the rate which
is the greater of (i) 2% in excess of the rate then borne by such Loans (without
giving effect to any increase in the rate borne by such Loans as a result of the
operation of this clause (c)) and (ii) the Base Rate then in effect plus 4%, in
each case with such interest to be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable (i)
in respect of each Base Rate Loan, monthly in arrears on the tenth day of each
calendar month, (ii) in respect of each Eurodollar Loan, on the tenth day of
each calendar month and (iii) in respect of each Loan, on any repayment or
prepayment (on the amount repaid or prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(e) Upon each Interest Determination Date, the Administrative Agent
shall determine the Eurodollar Rate for each Interest Period applicable to
Eurodollar Loans and shall promptly notify the Borrower and the Lenders thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.
1.09 Interest Periods. At the time the Borrower gives any Notice of
----------------
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an Interest
Period applicable to such Eurodollar Loan (in the case of any subsequent
Interest Period), the Borrower shall have the right to elect, by giving the
Administrative Agent notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one, two, three or six-month period, provided that:
--------
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the
date of any conversion thereto from a Loan of a different Type) and each
Interest Period occurring thereafter in respect of such Eurodollar Loan
shall commence on the day on which the next preceding Interest Period
applicable thereto expires;
-5-
<PAGE>
(iii) if any Interest Period relating to a Eurodollar Loan begins on
a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period shall end on
the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, however, that if any Interest Period for
-------- -------
a Eurodollar Loan would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
(v) no Interest Period may be selected at any time when an Event of
Default is then in existence; and
(vi) no Interest Period shall be selected which extends beyond the
Maturity Date.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest Period to be applicable to such Eurodollar
Loans as provided above, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any
---------------------------------
Lender shall have determined in good faith (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto but,
with respect to clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition of
Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and including the introduction of
any new law or governmental rule, regulation, order, guideline or request,
such as, for example, but not limited to:
-6-
<PAGE>
(A) a change in the basis of taxation of payment to any Lender of the
principal of or interest on such Eurodollar Loan or any other amounts
payable hereunder (except for changes in the rate of tax on, or determined
by reference to, the net income or net profits of such Lender, or any
franchise tax, in either case pursuant to the laws of the jurisdiction in
which such Lender is organized or in which such Lender's principal office
or applicable lending office is located or any subdivision thereof or
therein), or (B) a change in official reserve requirements, but, in all
events, excluding any change in reserve requirements included in the
computation of the Eurodollar Rate and/or (y) other circumstances since the
date of this Agreement affecting the interbank Eurodollar market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loan has been made (x) unlawful by any law or governmental rule, regulation
or order, (y) impossible by compliance by any Lender in good faith with any
governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the date of this
Agreement which materially and adversely affects the interbank Eurodollar
market;
then, and in any such event, such Lender (or the Administrative Agent, in the
case of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the Borrower and, except in the case of clause (i) above, to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in
the case of clause (i) above, Eurodollar Loans shall no longer be available
until such time as the Administrative Agent notifies the Borrower and the
Lenders that the circumstances giving rise to such notice by the Administrative
Agent no longer exist, and any Notice of Borrowing or Notice of Conversion
given by the Borrower with respect to Eurodollar Loans which have not yet been
incurred (including by way of conversion) shall be deemed rescinded by the
Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such
Lender, five Business Days after written demand therefor, such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its sole discretion shall
determine) as shall be required to compensate such Lender for such increased
costs or reductions in amounts received or receivable hereunder (a written
notice as to the additional amounts owed to such Lender, showing the basis for
the calculation thereof, submitted to the Borrower by such Lender in good faith
shall, absent manifest error, be final and conclusive and binding on all the
parties hereto) and (z) in the case of clause (iii) above, the Borrower shall
take one of the actions specified in Section 1.10(b) as promptly as possible
and, in any event, within the time period required by law. Each of the
Administrative Agent and each Lender agrees that if it gives notice to the
Borrower of any of the events described in clause (i) or (ii) above, it shall
promptly notify the Borrower and, in the case of any such
-7-
<PAGE>
Lender, the Administrative Agent, if such event ceases to exist. If any such
event described in clause (iii) above ceases to exist as to a Lender, the
obligations of such Lender to make Eurodollar Loans and to convert Base Rate
Loans into Eurodollar Loans on the terms and conditions contained herein shall
be reinstated. In addition, if the Administrative Agent gives notice to the
Borrower that the events described in clause (i) above cease to exist, then the
obligations of the Lenders to make Eurodollar Loans and to convert Base Rate
Loans into Eurodollar Loans on the terms and conditions contained herein (but
subject to clause (iii) above) shall also be reinstated.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii), the Borrower shall) either (x) if the affected Eurodollar
Loan is then being made initially or pursuant to a conversion, cancel the
respective Borrowing by giving the Administrative Agent telephonic notice
(confirmed in writing) on the same date that the Borrower was notified by the
affected Lender or the Administrative Agent pursuant to Section 1.10(a)(ii) or
(iii) or (y) if the affected Eurodollar Loan is then outstanding, upon at least
three Business Days' written notice to the Administrative Agent, require the
affected Lender to convert such Eurodollar Loan into a Base Rate Loan, provided
--------
that, if more than one Lender is affected at any time, then all affected Lenders
must be treated the same pursuant to this Section 1.10(b).
(c) If at any time any Lender determines in good faith that, after the
date of this Agreement, the introduction of or any change in any applicable law
or governmental rule, regulation, order, guideline, directive or request
(whether or not having the force of law and including, without limitation, those
announced or published prior to the Effective Date) concerning capital adequacy,
or any change in interpretation or administration thereof by any governmental
authority, central bank or comparable agency, will have the effect of increasing
the amount of capital required or expected to be maintained by such Lender or
any corporation controlling such Lender based on the existence of such Lender's
Commitments hereunder or its obligations hereunder, then the Borrower shall pay
to such Lender, five Business Days after such Lender's written demand therefor,
such additional amounts as shall be required to compensate such Lender or such
other corporation for the increased cost to such Lender or such other
corporation or the reduction in the rate of return to such Lender or such other
corporation as a result of such increase of capital allocable to the existence
of such Lender's commitment or obligations hereunder. In determining such
additional amounts, each Lender will act reasonably and in good faith and will
use averaging and attribution methods which are reasonable, provided that such
--------
Lender's reasonable good faith determination of compensation owing under this
Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto. Each
-8-
<PAGE>
Lender, upon determining that any additional amounts will be payable pursuant to
this Section 1.10(c), will give prompt written notice thereof to the Borrower,
which notice shall show the basis for calculation of such additional amounts.
In addition, each such Lender, upon determining that the circumstances giving
rise to the payment of additional amounts pursuant to this Section 1.10(c) cease
to exist, will give prompt written notice thereof to the Borrower.
1.11 Compensation. The Borrower shall compensate each Lender, upon
------------
its written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Lender
to fund its Eurodollar Loans but excluding any loss of anticipated profit) which
such Lender may sustain: (i) if for any reason (other than a default by such
Lender or the Administrative Agent) a Borrowing of, or conversion from or into,
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or
deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including
any repayment made pursuant to Section 3.01 or 3.02 or as a result of an
acceleration of the Loans pursuant to Section 8) or conversion of any Eurodollar
Loans occurs on a date which is not the last day of an Interest Period with
respect thereto; (iii) if any prepayment of any Eurodollar Loans is not made on
any date specified in a notice of prepayment given by the Borrower; or (iv) as a
consequence of (x) any other default by the Borrower to repay the Loans when
required by the terms of this Agreement or the Note held by such Lender or (y)
any election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Lender agrees that on the
------------------------
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c) or Section 3.04 with respect to such Lender, it will, if
requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender) to designate another lending office for any Loans
affected by such event, provided that such designation is made on such terms
--------
that such Lender and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding or reducing the consequence of the
event giving rise to the operation of such Section. Nothing in this Section
1.12 shall affect or postpone any of the obligations of the Borrower or the
right of any Lender provided in Sections 1.10 and 3.04.
1.13 Replacement of Lenders. (a) (x) If any Lender (i) becomes a
----------------------
Defaulting Lender or otherwise defaults in its obligations to make Loans or (ii)
refuses to consent to certain proposed changes, waivers, discharges or
terminations with respect to this Agreement which have been approved by the
Required Lenders as provided in
-9-
<PAGE>
Section 11.12(b) or (y) upon the occurrence of any event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c) or Section 3.04 with
respect to any Lender which results in such Lender charging to the Borrower
increased costs in excess of those being generally charged by the other Lenders,
the Borrower shall have the right, in accordance with the requirements of
Section 11.04(b), if no Default or Event of Default will exist after giving
effect to such replacement, to replace such Lender (the "Replaced Lender") with
one or more other Eligible Transferee or Transferees, none of whom shall
constitute a Defaulting Lender at the time of such replacement (collectively,
the "Replacement Lender"), reasonably acceptable to the Administrative Agent,
provided that (i) at the time of any replacement pursuant to this Section 1.13,
- --------
the Replaced Lender and the Replacement Lender shall enter into one or more
Assignment and Assumption Agreements pursuant to Section 11.04(b) (and with all
fees payable pursuant to said Section 11.04(b) to be paid by the Replacement
Lender) pursuant to which the Replacement Lender shall acquire all of the
outstanding Loans of the Replaced Lender and, in connection therewith, shall pay
to the Replaced Lender in respect thereof an amount equal to the sum of (1) an
amount equal to the principal of, and all accrued interest on, all outstanding
Loans of the Replaced Lender together with all then unpaid interest with respect
thereto at such time and (2) an amount equal to all accrued, but theretofore
unpaid, Fees owing to the Replaced Lender pursuant to Section 2.01, and (ii) all
obligations of the Borrower owing to the Replaced Lender (other than those
specifically described in clause (i) above of this proviso in respect of which
the assignment purchase price has been, or is concurrently being, paid) shall be
paid in full to such Replaced Lender concurrently with such replacement.
(b) Upon the execution of the respective Assignment and Assumption
Agreements, the payment of amounts referred to in clauses (i) and (ii) of the
proviso of Section 1.13(a) and, if so requested by the Replacement Lender,
delivery to the Replacement Lender of the appropriate Note executed by the
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to indemnification provisions under this Agreement (including, without
limitation, Sections 1.10, 1.11, 3.04, 11.01 and 11.06), which shall survive as
to such Replaced Lender. Upon the Replaced Lender ceasing to be a Lender
hereunder, such Replaced Lender agrees to promptly return to the Borrower the
Note theretofore delivered to such Replaced Lender pursuant to this Agreement
marked "cancelled", or if such Replaced Lender has lost or cannot find such
Note, such Replaced Lender will execute and deliver to the Borrower a customary
lost note and indemnity agreement in form and substance reasonably satisfactory
to the Borrower.
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<PAGE>
SECTION 2. Fees; Reductions of Commitment.
------------------------------
2.01 Fees. The Borrower agrees to pay to each of the Arrangers, for
----
their own account, such fees as have been agreed to in writing by the Borrower
with the Arrangers.
2.02 Mandatory Termination and Reduction of Commitments. (a) The
--------------------------------------------------
Total Commitment (and the Commitment of each Lender) shall terminate in its
entirety on January 31, 1998, unless the Effective Date shall have occurred on
or prior to such date.
(b) In addition to any other mandatory commitment reductions pursuant
to this Section 2.02, the Total Commitment (and the Commitment of each Lender)
shall terminate in its entirety on the Effective Date (after giving effect to
the making of Loans on such date).
SECTION 3. Prepayments; Payments; Taxes.
----------------------------
3.01 Voluntary Prepayments. The Borrower shall have the right to
---------------------
prepay the Loans, without premium or penalty, in whole or in part at any time
and from time to time on the following terms and conditions: (i) the Borrower
shall give the Administrative Agent prior to 12:00 Noon (New York time) at its
Notice Office (x) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of the Borrower's intent to
prepay Base Rate Loans and (y) at least three Business Days' prior written
notice (or telephonic notice promptly confirmed in writing) of the Borrower's
intent to prepay Eurodollar Loans, the amount of such prepayment and the Types
of Loans to be prepaid and, in the case of Eurodollar Loans, the specific
Borrowing or Borrowings pursuant to which made, which notice the Administrative
Agent shall promptly transmit to each of the Lenders; (ii) each prepayment of
Loans shall be in an aggregate principal amount of at least $1,000,000, provided
--------
that if any partial prepayment of Eurodollar Loans made pursuant to any
Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto, then such Borrowing may not be continued as a Borrowing of Eurodollar
Loans and any election of an Interest Period with respect thereto given by the
Borrower shall have no force or effect; and (iii) each prepayment in respect of
any Loans made pursuant to a Borrowing shall be applied pro rata among the
--- ----
Lenders which made such Loans, provided that in connection with any prepayment
--------
of Loans pursuant to this Section 3.01(a), such prepayment shall not be applied
to any Loans of a Defaulting Lender.
-11-
<PAGE>
3.02 Mandatory Repayments. (a) If at any time the aggregate
--------------------
outstanding principal amount of Loans exceeds the Borrowing Base at such time (a
"Borrowing Base Deficiency"), the Borrower shall, within ten days of such event,
prepay Loans then outstanding in an amount equal to such excess, less any
amounts prepaid under the Revolving Credit Agreement pursuant to Section 4.02(b)
thereof.
(b) The Borrower shall prepay Loans in connection with Asset Sales
and Asset Encumbrances as necessary to avoid the occurrence of Defaults or
Events of Default as set forth in Section 6.01(l) after giving effect to any
amounts prepaid under the Revolving Credit Agreement pursuant to Section 4.02(c)
thereof.
(c) With respect to each repayment of Loans required by this Section
3.02, the Borrower may designate the Types of Loans which are to be repaid and,
in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant
to which made, provided that: (i) if any repayment of Eurodollar Loans made
--------
pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans
made pursuant to such Borrowing to an amount less than the Minimum Borrowing
Amount applicable thereto, such Borrowing shall be converted at the end of the
then current Interest Period into a Borrowing of Base Rate Loans and (ii) each
repayment of Loans made pursuant to the same Borrowing shall be applied pro rata
--- ----
among the Lenders which made such Loans. In the absence of a designation by the
Borrower as described in the preceding sentence, the Administrative Agent shall,
subject to the above, make such designation in its sole discretion.
3.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement or any Note (other than
interest payments deducted from the Operating Account pursuant to Section 6.16)
shall be made to the Administrative Agent for the account of the Lender or
Lenders entitled thereto not later than 12:00 Noon (New York time) on the date
when due and shall be made in Dollars in immediately available funds at the
Payment Office of the Administrative Agent. Whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
3.04 Net Payments; Taxes. (a) All payments made by the Borrower
-------------------
hereunder or under any Note will be made without reduction on account of any
setoff, counterclaim or other defense. Except as provided in Section 3.04(b),
all such
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<PAGE>
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction or
by any political subdivision or taxing authority thereof or therein with respect
to such payments (but excluding any tax imposed on or measured by the net income
or net profits of a Lender, or any franchise tax, in either case pursuant to the
laws of the jurisdiction in which it is organized or the jurisdiction in which
the principal office or applicable lending office of such Lender is located or
any subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees or other charges (all such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges being referred to collectively as "Taxes").
The Borrower will furnish to the Administrative Agent within 45 days after the
date the payment of any Taxes is due pursuant to applicable law certified copies
of tax receipts evidencing such payment by the Borrower. Except as provided in
Section 3.04(b), the Borrower agrees to indemnify and hold harmless each Lender,
and reimburse such Lender upon its written request, for the amount of any Taxes
so levied or imposed and paid by such Lender.
(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Administrative Agent on or prior to the Effective Date, or in the case
of a Lender that is an assignee or transferee of an interest under this
Agreement pursuant to Section 1.13 or 11.04 (unless the respective Lender was
already a Lender hereunder immediately prior to such assignment or transfer), on
the date of such assignment or transfer to such Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor or additional forms) certifying to such Lender's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any Note, or (ii) if the Lender is not
a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot
deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i)
above, (x) a certificate substantially in the form of Exhibit C (any such
certificate, a "Section 3.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor or additional forms) certifying to such Lender's entitlement to a
complete exemption from United States withholding tax with respect to payments
of interest to be made under this Agreement and under any Note. In addition,
each Lender agrees that from time to time after the Effective Date, when a lapse
in time or change in circumstances renders the previous certification obsolete
or inaccurate in any material respect, such Lender will promptly deliver to the
Borrower and the Administrative Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor or
additional forms), or Form W-8 (or successor or additional forms) and a Section
-13-
<PAGE>
3.04(b)(ii) Certificate, as the case may be, and such other forms as may be
required in order to confirm or establish the entitlement of such Lender to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement and any Note, or it shall immediately
notify the Borrower and the Administrative Agent of its inability to deliver any
such Form or Certificate, in which case such Lender shall not be required to
deliver any such Form or Certificate pursuant to this Section 3.04(b).
Notwithstanding anything to the contrary contained in Section 3.04(a), but
subject to Section 11.04(b) and the immediately succeeding sentence, (x) the
Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from interest,
Fees or other amounts payable hereunder for the account of any Lender which is
not a United States person (as such term is defined in Section 7701(a)(30) of
the Code) for U.S. Federal income tax purposes to the extent that such Lender
has not provided to the Borrower U.S. Internal Revenue Service Forms that
establish a complete exemption from such deduction or withholding and (y) the
Borrower shall not be obligated pursuant to Section 3.04(a) to gross-up payments
to be made to a Lender in respect of income or similar taxes imposed by the
United States if (I) such Lender has not provided to the Borrower the Internal
Revenue Service Forms required to be provided to the Borrower pursuant to this
Section 3.04(b) or (II) in the case of a payment, other than interest, to a
Lender described in clause (ii) above, to the extent that such Forms do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 3.04 and except as set forth in Section 11.04(b), the Borrower
agrees to pay additional amounts and to indemnify each Lender in the manner set
forth in Section 3.04(a) (without regard to the identity of the jurisdiction
requiring the deduction or withholding) in respect of any Taxes deducted or
withheld by it as described in the immediately preceding sentence as a result
of any changes after the Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of such Taxes.
SECTION 4. Conditions Precedent to Effective Date. The obligation of
--------------------------------------
each Lender to make Loans on the Effective Date is subject to the satisfaction
of the following conditions:
4.01 Execution of Agreement; Notes. (i) This Agreement shall have
-----------------------------
been executed and delivered as provided in Section 11.10(i) and (ii) there shall
have been delivered to the Administrative Agent for the account of each of the
Lenders the appropriate Note executed by the Borrower, in each case in the
amount, maturity and as otherwise provided herein.
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<PAGE>
4.02 Fees, etc. On the Effective Date, the Borrower shall have paid
----------
to the Agents and the Lenders all costs, fees and expenses (including, without
limitation, legal fees and expenses) payable to the Arrangers and the Lenders to
the extent then due.
4.03 Opinions of Counsel. On the Effective Date, the Administrative
-------------------
Agent shall have received from counsel to the Credit Parties, an opinion or
opinions addressed to each of the Arrangers and each of the Lenders and dated
the Effective Date covering the matters set forth in Exhibit D and such other
matters incident to the transactions contemplated herein as the Administrative
Agent may reasonably request.
4.04 Trust, Corporate, Limited Liability Company and Partnership
-----------------------------------------------------------
Documents; Proceedings; etc. (a) On the Effective Date, the Administrative
- ----------------------------
Agent shall have received a certificate, dated the Effective Date, signed by the
Secretary or an Assistant Secretary of each Credit Party (or from the Secretary
or an Assistant Secretary of the general partner of each Credit Party that is a
partnership), in the form of Exhibit E with appropriate insertions, together
with copies of the declaration of trust, the certificate of incorporation and
by-laws, limited liability company agreement or other organizational documents
(including partnership agreements and certificates of partnership) of each such
Credit Party and the resolutions of each Credit Party referred to in such
certificate, and the foregoing shall be reasonably acceptable to the
Administrative Agent.
(b) On the Effective Date, all trust, corporate, limited liability
company, partnership and legal proceedings and all instruments and agreements in
connection with the transactions contemplated by this Agreement and the other
Credit Documents shall be reasonably satisfactory in form and substance to the
Administrative Agent and the Required Lenders, and the Administrative Agent
shall have received all information and copies of all documents and papers,
including records of corporate and partnership proceedings, governmental
approvals, good standing certificates and bring-down telegrams, if any, which
the Administrative Agent may have reasonably requested in connection therewith,
such documents and papers where appropriate to be certified by proper trust,
corporate, limited liability company, partnership or governmental authorities.
4.05 Affiliate Guaranty. On the Effective Date, each Person which is
------------------
an Affiliate Guarantor on such date shall have duly authorized, executed and
delivered a guaranty in the form of Exhibit F (as modified, amended or
supplemented from time to time, the "Affiliate Guaranty").
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<PAGE>
4.06 Adverse Change; Approvals. (a) On the Effective Date, nothing
-------------------------
shall have occurred (and the Lenders shall have become aware of no facts,
conditions or other information not previously known) which the Administrative
Agent or the Required Lenders believe would reasonably be expected to have (i) a
material adverse effect on the rights or remedies of the Administrative Agent or
the Lenders, or on the ability of any Credit Party to perform its respective
obligations to the Administrative Agent and the Lenders or (ii) a Material
Adverse Effect.
(b) On or prior to the Effective Date, all necessary governmental
(domestic and foreign) and third party approvals (if any) in connection with the
making of the Loans and the transactions contemplated by the Credit Documents
and otherwise referred to herein or therein shall have been obtained and remain
in effect, and all applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents or
imposes materially adverse conditions upon the making of the Loans and the
transactions contemplated by the Credit Documents. Additionally, there shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunctive relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the making of the
Loans or the transactions contemplated by the Credit Documents.
4.07 Litigation. Except as set forth on Schedule III, on the
----------
Effective Date, no litigation by any entity (private or governmental) shall be
pending or, to the Best Knowledge of Patriot REIT or the Borrower, threatened
(i) with respect to the making of the Loans or the Credit Documents or any
documentation executed in connection therewith or (ii) which the Administrative
Agent or the Required Lenders believe would reasonably be expected to have a
Materially Adverse Effect.
4.08 Solvency Certificate; Insurance Certificates. On or prior to
--------------------------------------------
the Effective Date, there shall have been delivered to the Administrative Agent:
(a) a solvency certificate in the form of Exhibit G, addressed to
each of the Arrangers and each of the Lenders and dated the Effective Date
from an Authorized Financial Officer of Patriot REIT; and
(b) certificates of insurance complying with the requirements of
Section 6.03 for the business and properties of Patriot REIT, the Borrower
and the other Guarantors, in scope, form and substance reasonably
satisfactory to the Administrative Agent and the Required Lenders.
4.09 Pro Forma Balance Sheets; Projections. On the Effective Date,
-------------------------------------
the Arrangers shall have received unaudited pro forma consolidated balance
--- -----
sheets dated
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<PAGE>
September 30, 1997 and the projections dated the Effective Date (the
"Projections") in each case of Patriot REIT and its Subsidiaries and of NPOC and
its Subsidiaries, prepared in a format consistent with the financial statements
referred to in Section 5.05(a), after giving effect to the transactions
contemplated hereby, which consolidated balance sheets and Projections shall be
in form and substance reasonably satisfactory to the Arrangers and the Required
Lenders.
4.10 Initial Borrowing Base Certificate. On the Effective Date, the
----------------------------------
Borrower shall have delivered to the Arrangers the initial Borrowing Base
Certificate in the form of Exhibit H.
4.11 Eligible Hotel Documents. On the Effective Date, the Borrower
------------------------
shall have delivered to the Administrative Agent the Eligible Hotel Documents
relating to the Initial Eligible Hotels.
4.12 No Default; Representations and Warranties. On the Effective
------------------------------------------
Date and after giving effect to the Loans made on such date, (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the Effective Date (it being understood and agreed
that any representation or warranty which by its terms is made as of a specified
date shall be required to be true and correct in all material respects only as
of such specified date).
4.13 Amendment and Restatement of the Revolving Credit Agreement. On
-----------------------------------------------------------
or prior to the Effective Date, the Revolving Credit Agreement shall have been
amended and restated pursuant to an amendment and restatement in form and
substance satisfactory to the Administrative Agent and the Required Lenders.
4.14 Notice of Borrowing. Prior to the making of any Loan on the
-------------------
Effective Date, the Administrative Agent shall have received a Notice of
Borrowing meeting the requirements of Section 1.03(a).
4.15 Crow Transaction. On or prior to the Effective Date, there
----------------
shall have been delivered to the Administrative Agent and the Lenders true and
correct copies of the Crow Acquisition Documents; the Crow Acquisition Documents
shall have been duly executed and delivered by the parties thereto and shall be
in full force and effect; all conditions precedent to the consummation of the
Crow Transaction as set forth in the Crow Acquisition Documents shall have been
satisfied, and not waived except with the consent (which will not be
unreasonably withheld) of each Arranger, to the satisfaction of each Arranger;
and the Crow Transaction shall have been, or shall
-17-
<PAGE>
substantially contemporaneously be, consummated in accordance with the Crow
Acquisition Documents and all applicable law (excluding violations of law which
could not reasonably be expected to have, in the aggregate for all such
violations, a Material Adverse Effect); and
The occurrence of the Effective Date and the acceptance of the
proceeds of the Loans made on such date shall constitute a representation and
warranty by Patriot REIT and the Borrower to each of the Arrangers and each of
the Lenders that all the conditions specified in this Section 4 exist as of the
Effective Date (except to the extent that any of the conditions specified in
this Section 4 are required to be satisfactory to or determined by any Lender,
the Required Lenders and/or the Administrative Agent or otherwise expressly
calls for a subjective determination to be made by any Lender, the Required
Lenders and/or the Administrative Agent). All of the Notes, certificates, legal
opinions and other documents and papers referred to in this Section 4, unless
otherwise specified, shall be delivered to the Administrative Agent at the
Notice Office for the account of each of the Lenders and, except for the Notes,
in sufficient counterparts or copies for each of the Lenders and shall be in
form and substance reasonably satisfactory to the Arrangers.
SECTION 5. Representations and Warranties. In order to induce the
------------------------------
Lenders to enter into this Agreement and to make the Loans, each of Patriot REIT
and the Borrower makes the following representations and warranties, all of
which shall survive the execution and delivery of this Agreement and the Notes
and the making of the Loans, with the occurrence of the Effective Date being
deemed to constitute a representation and warranty that the matters specified in
this Section 5 are true and correct on and as of the Effective Date (it being
understood and agreed that any representation or warranty which by its terms is
made as of a specified date shall be required to be true and correct in all
material respects only as of such specified date). To the extent Patriot REIT
or the Borrower makes any representation or warranty hereunder with respect to
any other Guarantor or any Subsidiary of such Guarantor which is not a
Subsidiary of Patriot REIT or the Borrower, as the case may be, or is not
controlled by Patriot REIT or the Borrower, as the case may be, such
representations and warranties are made as to the Best Knowledge of Patriot REIT
or the Borrower, including taking into account all statements, representations
and warranties made by such Person in any Credit Document.
5.01 Trust, Corporate, Limited Liability Company and Partnership
-----------------------------------------------------------
Status. Patriot REIT, the Borrower and each of the other Guarantors, and their
- ------
respective Subsidiaries (i) is a duly organized and validly existing real estate
investment trust, corporation, partnership or limited liability company, as the
case may be, in good standing (if applicable) under the laws of the jurisdiction
of its organization, (ii) has the
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<PAGE>
trust, corporate, partnership or limited liability company power and authority,
as the case may be, to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage and (iii) is duly
qualified and is authorized to do business and is in good standing in each
jurisdiction where the conduct of its business requires such qualifications
except for failures to be so qualified which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.
5.02 Trust, Corporate, Limited Liability Company or Partnership Power
----------------------------------------------------------------
and Authority. Each Credit Party has the trust, corporate, partnership or
- -------------
limited liability company power and authority, as the case may be, to execute,
deliver and per form the terms and provisions of each of the Credit Documents to
which it is a party and has taken all necessary trust, corporate, partnership or
limited liability company action, as the case may be, to authorize the
execution, delivery and performance by it of each of such Credit Documents.
Each Credit Party has duly executed and delivered each of the Credit Documents
to which it is a party, and each of such Credit Documents constitutes the
legal, valid and binding obligation of such Credit Party enforce able in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).
5.03 No Violation. Neither the execution, delivery or performance by
------------
any Credit Party of the Credit Documents to which it is a party, nor compliance
by it with the terms and provisions thereof, (i) will contravene any provision
of any applicable law, statute, rule or regulation or any applicable order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the properties or assets of Patriot REIT, the Borrower or any of the
other Guarantors, or any of their respective Subsidiaries, pursuant to the terms
of any indenture, mortgage, deed of trust, credit agreement or loan agreement,
or any other material agreement, contract or instrument, to which Patriot REIT,
the Borrower or any of the other Guarantors, or any of their respective
Subsidiaries, is a party or by which it or any of its property or assets is
bound or to which it may be subject or (iii) will violate any provision of the
declaration of trust, certificate of incorporation, partnership agreement,
certificate of partnership, limited liability company agreement or by-laws, as
the case may be, of Patriot REIT, the Borrower or any of the other Guarantors,
or any of their respective Subsidiaries.
-19-
<PAGE>
5.04 Governmental Approvals. No order, consent, approval, license,
----------------------
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made and which remain in full force and
effect), or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, (i) the execution, delivery and performance of any Credit Document or (ii)
the legality, validity, binding effect or enforceability of any such Credit
Document.
5.05 Financial Statements; Financial Condition; Undisclosed
------------------------------------------------------
Liabilities; Projections; etc. (a) (i) The unaudited cash flow statements for
- ------------------------------
each Initial Eligible Hotel for each of (x) the three-month period ended on
September 30, 1997 and (y) the latest twelve-month period ended on December 31,
1996 and (ii) the pro forma balance sheet of Patriot REIT and NPOC and their
--- -----
Subsidiaries prepared on a Company Combined Basis at September 30, 1997 and the
pro forma combined cash flow statements for the latest twelve-month period ended
- --- -----
December 31, 1996 (which statements have been prepared based on the assumption
that (x) in the case of the balance sheet, that the Initial Eligible Hotels were
acquired on or before September 30, 1997 and (y) in the case of the cash flow
statements, that the Initial Eligible Hotels were acquired on or before
September 30, 1997) each present fairly the historical financial results of the
Initial Eligible Hotels. All information (other than projections) furnished to
the Lenders prior to the Effective Date with respect to the Initial Eligible
Hotels, or furnished pursuant to Section 6.11 with respect to subsequently
acquired or designated Eligible Hotels is, to the Best Knowledge of Patriot REIT
and the Borrower, true and accurate in all material respects and not incomplete
by omitting to state any fact necessary to make such information not misleading
in any material respect. Since September 30, 1997, there have been no events or
changes which would reasonably be expected to have a Material Adverse Effect.
(b) On and as of the Effective Date, on a Pro Forma Basis after
giving effect to all Indebtedness (including the Loans) being incurred or
assumed by each Credit Party in connection therewith, (x) the sum of the assets,
at a fair valuation, of Patriot REIT, the Borrower and the other Guarantors
(taken as a whole) and the Borrower (on a stand-alone basis) will exceed their
respective debts, (y) Patriot REIT, the Borrower and the other Guarantors (taken
as a whole) and the Borrower (on a stand-alone basis) have not incurred and do
not intend to incur, and do not believe that they will incur, debts beyond their
ability to pay such debts as such debts mature and (z) Patriot REIT, the
Borrower and the other Guarantors (taken as a whole) and the Borrower (on a
stand-alone basis) shall not have unreasonably small capital with which to
conduct their respective businesses. For purposes of this Section 5.05(b)
"debt" means any liability on a claim, and "claim" means (i) right to payment
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent,
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<PAGE>
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
or (ii) right to an equitable remedy for breach of performance if such breach
gives rise to a payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(c) Except as fully disclosed or reflected in the financial
statements delivered pursuant to Section 5.05(a), there were as of the Effective
Date no liabilities or obligations with respect to Patriot REIT, the Borrower or
any of the other Guarantors, or any of their respective Subsidiaries, of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in aggregate, would be
material to Patriot REIT, the Borrower and the other Guarantors taken as a
whole. As of the Effective Date, the Senior Management of neither Patriot REIT
nor the Borrower knows of any basis for the assertion against it of any
liability or obligation of any nature that is not fully disclosed in the
financial statements delivered pursuant to Section 5.05(a) which would
reasonably be expected to be material to Patriot REIT, the Borrower and the
other Guarantors taken as a whole.
(d) On and as of the Effective Date, the Projections, including those
prepared on a combined basis for Patriot REIT, the Borrower and the other
Guarantors and those prepared for the individual Initial Eligible Hotels
delivered to the Arrangers and the Lenders prior to the Effective Date have been
prepared on a basis consistent with the financial statements referred to in
Section 5.05(a) (other than as set forth or presented in such Projections), and
there are no statements or conclusions in any of the Projections which are based
upon or include information known to the Senior Management of Patriot REIT or
the Borrower to be misleading in any material respect. On the Effective Date,
the Senior Management of each of Patriot REIT and the Borrower believed that the
Projections were reasonable. On the date of the delivery of any projections
with respect to each subsequently acquired or designated Eligible Hotel, there
shall be no statements or conclusions in any of such projections which, to the
Best Knowledge of each of Patriot REIT and the Borrower, are based upon or
include information known to be misleading in any material respect. On the date
any such projections are furnished pursuant to Section 6.11, the Senior
Management of each of Patriot REIT and the Borrower shall believe that such
projections are reasonable; it being recognized by the Lenders that projections
(including the Projections) as to future results are not to be viewed as facts
and that the actual results for the period or periods covered by such
projections may differ from the projected results.
5.06 Litigation. Except as set forth on Schedule III, there are no
----------
actions, suits or proceedings pending or, to the Best Knowledge of each of
Patriot REIT
-21-
<PAGE>
and the Borrower, threatened (i) with respect to any Credit Document or (ii)
that would reasonably be expected to have a Material Adverse Effect.
5.07 True and Complete Disclosure. All factual information (taken as
----------------------------
a whole) furnished by or on behalf of Patriot REIT, the Borrower or any of the
other Guarantors, or any of their respective Subsidiaries, in writing to the
Administrative Agent or any Lender (including, without limitation, all
information contained in the Credit Documents and all information furnished to
the Lenders with respect to the Initial Eligible Hotels prior to the Effective
Date or furnished pursuant to Section 6.11 with respect to subsequently acquired
or designated Eligible Hotels but excluding projections) for purposes of or in
connection with this Agreement, the other Credit Documents or any transaction
contemplated herein or therein is, and all other such factual information (taken
as a whole) hereafter furnished by or on behalf of Patriot REIT, the Borrower or
any of the other Guarantors, or any of their respective Subsidiaries, in writing
to the Administrative Agent or any Lender will be, to the Best Knowledge of each
of Patriot REIT and the Borrower, true and accurate in all material respects on
the date as of which such information is dated or certified and, to the Best
Knowledge of each of Patriot REIT and the Borrower, not incomplete by omitting
to state any fact necessary to make such information (taken as a whole) not
misleading in any material respect at such time in light of the circumstances
under which such information was provided (subject, in the case of any
information referred to in Section 5.05, to the qualifications (if any) set
forth in Section 5.05 with respect to any such information).
5.08 Use of Proceeds; Margin Regulations. (a) The proceeds of all
-----------------------------------
Loans shall be used by the Borrower, subject to the other restrictions set forth
in this Agreement, to fund a portion of the cash component of the Crow
Transaction, the Wyndham Transaction and other acquisitions, renovations and
working capital of the Borrower and, to the extent permitted under this
Agreement, its Subsidiaries.
(b) No part of the proceeds of the Loans will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
5.09 Tax Returns and Payments. Patriot REIT, the Borrower and each
------------------------
of the other Guarantors, and each of their respective Subsidiaries, has timely
filed or caused to be timely filed, on the due dates thereof or within
applicable grace periods, with the appropriate taxing authority, all Federal
income tax returns and other returns, statements, forms and reports for taxes
(the "Returns") required to be filed by or with
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<PAGE>
respect to the income, properties or operations of Patriot REIT, the Borrower
and/or the other Guarantors, and each of their respective Subsidiaries, as the
case may be, except where the failure to file such Returns (other than Federal
income tax returns of Patriot REIT, the Borrower and NPOC, which must be filed
in any event) would not be reasonably expected to have a Material Adverse
Effect. The Returns accurately reflect to the Best Knowledge of each of Patriot
REIT or the Borrower in all material respects (subject to any right to contest
tax liabilities in good faith) all liability for taxes of Patriot REIT, the
Borrower and the other Guarantors, and each of their respective Subsidiaries,
for the periods covered thereby. Patriot REIT, the Borrower and each of the
other Guarantors, and each of their respective Subsidiaries, has paid all
material taxes payable by them other than taxes which are not delinquent, and
other than those contested in good faith and for which adequate reserves have
been established in accordance with generally accepted accounting principles.
There is no material action, suit, proceeding, investigation, audit, or claim
now pending or, to the Best Knowledge of each of Patriot REIT and the Borrower,
threatened by any authority regarding (i) Patriot REIT's qualification as a real
estate investment trust or (ii) any taxes relating to Patriot REIT, the Borrower
or any of the other Guarantors, or any of their respective Subsidiaries, the
result of which in the case of this clause (ii) would be reasonably expected to
have a Material Adverse Effect.
5.10 Compliance with ERISA. Each Plan that is a single employer plan
---------------------
as defined in Section 4001(a)(15) of ERISA (a "Single Employer Plan") is in
substantial compliance with ERISA and the Code; no Reportable Event has occurred
with respect to a Single Employer Plan; no Single Employer Plan is insolvent or
in reorganization; to the Best Knowledge of each of Patriot REIT and the
Borrower, no Multiemployer Plan is insolvent or in reorganization; no Single
Employer Plan has an Unfunded Current Liability; no Single Employer Plan which
is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated
funding deficiency, within the meaning of such Sections of the Code or ERISA, or
has applied for or received an extension of any amortization period within the
meaning of Section 412 of the Code or Sections 303 or 304 of ERISA; all
contributions required to be made by Patriot REIT, the Borrower or any of their
respective Subsidiaries or any ERISA Affiliate with respect to a Plan and a
Foreign Pension Plan have been timely made; neither Patriot REIT, the Borrower
nor any of their respective Subsidiaries nor any ERISA Affiliate has incurred
any material liability to or on account of a Plan pursuant to Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971, 4975 or 4980 of the Code or reasonably expects to
incur any material liability (including any indirect, contingent, or secondary
liability) under any of the foregoing Sections with respect to any Plan; no
proceedings have been instituted to terminate or appoint a trustee to administer
any Single Employer Plan; to the Best Knowledge of each of Patriot REIT and the
Borrower, no proceedings have been instituted to
-23-
<PAGE>
terminate or appoint a trustee to administer any Multiemployer Plan; no
condition exists which presents a reasonably likely risk to Patriot REIT, the
Borrower or any of their respective Subsidiaries or any ERISA Affiliate of
incurring a material liability to or on account of a Single Employer Plan
pursuant to the foregoing provisions of ERISA and the Code; to the Best
Knowledge of each of Patriot REIT and the Borrower, no condition exists which
presents a reasonably likely risk to Patriot REIT, the Borrower or any of their
respective Subsidiaries or any ERISA Affiliate of incurring any material
liability to or on account of a Multiemployer Plan pursuant to the foregoing
provisions of ERISA and the Code; based solely upon information as may be
requested by, and provided to Patriot REIT or the Borrower by the sponsors of
the Multiemployer Plans, the Senior Management of each of Patriot REIT and the
Borrower believes that the aggregate liabilities of Patriot REIT, the Borrower
and their respective Subsidiaries and ERISA Affiliates to all Multiemployer
Plans in the event of a complete withdrawal therefrom, as of the close of the
most recent fiscal year of each such Plan ended prior to the date hereof, would
not be reasonably likely to have a Material Adverse Effect; each group health
plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code)
which covers or has covered employees or former employees of Patriot REIT, the
Borrower or any of their respective Subsidiaries or any ERISA Affiliate has at
all times been operated in substantial compliance with the provisions of Part 6
of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed
under the Code or ERISA on the assets of Patriot REIT, the Borrower or any of
their respective Subsidiaries or any ERISA Affiliate exists or, to the Best
Knowledge of each of Patriot REIT and the Borrower, is likely to arise on
account of any Plan; and Patriot REIT, the Borrower and the other Guarantors may
cease contributions to or terminate each employee benefit plan maintained by any
of them (if any) without incurring any material liability.
5.11 Real Properties. (a) Patriot REIT, the Borrower and each of the
---------------
other Guarantors, and each of their respective Subsidiaries, has good and
marketable fee simple absolute title to all material Real Property purported to
be owned by them, and has good and marketable title to, or valid leasehold
interests in, all other material Real Property purported to be leased by them,
on any date on which this representation and warranty is made or deemed made
including all material Real Property reflected in the consolidated balance
sheets of Patriot REIT referred to in Section 5.05(a) and in the pro forma
--- -----
balance sheet referred to in Section 4.09 (except as sold or otherwise disposed
of since the date of such balance sheets in the ordinary course of business),
free and clear of all Liens, other than Permitted Liens. Schedule IV contains a
true and complete list of each Hotel owned or leased by Patriot REIT, the
Borrower, the other Guarantors, or any of their respective Subsidiaries on the
Effective Date, and the type of interest therein held by Patriot REIT, the
Borrower, any such Guarantor, or any of their respective Subsidiaries.
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(b) All material Real Property leased on the Effective Date by the
Borrower, any of the Guarantors, or any of their respective Subsidiaries, is
listed on Schedule IV. To the Best Knowledge of each of Patriot REIT and the
Borrower, each of such leases is valid and enforceable in accordance with its
terms and is in full force and effect in all material respects. The Borrower has
delivered to the Administrative Agent true and complete copies of each of such
material leases and all material documents affecting the rights or obligations
of Patriot REIT, the Borrower, any of the other Guarantors, or any of their
respective Subsidiaries, which is a party thereto, including, without
limitation, any non-disturbance and recognition agreements, subordination
agreements, attornment agreements and agreements regarding the term or rental of
any of the leases. None of Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, nor, to the Best Knowledge
of each of Patriot REIT and the Borrower, any other party to any such lease is
in default of its obligations thereunder or has delivered or received any notice
of default under any such lease, nor has any event occurred which, with the
giving of notice, the passage of time or both, would constitute a default under
any such lease, except for defaults which would not reasonably be expected to
have a Material Adverse Effect.
5.12 Subsidiaries. On the Effective Date, all Subsidiaries of
------------
Patriot REIT and NPOC shall be as set forth on Schedule V, and the ownership
interests therein shall be as set forth on Schedule V.
5.13 Compliance with Statutes, etc. (a) Each of Patriot REIT, the
------------------------------
Borrower and the other Guarantors, and each of their respective Subsidiaries, is
in compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property (including applicable statutes, regulations, orders and restrictions
relating to environmental standards and controls), except such noncompliances as
would not reasonably be expected to have a Material Adverse Effect.
(b)(i) To the Best Knowledge of each of Patriot REIT and the
Borrower, each Hotel complies in all material respects with all Legal
Requirements, (ii) all material consents, licenses (including liquor licenses),
certificates and permits required by all Legal Requirements for the operation of
each Hotel have been obtained and are in full force and effect and (iii) all
utility services and facilities necessary for the operation of each Hotel are
available at such Hotel, except such non-compliances or failures to comply,
obtain or have in full force and effect and available as would not reasonably be
expected to have a Material Adverse Effect.
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5.14 Investment Company Act. Neither Patriot REIT, the Borrower nor
----------------------
any of their respective Subsidiaries is an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
5.15 Public Utility Holding Company Act. Neither Patriot REIT, the
----------------------------------
Borrower nor any of their respective Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
5.16 Environmental Matters. (a) To the Best Knowledge of each of
---------------------
Patriot REIT and the Borrower, Patriot REIT, the Borrower and each of the other
Guarantors, and each of their respective Subsidiaries, has complied with all
applicable Environmental Laws and the requirements of any permits issued under
such Environmental Laws. To the Best Knowledge of each of Patriot REIT and the
Borrower, there are no pending or threatened Environmental Claims against
Patriot REIT, the Borrower, any of the other Guarantors, or any of their
respective Subsidiaries, or any Real Property owned or operated by Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries. To the Best Knowledge of each of Patriot REIT and the Borrower,
there are no facts, circumstances, conditions or occurrences on any Real
Property owned or operated by Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, or on any property
adjoining or in the vicinity of any such Real Property that would reasonably be
expected (i) to form the basis of an Environmental Claim against Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries, or any such Real Property or (ii) to cause any such Real Property
to be subject to any restrictions on the ownership, occupancy, use or transfer
ability of such Real Property by Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, under any applicable
Environmental Law.
(b) To the Best Knowledge of each of Patriot REIT and the Borrower,
Hazardous Materials have not at any time been generated, used, treated or stored
on, or transported to or from, or Released on or from, any Real Property owned
or operated by Patriot REIT, the Borrower, any of the other Guarantors, or any
of their respective Subsidiaries, except in compliance with all applicable
Environmental Laws and reasonably required in connection with the operation, use
and maintenance of any such Real Property by Patriot REIT's, the Borrower's,
such Guarantor's, or such Subsidiary's business.
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(c) Notwithstanding anything to the contrary in this Section 5.16,
the representations made in this Section 5.16 shall only be untrue if the
aggregate effect of all Environmental Claims, restrictions, failures and
noncompliance of the types described above would reasonably be expected to have
a Material Adverse Effect.
5.17 Labor Relations. None of Patriot REIT, the Borrower, any of the
---------------
other Guarantors or any of their respective Subsidiaries, is engaged in any
unfair labor practice that would reasonably be expected to have a Material
Adverse Effect. To the Best Knowledge of each of Patriot REIT and the Borrower,
there is (i) no unfair labor practice complaint pending or threatened against
Patriot REIT, the Borrower, any of the other Guarantors or any of their
respective Subsidiaries before the National Labor Relations Board and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending or threatened against
any of them, or (ii) no strike, labor dispute, slowdown or stoppage is pending
or threatened against Patriot REIT, the Borrower, any of the other Guarantors or
any of their respective Subsidiaries, in each case with respect to the Hotels,
except with respect to any matter specified in clause (i) or (ii) above such as
would not reasonably be expected to have a Material Adverse Effect.
5.18 Intellectual Property. Patriot REIT, the Borrower, each of the
---------------------
other Guarantors, and each of their respective Subsidiaries, owns or has the
right or ability to use all trademarks, permits, service marks, trade names,
licenses and franchises which are material and necessary for the conduct of its
respective businesses.
5.19 Indebtedness. (a) Schedule VI sets forth a true and complete
------------
list of all Indebtedness in excess of $1,000,000 of Patriot REIT, the Borrower,
the other Guarantors, and their respective Subsidiaries, as of the Effective
Date and intended to remain outstanding after such date (excluding the Loans,
the "Existing Indebtedness"), in each case showing the aggregate principal
amount thereof and the name of the respective borrower and any other entity
which directly or indirectly guaranteed such debt.
5.20 Ground Leases. Each ground lease with respect to any Hotel
-------------
which is located on a Leasehold is in full force and effect and no party thereto
has denied or disaffirmed any of its material obligations thereunder or has
defaulted (beyond applicable cure and notice periods) in the due performance or
observance of any material term, covenant or agreement on its part to be
performed or observed pursuant thereto, except in the case of any ground leases
other than Qualified Ground Leases relating to Eligible Hotels such denials,
disaffirmations and defaults as would not reasonably be expected to have a
Material Adverse Effect.
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5.21 Status as REIT. Patriot REIT is organized in conformity with
--------------
the requirements for qualification as a real estate investment trust under the
Code. Patriot REIT has met all of the requirements for qualification as a real
estate investment trust under the Code for its Fiscal Year ended December 31,
1996. Patriot REIT is in a position to qualify for its current Fiscal Year as a
real estate investment trust under the Code and its proposed methods of
operation will enable it to so qualify.
5.22 Operators. Each Affiliated Operator, and to the Best Knowledge
---------
of each of Patriot REIT and the Borrower, each Third Party Operator, has full
power and authority and the legal right to own, lease (or sublease), manage and
operate (as applicable) the properties it operates and to conduct the business
in which it is currently engaged with respect to any Real Property owned or
leased by Patriot REIT, the Borrower, any of the other Guarantors, or any of
their respective Subsidiaries, except in the case of the operation by Third
Party Operators of Hotels other than Eligible Hotels such failures as would not
reasonably be expected to have a Material Adverse Effect.
5.23 Eligible Hotels. On and as of the Effective Date, each of the
---------------
Hotels included in the Borrowing Base on such date meets all of the conditions
and requirements for treatment as an Eligible Hotel (except to the extent (i)
expressly waived by the Administrative Agent on the Election Date or (ii) such
representation is deemed withdrawn pursuant to Section 6.11(b)) under this
Agreement. On and as of the Addition Date for any Hotel, such Hotel being added
to the Borrowing Base meets all of the conditions and requirements for treatment
as an Eligible Hotel under this Agreement. On any date, each of the Hotels
included in the Borrowing Base on such date (other than (i) any Hotel for which
the Administrative Agent has received notice of the type described in Section
6.11(c)(i) or as to which the Administrative Agent has waived any non-
eligibility, to the extent so waived or (ii) any Hotel as to which such
representation is deemed withdrawn pursuant to Section 6.11(b)) meets all of the
conditions and requirements for treatment as an Eligible Hotel under this
Agreement.
SECTION 6. Affirmative Covenants. Each of Patriot REIT and the
---------------------
Borrower hereby covenants and agrees that on and after the Effective Date and
until the Loans and the Notes, together with interest, Fees and all other
Obligations incurred hereunder and thereunder, are paid in full:
6.01 Information Covenants. Patriot REIT will furnish to the
---------------------
Administrative Agent (with sufficient copies for each of the Lenders, which the
Administrative Agent will promptly forward to each of the Lenders):
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(a) Quarterly Financial Statements. Within 45 days after the end of
------------------------------
each Fiscal Quarter, (i) the consolidated balance sheet of Patriot REIT and
NPOC and their Subsidiaries calculated on a Company Combined Basis, as at
the end of such quarterly accounting period, (ii) the related consolidated
state ments of income for such quarterly accounting period and for the
elapsed portion of the fiscal year ended with the last day of such
quarterly accounting period and (iii) the related consolidated statements
of cash flows for such quarterly accounting period and for the elapsed
portion of the fiscal year ended with the last day of such quarterly
accounting period, in each case setting forth comparative figures for the
corresponding fiscal periods in the prior fiscal year, all of which shall
be in reasonable detail and certified by an Authorized Financial Officer of
Patriot REIT that, to the best of such officer's knowledge after due
inquiry, they fairly present the financial condition of Patriot REIT and
its Subsidiaries and of NPOC and its Subsidiaries, as of the dates
indicated and the results of their operations and changes in their cash
flows for the periods indicated, subject to normal year-end audit
adjustments.
(b) Annual Financial Statements. Within 90 days after the end of
---------------------------
each Fiscal Year, the consolidated balance sheet of Patriot REIT and NPOC
and their Subsidiaries calculated on a Company Combined Basis, as at the
end of such fiscal year and the related consolidated statements of income
and shareholders' equity and of cash flows for such fiscal year setting
forth comparative figures for the preceding fiscal year and certified by
Ernst & Young, any other "Big Six" independent certified public accounting
firm or such other independent certified public accountants of recognized
national standing reasonably acceptable to the Administrative Agent, whose
opinion shall not be qualified as to the scope of audit or as to the status
of Patriot REIT, the Borrower or NPOC as a going concern.
(c) Borrowing Base Certificate. (i) Within 45 days after the end of
--------------------------
each Fiscal Quarter, a Borrowing Base Certificate, signed by an Authorized
Financial Officer of the Borrower, calculating the Borrowing Base as of the
last day of such Fiscal Quarter, (ii) at the time of the delivery of any
notice pursuant to Section 6.01(d), a revised Borrowing Base Certificate
signed by an Authorized Financial Officer of the Borrower calculating the
Borrowing Base as of the date of such notice, (iii) on any Addition Date
and on the date of any sale or other disposition of any Eligible Hotel or
on the date of any event which would cause any Hotel to no longer be an
Eligible Hotel, a revised Borrowing Base Certificate signed by an
Authorized Financial Officer of the Borrower calculating the Borrowing Base
as of such Addition Date or the date of such sale, other disposition or
other event, as the case may be, (iv) for any date on
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which the method for calculating the Borrowing Base or the Aggregate
Borrowing Base Value shall change from that in effect for the calculation
of the then existing Borrower Base, a revised Borrowing Base Certificate
signed by an Authorized Financial Officer of the Borrower calculating the
Borrowing Base as of the date of such change and (v) within 5 Business Days
after a written request by the Administrative Agent, a revised Borrowing
Base Certificate signed by an Authorized Financial Officer of the Borrower
calculating the Borrowing Base as of the date of such request.
(d) Reduction of Borrowing Base. Promptly and in any event within
---------------------------
five Business Days after the Senior Management of Patriot REIT, the
Borrower or any of the other Guarantors obtains knowledge thereof, notice
of the occurrence or effectiveness of any event or condition that has
caused, or would reasonably be expected to cause, (i) the Borrowing Base to
be reduced by more than $25,000,000 or (ii) a violation of Section 7.11, in
each case together with a certificate of an Authorized Financial Officer of
the Borrower setting forth (in reasonable detail) the nature of the
respective event and/or condition.
(e) Budgets. Prior to the beginning of each Fiscal Year, budgets
-------
(including, in any event, budgeted statements of cash flow and budgeted
debt and cash balances) for such Fiscal Year prepared in detail, with
respect to (x) Patriot REIT and its Subsidiaries and of NPOC and its
Subsidiaries, (y) each Eligible Hotel and (z) all the Eligible Hotels taken
as a whole, in each case accompanied by a statement of an Authorized
Financial Officer of the Borrower to the effect that, to such officer's
Best Knowledge, the budget is a reasonable estimate of the period covered
thereby, it being recognized by the Lenders that budgets as to future
results are not to be viewed as facts and that the actual results for the
period or periods covered by such budgets may differ from the budgeted
results.
(f) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Sections 6.01(a) and (b), a
certificate of an Authorized Financial Officer of Patriot REIT to the
effect that, to the best of such officer's actual knowledge, no Default or
Event of Default has occurred and is continuing or, if any Default or Event
of Default has occurred and is continuing, specifying the nature and extent
thereof, which certificate shall be in the form of Exhibit I and shall set
forth the calculations required to establish whether the Borrower was in
compliance with the provisions of Sections 6.14, 7.03, 7.04, 7.06 through
7.11, inclusive, at the end of such fiscal quarter or year, as the case may
be.
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(g) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within five Business Days after the Senior Management of Patriot REIT, the
Borrower or any of the other Guarantors obtains actual knowledge of (i) the
occurrence of any event which constitutes a Default or an Event of Default,
(ii) any litigation or governmental investigation or proceeding pending or
threatened in writing (x) against Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries which would
reasonably be expected to have a Material Adverse Effect, (y) with respect
to any material Indebtedness of Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries or (z) with
respect to any Credit Document and (iii) any other action or condition or
event which would reasonably be expected to have a Material Adverse Effect,
a certificate of an Authorized Financial Officer specifying (A) the nature
and period of existence of any such claimed Default, Event of Default,
condition or event, (B) the notice given or action taken by such Person in
connection therewith, and (C) what action the Borrower has taken, is taking
and proposes to take with respect thereto.
(h) Management Letters. Promptly after Patriot REIT's, the
------------------
Borrower's or NPOC's receipt thereof, a copy of any "management letter"
received by Patriot REIT, the Borrower or NPOC from its certified public
accountants and the management's responses thereto.
(i) Other Reports and Filings. Promptly, and without duplication of
-------------------------
any documents or information delivered pursuant to another clause of this
Section 6.01, copies of all financial information, proxy materials and
other information and reports, if any, which Patriot REIT, the Borrower or
any of the other Guarantors, or any of their respective Subsidiaries, shall
file with the Securities and Exchange Commission or any successor thereto
(the "SEC") (other than preliminary filings made with the SEC).
(j) Environmental Matters. Promptly upon, and in any event within
---------------------
ten Business Days after the Senior Management of Patriot REIT, the Borrower
or any of the other Guarantors obtaining actual knowledge thereof, notice
of one or more of the following environmental matters:
(i) any pending or threatened material Environmental Claim
against Patriot REIT, the Borrower, any of the other Guarantors, or
any of their respective Subsidiaries or any Real Property owned or
operated by Patriot REIT, the Borrower, any of the other Guarantors,
or any of their respective Subsidiaries;
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<PAGE>
(ii) any condition or occurrence on or arising from any Real
Property owned or operated by Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries that (a)
results in non-compliance by Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries in any
material respect with any applicable Environmental Law or (b) would
reasonably be expected to form the basis of a material Environmental
Claim against Patriot REIT, the Borrower, any of the other Guarantors,
or any of their respective Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property owned or
operated by Patriot REIT, the Borrower, any of the other Guarantors,
or any of their respective Subsidiaries that would reasonably be
expected to cause such Real Property to be subject to any restrictions
on the ownership, occupancy, use or transferability by Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response
to the actual or alleged presence of any Hazardous Material on any
Real Property relating to any material liability owned or operated by
Patriot REIT, the Borrower, any of the other Guarantors, or any of
their respective Subsidiaries as required by any Environmental Law or
any governmental or other administrative agency.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action
and Patriot REIT's, the Borrower's, such Guarantor's, or such Subsidiary's
response or proposed response thereto. In addition, Patriot REIT, the
Borrower, any of the other Guarantors, and any of their respective
Subsidiaries will provide the Administrative Agent with copies of all
material communications with any government or governmental agency relating
to Environmental Laws, all material communications with any Person relating
to Environmental Claims, and such detailed reports of any Environmental
Claim as may reasonably be requested by the Administrative Agent or any
Lender.
(k) Annual Meetings with Lenders. At the request of the
----------------------------
Administrative Agent or the Required Lenders, the Borrower shall, at least
once during each fiscal year of the Borrower, hold a meeting (at a mutually
agreeable location and time) with all of the Lenders at which meeting the
financial results of the previous fiscal year and the financial condition
of Patriot REIT and the
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Borrower and the budgets presented for the current Fiscal Year shall be
reviewed, with each Lender bearing its own travel, lodging, food and other
costs associated with attending any such meeting.
(l) Asset Sales; Asset Encumbrance. Prior to any Asset Sale or Asset
------------------------------
Encumbrance, a notice (i) describing the assets being sold or encumbered,
(ii) stating the estimated proceeds in respect of such Asset Sale or Asset
Encumbrance and (iii) accompanied by a certificate of an Authorized
Financial Officer of the Borrower stating that before and after (calculated
on a Pro Forma Basis) giving effect to such Asset Sale or Asset
Encumbrance, the Borrower shall be in compliance with all of its covenants
set forth in this Agreement and the other Credit Documents and that no
Default or Event of Default will result from such Asset Sale or Asset
Encumbrance; provided that if such certificate indicates that a Default or
--------
Event of Default would arise as a result thereof, such certificate shall
also include a calculation of the amount of proceeds from such Asset Sale
or Asset Encumbrance which would be required to repay Loans to avoid such
Default or Event of Default.
(m) Other Information. From time to time, such other information or
-----------------
documents (financial or otherwise) with respect to Patriot REIT, the
Borrower, the other Guarantors, or their respective Subsidiaries or any
Eligible Hotel, as the Administrative Agent or any Lender (through the
Administrative Agent) may reasonably request.
6.02 Books, Records and Inspections. Patriot REIT and the Borrower
------------------------------
will, will cause each of their respective Subsidiaries, each of the other
Guarantors and its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in conformity with generally accepted
accounting principles and all requirements of law shall be made of all dealings
and transactions in relation to its business and activities. Patriot REIT and
the Borrower will, will cause each of their respective Subsidiaries, each of the
other Guarantors and its Subsidiaries to, permit officers and designated
representatives of the Administrative Agent (at the expense of the
Administrative Agent, unless a Default or Event of Default is then in existence
or discovered during such inspection, in which case such visit shall be at the
expense of the Borrower) or any Lender (at such Lender's expense) to visit and
inspect, during regular business hours on reasonable advance notice and under
guidance of officers of Patriot REIT, the Borrower or such Guarantor, or their
respective Subsidiaries, any of the properties of Patriot REIT, the Borrower or
any of the other Guarantors or any of their respective Subsidiaries, and to
examine the books of account of Patriot REIT, the Borrower, any of the other
Guarantors or any of their respective Subsidiaries, and discuss the affairs,
finances and accounts of Patriot REIT, the Borrower, any of the
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other Guarantors or any of their respective Subsidiaries with, and be advised as
to the same by, its and their Authorized Financial Officers and independent
accountants, all at such reasonable times and intervals and to such reasonable
extent as the Administrative Agent or any Lender may reasonably request.
6.03 Maintenance of Property; Insurance. Patriot REIT and the
----------------------------------
Borrower will, and will cause each of the other Guarantors and each of their
respective Subsidiaries to maintain insurance with responsible and reputable
insurance companies or associations and in such amounts and against at least
such risks as is consistent and in accordance with industry practice and furnish
to the Administrative Agent, upon written request, full information as to the
insurance carried. Such insurance shall include physical damage insurance on
all real and personal property (whether now owned or hereafter acquired) on an
all risk basis, covering the full repair and replacement costs of all such
property and business interruption insurance for the actual loss sustained.
6.04 Corporate Franchises. Patriot REIT and the Borrower will, and
--------------------
will cause each of their respective Subsidiaries, each of the other Guarantors
and its Subsidiaries to, do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises, licenses and patents; provided, however, that nothing in
-------- -------
this Section 6.04 shall prevent (i) any of the transactions permitted in
accordance with Section 7.02 or (ii) the taking or failing to take of any action
with respect to the foregoing by Patriot REIT, the Borrower, any of the other
Guarantors or any of their respective Subsidiaries which would not reasonably be
expected to have a Material Adverse Effect.
6.05 Compliance with Statutes, etc. Patriot REIT and the Borrower
------------------------------
will, and will cause each of their respective Subsidiaries, each of the other
Guarantors and its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such noncompliances as would
not reasonably be expected to have a Material Adverse Effect.
6.06 Compliance with Environmental Laws. (a) Patriot REIT and the
----------------------------------
Borrower will, and will cause each of their respective Subsidiaries, each of the
other Guarantors and its Subsidiaries to, comply in all respects with all
Environmental Laws applicable to the ownership or use of its Real Property now
or hereafter owned or operated by Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries, will promptly pay or cause
to be paid all costs and expenses incurred in connection with such compliance,
and will keep or cause to be kept all such Real Property free and clear of any
Liens imposed pursuant to such Environmental
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<PAGE>
Laws. None of Patriot REIT, the Borrower, any of the other Guarantors or any of
their respective Subsidiaries will generate, use, treat, store, Release or
dispose of, or permit the generation, use, treatment, storage, Release or
disposal of Hazardous Materials on any Real Property now or hereafter owned or
operated by Patriot REIT, the Borrower, any of the other Guarantors or any of
their respective Subsidiaries, or transport or permit the transportation of
Hazardous Materials to or from any such Real Property except for Hazardous
Materials used or stored at any such Real Properties in compliance with all
applicable Environmental Laws and reasonably required in connection with the
operation, use and maintenance of any such Real Property, except where the
failure to so comply in respect of the matters described in this clause (a) as
would not reasonably be expected to have a Material Adverse Effect.
(b) At the written request of the Administrative Agent or the
Required Lenders, which request shall specify in reasonable detail the basis
therefor, at any time and from time to time after (i) the Obligations have been
declared due and payable pursuant to Section 8, (ii) the Administrative Agent
receives notice under Section 6.01(j) of any event for which notice is required
to be delivered for any Real Property or (iii) Patriot REIT, the Borrower, any
of the other Guarantors, or any of their respective Subsidiaries, are not in
compliance with Section 6.06(a) with respect to any Real Property and the
Borrower will provide, at its sole cost and expense, an environmental site
assessment report concerning any such affected Real Property now or hereafter
owned or operated by Patriot REIT, the Borrower, any of the other Guarantors or
any of their respective Subsidiaries, prepared by an environmental consulting
firm reasonably approved by the Administrative Agent, indicating the presence or
absence of Hazardous Materials and the potential cost of any removal or remedial
action in connection with any Hazardous Materials on such Real Property. If the
Borrower fails to provide the same within 90 days after such request was made,
the Administrative Agent may order the same, and the Borrower shall grant and
hereby grants, to the Administrative Agent and the Lenders and their agents
access to such Real Property and specifically grants, the Administrative Agent
and the Lenders an irrevocable non-exclusive license, subject to the rights of
tenants, to undertake such an assessment, all at the Borrower's expense.
6.07 ERISA. Within 15 Business Days after Patriot REIT, the
-----
Borrower, any of their respective Subsidiaries or any ERISA Affiliate knows or
has reason to know of the occurrence of any of the following, the Borrower will
deliver to the Administrative Agent and each Lender a certificate of an
Authorized Financial Officer of the Borrower setting forth details as to such
occurrence and the action, if any, that Patriot REIT, the Borrower, such
Subsidiary or such ERISA Affiliate is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by Patriot
REIT, the Borrower, the Subsidiary, the ERISA Affiliate,
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<PAGE>
the PBGC, a Plan participant or the Plan administrator with respect thereto:
that a Reportable Event has occurred; that an accumulated funding deficiency,
under the meaning of Section 412 of the Code or Section 302 of ERISA, has been
incurred or an application may reasonably be expected to be or has been made to
the Secretary of the Treasury for a waiver or modification of the minimum
funding standard (including any required installment payments) or an extension
of any amortization period under Section 412 of the Code or Section 303 or 304
of ERISA with respect to a Single Employer Plan; that any contribution required
to be made by Patriot REIT, the Borrower, any of their respective Subsidiaries
or any ERISA Affiliate to a Single Employer Plan or Foreign Pension Plan has not
been made within 30 Business Days of the date same is due; that a Single
Employer Plan has been or may reasonably be expected to be terminated nated,
reorganized, partitioned or declared insolvent under Title IV of ERISA; that a
Single Employer Plan has an Unfunded Current Liability giving rise to a lien on
the assets of Patriot REIT, the Borrower, any of their respective Subsidiaries
or any ERISA Affiliate under ERISA or the Code; that proceedings may reasonably
be expected to be or have been instituted to terminate or appoint a trustee to
administer a Single Employer Plan; that a proceeding has been instituted against
Patriot REIT, the Borrower, any of their respective Subsidiaries or any ERISA
Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution
to a Plan; that Patriot REIT, the Borrower, any of their respective Subsidiaries
or any ERISA Affiliate will or may reasonably be expected to incur or has
incurred any material liability (including any indirect, contingent, or
secondary liability) to or on account of the termination of or withdrawal from a
Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with
respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or
Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan
(as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 498-B of the Code; or that Patriot REIT, the Borrower or any of their
respective Subsidiaries may incur any material liability pursuant to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any employee pension benefit plan (as
defined in Section 3(2) of ERISA). The Borrower will deliver to the
Administrative Agent with sufficient copies for each Lender (i) a complete copy
of the annual report (Form 5500) of each Single Employer Plan (including, to the
extent required, the related financial and actuarial statements and opinions and
other supporting statements, certifications, schedules and information) required
to be filed by them with the Internal Revenue Service and (ii) copies of any
records, documents or other information that must be furnished to the PBGC with
respect to any Plan pursuant to Section 4010 of ERISA. In addition to any
certificates or notices delivered to the Administrative Agent pursuant to the
first sentence hereof, copies of annual reports and any material notices
received by Patriot REIT, the Borrower, any of their respective Subsidiaries or
any ERISA Affiliate with respect to any Single Employer Plan or
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Foreign Pension Plan shall be delivered to the Administrative Agent (with
sufficient copies for each Lender) no later than 15 Business Days after the date
such report has been filed with the Internal Revenue Service or such notice has
been received by Patriot REIT, the Borrower, the Subsidiary or the ERISA
Affiliate, as applicable.
6.08 End of Fiscal Years; Fiscal Quarters. Patriot REIT and the
------------------------------------
Borrower will cause (i) each of its, and each of their respective Subsidiaries'
(other than PAH Windwatch Partners or PAH Windwatch, LLC, so long as the Hotel
owned by such Person is managed by a Third Party Operator), each other
Guarantors' and each of its Subsidiaries' Fiscal Years to end on December 31 and
(ii) each of its, and each of their respective Subsidiaries' (other than PAH
Windwatch Partners or PAH Windwatch, LLC, so long as the Hotel owned by such
Person is managed by a Third Party Operator), each other Guarantors' and each of
their Subsidiaries' Fiscal Quarters to end on March 31, June 30, September 30
and December 31.
6.09 Performance of Obligations. Patriot REIT and the Borrower will,
--------------------------
will cause each of their respective Subsidiaries, each other Guarantor and its
Subsidiaries to, perform all of its obligations under the terms of each
Management Agreement, ground lease and each mortgage, deed of trust, indenture,
loan agreement or credit agreement and each other material agreement, contract
or instrument by which it or any Real Property is bound, except such non-
performances as would not rea resonably be expected to have a Material Adverse
Effect.
6.10 Payment of Taxes. Patriot REIT and the Borrower will, will
----------------
cause each of their respective Subsidiaries, each other Guarantor and its
Subsidiaries to pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which any penalties attach
thereto, and all lawful claims for sums that have become due and payable which,
if unpaid, might become a lien or charge upon any properties of Patriot REIT,
the Borrower, any such Guarantor, or any of their respective Subsidiaries;
provided that none of Patriot REIT, the Borrower, any such Guarantor, or any of
- --------
their respective Subsidiaries shall be required to pay any such tax, assessment,
charge, levy or claim (i) which is being contested in good faith and by proper
proceedings if it has maintained adequate reserves with respect thereto in
according dance with generally accepted accounting principles or (ii) the
failure to pay which would not be reasonably expected to have a Material Adverse
Effect.
6.11 Certain Requirements with Respect to Eligible Hotels. (a) If
----------------------------------------------------
the Borrower desires that any Hotel be added as an Eligible Hotel after the
Effective Date for the purposes of the Borrowing Base, the Borrower shall so
notify the Administrative Agent in writing. Such Hotel shall be included in the
Borrowing Base once the
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Borrower has delivered to the Administrative Agent the Borrowing Base
Certificate required pursuant to Section 6.01(c), calculating what the Borrowing
Base would be after giving effect to the Hotel being included as an Eligible
Hotel. Such Hotel shall remain included in the Borrowing Base so long as such
Hotel shall meet the requirements for Eligible Hotels specified herein. Any
Hotel which ceases to be an Eligible Hotel as a result of the second sentence of
clause (b) below may be redesignated as an Eligible Hotel upon the demonstration
by the Borrower to the reasonable satisfaction of the Administrative Agent that
such Hotel then meets the requirements for Eligible Hotels specified herein.
(b) Within three Business Days of the later of the designation of or
acquisition of an Eligible Hotel and, in either event, following the delivery of
the Borrowing Base Certificates pursuant to clause (a), the Borrower shall
deliver the Eligible Hotel Documents relating to such Eligible Hotel to the
Administrative Agent. If any Hotel designated as an Eligible Hotel fails to
meet, in the reasonable judgment of the Administrative Agent and upon written
notice thereof, the criteria for Eligible Hotels, such Hotel shall no longer be
an Eligible Hotel and all representations as to eligibility in respect thereof
shall be deemed withdrawn.
(c) The Borrower shall promptly notify the Administrative Agent in
writing in the event that at any time the Borrower receives or otherwise gains
knowledge (i) that any Hotel included in a prior Borrowing Base Certificate as
an Eligible Hotel, ceases, for any reason whatsoever, to be an Eligible Hotel,
(ii) that the proportionate share of Aggregate Borrowing Base Value of the
Eligible Hotel is less than 90% of the proportionate share of Aggregate
Borrowing Base Value of the Eligible Hotel reflected in the most recent
Borrowing Base Certificate delivered pursuant hereto or (iii) of the existence
and amount of any Borrowing Base Deficiency.
(d) The Administrative Agent, at the expense of the Lenders (which
expenses shall be borne by the Borrower in the event that a Hotel fails to meet
the requirements for an Eligible Hotel in any material respect), may make
physical and other verifications of any Hotels included as Eligible Hotels in
any reasonable manner and through any medium that the Administrative Agent
considers advisable, and the Borrower shall furnish all such assistance and
information as the Administrative Agent may reasonably require in connection
therewith.
(e) Notwithstanding anything to the contrary set forth herein, a
Hotel shall cease to be an Eligible Hotel if it shall cease to comply with the
requirements therefor set forth herein or the Borrower is unable to make the
representations set forth in Section 5.23 with respect to such Hotel.
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6.12 Operators. Patriot REIT and the Borrower will take, and will
---------
cause each of the other Guarantors to take, all action necessary so that each
Eligible Hotel (other than the Ravinia Hotel or the Windwatch Hotel until such
Hotel is transferred to the Borrower, any Guarantor or another Eligible
Borrowing Base Entity) is at all times leased to an Affiliated Operator or a
Third Party Operator pursuant to an Operating Lease.
6.13 Qualified Ground Leases and Operating Leases. (a) The Borrower
--------------------------------------------
shall provide the Administrative Agent with a copy of each Qualified Ground
Lease and each Third Party Operating Lease relating to an Eligible Hotel. With
respect to all Eligible Hotels, the Borrower shall, and shall cause each of the
other Guarantors and Eligible Borrowing Base Entities to, (i) comply in all
material respects with all of their respective obligations under all of their
respective Qualified Ground Leases and Operating Leases now or hereafter held by
them; (ii) not modify, amend, cancel, extend or otherwise change in any
materially adverse manner (A) any of the terms, covenants or conditions of any
such Qualified Ground Leases or (B) with respect to Affiliate Operating Leases,
any material deviation from the term thereof, or (C) with respect to any Third
Party Operating Leases, (a) the term thereof, (b) the rent and fees payable
thereunder, (c) the termination rights thereunder and (d) the lessee thereunder;
(iii) not assign any Qualified Ground Leases or sublet any portion of the
premises if such assignment or sublet would be reasonably expected to have a
Material Adverse Effect; (iv) provide the Administrative Agent with a copy of
each notice of default under any Qualified Ground Lease or Operating Lease
received by Patriot REIT, the Borrower or any of the other Guarantors or
Eligible Borrowing Base Entities promptly upon receipt thereof and deliver to
the Administrative Agent a copy of each notice of default sent by Patriot REIT,
the Borrower or any of the other Guarantors or Eligible Borrowing Base Entities
under any Qualified Ground Lease or Operating Lease simultaneously with its
delivery of such notice under such Qualified Ground Lease or Operating Lease
except to the extent that such defaults, in the aggregate, would not be
reasonably expected to have a Material Adverse Effect; (v) notify the
Administrative Agent, not later than 30 days prior to the date of the expiration
of the term of any Qualified Ground Lease, of any such Person's intention either
to renew or to not renew any such Qualified Ground Lease, and if such Person
intends to renew such Qualified Ground Lease, the term and conditions of such
renewal; and (vi) maintain each Operating Lease in full force and effect and
enforce the obligations of the Operating Lessee thereunder, in a timely manner
except to the extent that the failure to do so would not be reasonably expected
to have a Material Adverse Effect.
(b) Each of Patriot REIT and the Borrower shall take all actions and
do all things within its power or control reasonably necessary or required to
cause each Third Party Operator to (i) keep, observe, comply with and perform
all of the terms,
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provisions, covenants and undertakings on its part required by each Operating
Lease relating to any Hotel, and (ii) to enforce the provisions of each
Operating Lease, if the failure to comply with or enforce such agreements would
be reasonably expected to have a Material Adverse Effect.
6.14 FF&E Reserves. (i) Within 30 days after the Effective Date,
-------------
Patriot REIT, the Borrower, the respective Guarantor or Eligible Borrowing Base
Entity shall have established one or more FF&E Reserve accounts with respect to
Hotels owned or leased pursuant to a ground lease on the Effective Date and (ii)
within 45 days after each acquisition of a Hotel, Patriot REIT, the Borrower,
the respective Guarantor or Eligible Borrowing Base Entity shall have
established an FF&E Reserve, and deposited same in such account or accounts with
respect to such Hotel.
6.15 REIT Requirements. Patriot REIT shall operate its business at
-----------------
all times so as to satisfy all requirements necessary to qualify as a real
estate investment trust under Sections 856 through 860 of the Code. Patriot
REIT will maintain adequate records so as to comply with all record-keeping
requirements relating to the qualification of Patriot REIT as a real estate
investment trust as required by the Code and applicable regulations of the
Department of the Treasury promulgated thereunder and will properly prepare and
timely file with the IRS all returns and reports required thereby. Patriot REIT
will request from its shareholders all shareholder information required by the
Code and applicable regulations of the Department of Treasury promulgated
thereunder.
6.16 Maintenance of Operating Account. The Borrower shall at all
--------------------------------
times maintain a demand deposit account held by the Administrative Agent (the
"Operating Account") and shall cause funds to be deposited therein in an amount
sufficient to permit the Administrative Agent to automatically deduct therefrom
(and the Borrower hereby irrevocably authorizes the Administrative Agent to so
deduct) the interest payments and any administrative agency fee at 12:00 P.M. on
the tenth day of each month in which each such fee is due.
SECTION 7. Negative Covenants. Each of Patriot REIT and the Borrower
------------------
covenants and agrees that on and after the Effective Date and until the Loans
and the Notes, together with interest, Fees and all other Obligations incurred
hereunder and thereunder, are paid in full:
7.01 Line of Business. Patriot REIT and the Borrower will not, and
----------------
will not permit any of their respective Subsidiaries or any of the other
Guarantors or their Subsidiaries to, engage (directly or indirectly) in any
business other than Hospitality/Leisure-Related Businesses.
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7.02 Consolidation, Merger, Sale of Assets, etc. Patriot REIT and
-------------------------------------------
the Borrower will not, and will not permit any of their respective Subsidiaries
to, or any of the other Guarantors and any of their Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or a
substantial portion of its property or assets except that:
(i) Investments may be made to the extent permitted by Section
7.04;
(ii) (a) the Credit Parties may merge or consolidate with,
liquidate into, or transfer all or any portion of their assets to or among
one another, (b) any Subsidiary of any Credit Party or any Eligible
Borrowing Base Entity may merge or consolidate with, liquidate into, or
transfer all or any portion of their assets to any Credit Party, so long as
such Credit Party is the surviving entity, (c) any Subsidiary of Patriot
REIT or NPOC which is not a Credit Party may transfer all or any portion of
its assets to another Subsidiary of Patriot REIT or NPOC which is not a
Credit Party and (d) each of the Eligible Borrowing Base Entities may merge
or consolidate with, transfer or otherwise dispose of all or any portion of
their assets to or among one another, so long as in the case of (a) and (b)
above, each Credit Party's obligations with respect to the Credit Documents
are not materially impaired or adversely affected by such actions;
(iii) Patriot REIT, the Borrower, the other Guarantors, and their
respective Subsidiaries may consummate the Wyndham Transaction pursuant to
the Wyndham Transaction Documents; and
(iv) Patriot REIT, the Borrower, the other Guarantors and their
respective Subsidiaries may convey, sell, lease or otherwise dispose of
their assets to any Person (other than to one another) which does not
result in the conveyance, sale, lease or other disposition of all or a
substantial portion of Patriot REIT, the Borrower, the other Guarantors and
their respective Subsidiaries taken as a whole.
7.03 Dividends. Unless otherwise required in order for Patriot REIT
---------
to maintain its status as a real estate investment trust in accordance with the
written advice of independent counsel, Patriot REIT shall not declare or pay any
Dividends on its Stock or Stock Equivalents or any other Dividends; provided,
--------
that, notwithstanding the foregoing, (i) during any period of four consecutive
Fiscal Quarters, Patriot REIT may pay Dividends for such period in an aggregate
amount not to exceed the greater of (x) 90% of the Adjusted Funds From
Operations, (y) 100% of Cash Available for Distribution and (z) the minimum
amount necessary to maintain tax status as a real estate investment trust and
(ii) if no Event of Default then exists or would arise
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<PAGE>
therefrom, Patriot REIT may pay Dividends in excess of the amounts permitted
under clause (i) above, but only to the extent necessary to avoid the incurrence
of federal, state or local income or excise tax liability.
7.04 Investments. Patriot REIT and the Borrower will not, and will
-----------
not permit any of their respective Subsidiaries or any of the other Guarantors
or any of their Subsidiaries to, directly or indirectly, lend money or credit or
make advances to any Person, or purchase or acquire any Stock, Stock
Equivalents, obligations or secu rities of, or any other interest in, or make
any capital contribution to, any other Person, (each of the foregoing an
"Investment"), including Investments existing on the Effective Date, except that
the following shall be permitted:
(i) Patriot REIT, the Borrower, the other Guarantors and their
respective Subsidiaries may acquire and hold accounts receivables owing to
any of them, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary terms;
(ii) Patriot REIT, NPOC and their respective Subsidiaries may make
cash intercompany loans and contributions among one another;
(iii) Patriot REIT, the Borrower, each of the other Guarantors
and their respective Subsidiaries may make and/or hold Investments in their
respective Wholly-Owned Subsidiaries, other Subsidiaries and Unconsolidated
Entities engaged in Hospitality/Leisure-Related Businesses so long as the
following investment restrictions are met:
(A) the sum of all Investments in non-Wholly-Owned Subsidiaries
and Eligible Borrowing Base Entities (valued at such
Person's pro rata Investment in such Subsidiary or Eligible
Borrowing Base Entity) which are not Subsidiaries shall not
exceed 25% of Total Value; provided no more than 15% of
Total Value may be attributable to any such Persons (i) in
which Patriot REIT, the Borrower or any Guarantor holds an
ownership interest which is less than 90% of the aggregate
ownership interests of such Person and (ii) for which
Patriot REIT, the Borrower or any Guarantor is not the sole
general managing partner;
(B) the sum of all Investments attributable to Mortgage Notes
shall not exceed 7.5% of Total Value;
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(C) the sum of all Investments attributable to Limited Service
and/or Extended Stay Hotels shall not exceed 15% of Total
Value;
(D) the sum of all Investments attributable to Hotels located
outside of the United States shall not exceed 15% of Total
Value;
(E) the sum of all Investments attributable to Independent
Hotels shall not exceed 10% of Total Value;
(F) the sum of all Investments attributable to (and valued at
cost) unimproved land and/or to New Construction shall not
exceed 15% of Total Value;
(G) the sum of all Investments described in clauses (D) and (E)
above shall not exceed 20% of Total Value; and
(H) notwithstanding the Investment restrictions listed in
clauses (A) through (G) above, Patriot REIT, the Borrower,
the other Guarantors and their respective Subsidiaries may
make and/or hold Investments in Unconsolidated Entities
which in the aggregate do not exceed 10% of Total Value.
If any Investment may be categorized as qualifying under more than one
of the investment restrictions listed in clauses (A) through (G) above, such
Investment shall be counted against each of the investment restriction limits
for which it qualifies without regard to the number of such restrictions for
which such Investment may qualify, except that any Investment that would be
counted against clauses (A) and (D) above shall only be counted against clause
(D).
7.05 Transactions with Affiliates. Patriot REIT and the Borrower
----------------------------
will not, and will not permit any of their respective Subsidiaries to, or any of
the other Guarantors or any of their Subsidiaries to enter into any transaction
or series of related transactions with any Affiliate, other than in the ordinary
course of business and on terms and conditions substantially as favorable to
such Person as would reasonably be obtained by such Person at that time in a
comparable arm's-length transaction with a Person other than an Affiliate,
except that:
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(i) intercompany transactions may be entered into to the extent
permitted by Section 7.02;
(ii) Dividends may be paid to the extent provided in Section 7.03;
(iii) Investments may be made to the extent permitted by Section
7.04; and
(iv) Patriot REIT, the Borrower, the other Guarantors and the
Eligible Borrowing Base Entities may enter into the Operating Leases and
Qualified Ground Leases and pay the rentals, fees and other costs and
expenses thereunder.
7.06 Total Interest Coverage. Patriot REIT and the Borrower will not
-----------------------
permit the Total Interest Coverage Ratio to be less than (x) for any Test Period
ending prior to the first anniversary of the Revolver Effective Date, 2.0:1.0
and (y) for any Test Period ending thereafter, 2.25:1.0.
7.07 Unsecured Interest Coverage. Patriot REIT and the Borrower will
---------------------------
not permit the Unsecured Interest Coverage Ratio to be less than (x) for any
Test Period ending prior to the first anniversary of the Revolver Effective
Date, 2.0:1.0 and (y) for any Test Period ending thereafter, 2.25:1.0.
7.08 Fixed Charge Coverage. Patriot REIT and the Borrower will not
---------------------
permit the Fixed Charge Coverage Ratio to be less than 2.0:1.0 for any Test
Period.
7.09 Tangible Net Worth. Patriot REIT and the Borrower will not
------------------
permit Tangible Net Worth at any time to be less than Minimum Tangible Net
Worth.
7.10 Limitations on Indebtedness. (a) In addition to the other
---------------------------
restrictions on Indebtedness set forth in this Section 7.10, Patriot REIT and
the Borrower shall not permit Total Indebtedness to be greater than 55% of Total
Value at any time prior to the first anniversary of the Revolver Effective Date,
and shall not permit Total Indebtedness to be greater than 50% of Total Value at
any time thereafter.
(b) In addition to the other restrictions on Indebtedness set forth in
this Section 7.10, Patriot REIT and the Borrower shall not permit Total Secured
Indebtedness to be greater than 35% of Total Value at any time.
(c) In addition to the other restrictions on Indebtedness set forth in
this Section 7.10, Patriot REIT and the Borrower shall not permit Total Recourse
Secured
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Indebtedness at any time to be greater than the lesser of (x) 10% of Total Value
at such time and (y) $250,000,000. Additionally, in no event shall Patriot
REIT, the Borrower, any Guarantor, their respective Subsidiaries and Eligible
Borrowing Base Entities incur any Recourse Secured Indebtedness after the
Effective Date where the loan to value ratio for any property or group of
related properties subject to a single financing (based on the value shown in
the most recent Approved Appraisal of the assets secured thereby) relating
thereto exceeds 65%.
7.11 Borrowing Base. Patriot REIT and the Borrower shall not permit
--------------
the aggregate amount of Loans outstanding to exceed the Borrowing Base at any
time; provided, that no Default or Event of Default shall occur pursuant to this
--------
Section 7.11 if the Borrower prepays the Loans pursuant to Section 3.02(a) in an
amount equal to such excess within ten days of the occurrence of such excess.
7.12 Limitation on Certain Restrictions. Patriot REIT and the
----------------------------------
Borrower will not permit any Eligible Borrowing Base Entity, Unconsolidated
Entity or Subsidiary that is not a Wholly-Owned Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of it to (a) pay dividends or make any
other distributions on its capital stock or any other interest or participation
in its profits owned by Patriot REIT, the Borrower or any Guarantor or any of
their respective Subsidiaries, or pay any Indebtedness owed to Patriot REIT, the
Borrower, any Guarantor or any of their respective Subsidiaries, (b) make loans
or advances to Patriot REIT, the Borrower or any Guarantor or any of their
respective Subsidiaries or (c) transfer any of its properties or assets to
Patriot REIT, the Borrower or any Guarantor or any of their respective
Subsidiaries or grant liens or security interests thereon, except in each case
for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) this Agreement and the other Credit Documents, (iii)
customary provisions relating to Indebtedness or lease obligations to the extent
restricting (A) the transfer, assignability or the granting of liens, (B) the
making of loans or advances or (C) the paying of Dividends or the making of
other distributions, (iv) commercially reasonable restrictions in the
organizational documents of any such entity which do not prohibit such entity
from disposing or realizing the value of, any Eligible Hotel owned by it, or the
Stock or other form of ownership of any kind, and which (A) limit generally the
amount of Indebtedness which may be incurred by such entity, (B) limit the
amounts of obligations secured by Liens or (C) limit the transferability or
assignability of assets, (v) restrictions on transferability or assignability in
respect to Qualified Ground Leases, and (vi) restrictions created in connection
with the issuance of the preferred stock for the benefit of the holders thereof
in connection with the CHC Acquisition (or similar restrictions (or restrictions
which are more favorable to the Lenders) relating to preferred stock issued in
connection with other acquisitions). It is understood and
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agreed that any asset that is Unencumbered shall be deemed not in violation of
this Section 7.12.
SECTION 8. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each an "Event of Default"):
8.01 Payments. The Borrower shall (i) default in the payment when
--------
due of any principal of any Loan or any Note or (ii) default, and such default
shall continue unremedied for three or more Business Days, in the payment when
due of interest on any Loan or Note, or any Fees or any other amounts owing
hereunder or under any other Credit Document; or
8.02 Representations, etc. Any representation, warranty or statement
---------------------
made by any Credit Party herein or in any other Credit Document or in any
certificate delivered pursuant hereto or thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made; or
8.03 Covenants. Any Credit Party shall (i) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 6.01(g)(i), Section 6.08 or Section 7 or (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in this Agreement (other than as provided in Section 8.01) and such
default shall continue unremedied for a period of 30 days after written notice
to the Borrower by the Administrative Agent or the Required Lenders; or
8.04 Default Under Other Agreements. (i) Patriot REIT, the
------------------------------
Borrower, any of the other Guarantors, or any of their respective Subsidiaries
shall (x) default in any payment of any Indebtedness (other than the Obligations
or any Non- Recourse Indebtedness) beyond the period of grace, if any, provided
in the instrument or agreement under which such Indebtedness was created or (y)
default in the observance or performance of any agreement or condition relating
to any Indebtedness (other than the Obligations or any Non-Recourse
Indebtedness) or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause (determined without regard to whether any
notice is required), any such Indebtedness to become due prior to its stated
maturity, or (ii) any Indebtedness (other than the Obligations or any Non-
Recourse Indebtedness) of Patriot REIT, the Borrower, any of the other
Guarantors, or any of their respective Subsidiaries shall be declared to be due
and payable, or required to be prepaid other
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than by a regularly scheduled required prepayment, prior to the stated maturity
thereof, or (iii) there shall exist an Event of Default under the Revolving
Credit Agreement; provided that it shall not be a Default or an Event of Default
--------
under clauses (i) or (ii) of this Section 8.04 unless the aggregate outstanding
principal amount of all such Indebtedness as described in such clauses (i) and
(ii) is at least $10,000,000; or
8.05 Bankruptcy, etc. Patriot REIT, the Borrower, any of the other
----------------
Guarantors, or any of their respective Subsidiaries shall commence a voluntary
case concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against Patriot REIT,
the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries and the petition is not controverted within 60 days, or is not
dismissed within 60 days, after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries or Patriot REIT, the
Borrower, any of the other Guarantors, or any of their respective Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debt debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to
Patriot REIT, the Borrower, any of the other Guarantors, or any of their
respective Subsidiaries, or there is commenced against Patriot REIT, the
Borrower, any of the other Guarantors, or any of their respective Subsidiaries
any such proceeding which remains undismissed for a period of 60 days, or
Patriot REIT, the Borrower, any of the other Guarantors, or any of their
respective Subsidiaries is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered and is
not vacated or stayed within 60 days; or Patriot REIT, the Borrower, any of the
other Guarantors, or any of their respective Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 60 days; Patriot
REIT, the Borrower, any of the other Guarantors, or any of their respective
Subsidiaries makes a general assignment for the benefit of creditors; or any
trust, partnership and/or corporate action is taken by Patriot REIT, the
Borrower, any of the other Guarantors, or any of their respective Subsidiaries
for the purpose of effecting any of the foregoing; or
8.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
-----
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject
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<PAGE>
to the advance reporting requirement of PBGC Regulation 4043.61 (without regard
to subparagraph (b)(1) thereof) and an event described in subsection .62, .63,
.64, .65, .66, .67 or .68 or PBGC Regulation Section 4043 shall be reasonably
expected to occur with respect to such Plan within the following 30 days, any
Plan shall have had or is likely to have a trustee appointed to administer such
Plan, any Plan is, shall have been or is likely to be terminated or to be the
subject of termination proceedings under ERISA, any Plan shall have an Unfunded
Current Liability, a contribution required to be made by Patriot REIT, the
Borrower, any of their respective Subsidiaries or any ERISA Affiliate to a Plan
or a Foreign Pension Plan has not been timely made, Patriot REIT, the Borrower
or any of their respective Subsidiaries or ERISA Affiliates has incurred or is
likely to incur a liability to or on account of a Plan under Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971, 4975 or 4980 of the Code or on account of a group
health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the
Code) under Section 4980B of the Code, or Patriot REIT, the Borrower or any of
their respective Subsidiaries or ERISA Affiliates has incurred or is likely to
incur liabilities pursuant to one or more employee welfare benefit plans (as
defined in Section 3(1) of ERISA) that provide benefits to retired employees or
other former employees (other than as required by Section 601 of ERISA) or
employee pension benefit plans (as defined in Section 3(2) of ERISA) or Foreign
Pension Plans; (b) there shall result from any such event or events the
imposition of a lien, the granting of a security interest, or a liability or a
material risk of incurring a liability; and (c) such lien, security interest or
liability, individually and/or in the aggregate, will have a Material Adverse
Effect; or
8.07 REIT Status. Patriot REIT shall cease, for any reason, to
-----------
maintain its status as a real estate investment trust under Sections 856 through
860 of the Code; or
8.08 Guaranties. The Patriot REIT Guaranty or Affiliate Guaranty
----------
shall cease to be in full force or effect as to any Guarantor (except as
expressly provided in the Affiliate Guaranty), or any Guarantor or Person acting
by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under its Guaranty or any Guarantor Event of Default shall occur; or
8.09 Judgments. One or more judgments or decrees shall be entered
---------
against Patriot REIT, the Borrower, any of the other Guarantors or any of their
respective Subsidiaries involving in the aggregate for Patriot REIT, the
Borrower, the other Guarantors and their respective Subsidiaries a liability
(not paid or not fully covered by a reputable and solvent insurance company) and
such judgments and decrees either shall be final and non-appealable or shall not
be vacated, discharged or stayed
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<PAGE>
or bonded pending appeal for any period of 60 consecutive days, and the
aggregate amount of all such judgments exceeds $10,000,000; or
8.10 Change of Control. A Change of Control shall occur; or
-----------------
8.11 General Partner Status. Patriot REIT or a Wholly-Owned
----------------------
Subsidiary of Patriot REIT shall cease at any time to be the sole general
partner of the Borrower;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Lenders, shall by written notice to the Borrower, take any or all
of the following actions, without prejudice to the rights of the Administrative
Agent, any Lender or the holder of any Note to enforce its claims against any
Credit Party (provided, that, if an Event of Default specified in Section 8.05
--------
shall occur with respect to the Borrower, the result which would occur upon the
giving of written notice by the Administrative Agent to the Borrower as
specified below shall occur automatically without the giving of any such
notice): declare the principal of and any accrued interest in respect of all
Loans and the Notes and all Obligations owing hereunder and thereunder to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Credit Party.
SECTION 9. Definitions and Accounting Terms.
--------------------------------
9.01 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acceptable Financial Information" shall mean financial information
which is audited, reviewed by accountants or in a form which is acceptable to
the Administrative Agent.
"Addition Date" shall mean with respect to any Eligible Hotels
acquired or designated after the Effective Date pursuant to Section 6.11, the
date on which such Eligible Hotel is so designated.
"Adjusted Actual NOI" shall mean, with respect to any Eligible Hotel
owned or leased pursuant to a Qualified Ground Lease by Patriot REIT, the
Borrower, any other Guarantor or any Eligible Borrowing Base Entity for any
period, (a) the aggregate Hotel Net Operating Income or Lease Net Operating
Income received by such
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<PAGE>
Person from the operation of such Eligible Hotel, less a deduction for FF&E
Reserves for such Eligible Hotel (b) multiplied, in the case of any Eligible
Hotel owned or leased by such Person, by the Allocation Percentage applicable to
such Person.
"Adjusted Funds From Operations" shall mean, for any period, Patriot
REIT Net Income plus (a) the sum of the following amounts for such period to the
extent and on the same basis included in the determination of Patriot REIT Net
Income: (i) depreciation expense, (ii) amortization expense and other non-cash
charges with respect to real estate assets for such period, (iii) losses from
Asset Sales, losses resulting from restructuring of Indebtedness and other
extraordinary losses, and (iv) minority interests attributable to Borrower OP
Units; less (b) the sum of the following amounts for such period to the extent
and on the same basis included in the determination of Patriot REIT Net Income:
(i) gains from sales or dispositions of assets, gains resulting from
restructuring of Indebtedness and other extraordinary gains, and (ii) the
applicable shares of net income of Patriot REIT's and its Subsidiaries'
Unconsolidated Entities; plus (c) Patriot REIT's and its Subsidiaries'
Allocation Percentage of funds from operations (determined in a manner
consistent with this definition of Adjusted Funds From Operations) of Patriot
REIT's and its Subsidiaries' Unconsolidated Entities.
"Adjusted Hotel NOI" shall mean for any period with respect to any
Hotel that has Hotel Net Operating Income, the product of (a) the Allocation
Percentage of the owner (or lessee pursuant to a Qualified Ground Lease or other
ground lease) of such Hotel, times (b) the total with respect to such Hotel of
(i) Hotel Net Operating Income, plus (ii) actual Management Fees, plus (iii)
actual Franchise Fees, less (iv) the greater of 3% of Hotel Operating Revenues
or actual Management Fees, less (v) the greater of 7% of Gross Room Revenues or
actual Franchise Fees, and less (vi) the greater of 4% of Hotel Operating
Revenue and the FF&E Reserve.
"Adjusted Lease NOI" shall mean for any period with respect to any
Hotel that has Lease Net Operating Income, the product of (a) the Allocation
Percentage of the owner (or lessee pursuant to a Qualified Ground Lease or other
ground lease) of such Hotel, times (b) the total with respect to such Hotel of
(i) Lease Net Operating Income, plus (ii) actual Lessee Leakage, plus (iii)
actual Management Fees, less (iv) the greater of (A) the sum of actual Lessee
Leakage plus actual Management Fees and (B) 3% of Hotel Operating Revenues, and
less (v) the greater of 4% of Hotel Operating Revenue and the FF&E Reserve.
"Administrative Agent" shall mean Chase, in its capacity as
Administrative Agent for the Lenders hereunder, and shall include any successor
to the Administrative Agent appointed pursuant to Section 10.09.
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<PAGE>
"Affiliate" shall mean, with respect to any Person, any other Person
(i) directly or indirectly controlling (including, but not limited to, all
directors, officers and partners of such Person) controlled by, or under direct
or indirect common control with, such Person or (ii) that directly or indirectly
owns more than 5% of any class of the voting securities or capital stock of or
equity interests in such Person. A Person shall be deemed to control another
Person if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise.
"Affiliate Guarantor" shall mean (i) on the Effective Date, each
Subsidiary of Patriot REIT in existence on the Revolver Effective Date other
than the Borrower, PA Ravinia Partners, PAH Ravinia, Inc., PAH Windwatch
Partners, PAH Windwatch, LLC, PAH-DT Allen Partners, L.P., RLP, RLP II, PAH
Chicago O'Hare Partners, L.P., PAH-DT Miami Airport Partners, L.P., PAH-DT
Tallahassee Partners, L.P., PAH-DT Minneapolis Suites Partners, L.P., PAH-DT
Park Place Partners, L.P., PAH Carefree, L.P., PAH-Westlake, L.L.C., PAH-Akron,
L.L.C., PAH-Beachwood I, L.L.C. and PAH-Beachwood II, L.L.C., (ii) on the
Effective Date, NPOC and each of its Subsidiaries in existence on the Revolver
Effective Date other than Patriot Holding LLC and Patriot Horse Racing LLC and
(iii) at any time, any other Subsidiary of Patriot REIT or NPOC created or
acquired after the Revolver Effective Date which, at the election of Patriot
REIT, executes and delivers to the Administrative Agent a counterpart of the
Affiliate Guaranty.
"Affiliate Guaranty" shall have the meaning provided in Section 4.05.
"Affiliated Operating Lease" shall mean an Operating Lease with an
Affiliated Operator substantially in the form delivered to, and found acceptable
by, the Administrative Agent.
"Affiliated Operator" shall mean a lessee under an Operating Lease
which is (i) NPOC or (ii) a Subsidiary of Patriot REIT or NPOC or any Eligible
Borrowing Base Entity.
"Aggregate Borrowing Base Value" shall mean at any time of
determination the sum of:
(i) in respect of Eligible Hotels owned or leased pursuant to a
Qualified Ground Lease by Patriot REIT, the Borrower, any other Guarantor
or any
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<PAGE>
Eligible Borrowing Base Entity on such date (other than the Hotels
described in clause (ii) below), the sum of Adjusted Hotel NOI or Adjusted
Lease NOI (based on Acceptable Financial Information) from all such
Eligible Hotels for the preceding four Fiscal Quarters (including Fiscal
Quarters before acquisition of an ownership or leasehold interest by such
Person) capitalized at 10%; plus
(ii) in respect of Eligible Hotels owned or leased pursuant to a
Qualified Ground Lease by Patriot REIT, the Borrower, any other Guarantor
or any Eligible Borrowing Base Entity on such date, (I) with respect to
which the Borrower has certified in writing to the Administrative Agent
either (i) that Patriot REIT, the Borrower or the respective Guarantor or
Eligible Borrowing Base Entity does not have, or is not able to reasonably
obtain financial information audited or reviewed by accountants for the
previous four Fiscal Quarters (including Fiscal Quarters before acquisition
of an ownership or leasehold interest by such Person) with respect to such
Eligible Hotels or (ii) the Borrower believes that the financial
information covering such Eligible Hotel (to the extent not audited or
reviewed by accountants) does not accurately reflect the historical
financial performance of such Eligible Hotel and (II) any Eligible Hotels
which are Refurbishment Hotels or Turnaround Hotels owned by such Person,
the sum of (a) 95% of such Person's Undepreciated Cost Basis in each such
Eligible Hotel, (b) multiplied in the case of each such Eligible Hotel by
the Allocation Percentage applicable to the Person which owns or ground
leases such Eligible Hotel; provided, that (x) no more than 15% of
--------
Aggregate Borrowing Base Value may be attributable to Refurbishment Hotels,
(y) no more than 7.5% of Aggregate Borrowing Base Value may be attributable
to Turnaround Hotels and (z) no more than 25% of Aggregate Borrowing Base
Value may be attributable to Eligible Hotels pursuant to this clause (ii);
plus
(iii) an amount equal to (a) the aggregate Eligible Service Fee
Revenue earned by Patriot REIT, the Borrower, any Guarantor or any Eligible
Borrowing Base Entity during the four Fiscal Quarters ending prior to such
date (b) multiplied by 3.5; provided, that the percentage of Aggregate
--------
Borrowing Base Value derived from such revenue paid by third parties
pursuant to this clause (iii) shall not exceed 10% of Aggregate Borrowing
Base Value;
provided further, that no more than 15% of Aggregate Borrowing Base Value may be
- ----------------
derived from Hotels located outside of the United States.
"Aggregate FF&E Reserve Contribution" shall mean for any period, the
total of (a) for Patriot REIT, the Borrower and each of the other Guarantors,
the FF&E Reserve, if any, of such Person, and (b) for each Subsidiary and
Unconsolidated Entity,
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<PAGE>
(i) the FF&E Reserve, if any, of such Person, times (ii) the applicable
Allocation Percentage.
"Agreement" shall mean this Credit Agreement, as amended, modified or
supplemented from time to time.
"Allocation Percentage" shall mean, (i) with respect to Patriot REIT,
the Borrower or any other Guarantor, 100% and (ii) for any other Person, with
respect to such Person's Subsidiaries and Unconsolidated Entities, the
percentage ownership interest of such Person in such Subsidiary or
Unconsolidated Entity, respectively, provided that, for purposes of determining
any Person's Allocation Percentage of the Indebtedness of a Subsidiary or
Unconsolidated Entity for which such person is a general partner, such Person's
Allocation Percentage with respect to such Subsidiary or Unconsolidated Entity
shall be the percentage of the general partner interests owned by such Person in
such Subsidiary or Unconsolidated Entity with respect to any Indebtedness for
which recourse may be made against any general partner of such Subsidiary or
Unconsolidated Entity.
"Applicable Margin" shall mean, with respect to each Loan at any
date, the applicable percentage per annum set forth below based upon the Status
then in effect, it being understood that (x)(A) from the Effective Date through
February 15, 1998, the Applicable Margin shall be based on the Status applicable
on the Effective Date, (B) if on any date Level I Status through Level IV Status
is then in effect, the Applicable Margin shall be based on the Status in effect
on such date, (C) if Level I Status through Level IV Status is not then in
effect, the Applicable Margin shall be based on the Status in effect on the 45th
day following the end of each Fiscal Quarter, and such Applicable Margin shall
be set until the Status is redetermined pursuant to this clause (C) or until
Level I Status through Level IV Status is in existence, and (D) from November 1,
1998 until the Maturity Date, the Applicable Margin shall be (a) the applicable
percentage per annum set forth below based upon the Status then in effect, plus
(b) 0.25%, and (y) the Applicable Margin for (i) Base Rate Loans shall be the
percentage set forth under the column "Base Rate Loans" and (ii) Eurodollar Rate
Loans shall be the percentage set forth under the column "Eurodollar Rate
Loans":
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<PAGE>
<TABLE>
<CAPTION>
Base Rate Eurodollar
Loans Rate Loans
---------- ----------
<S> <C> <C>
Level I 0% 1.00%
Status
Level II 0% 1.125%
Status
Level III 0% 1.25%
Status
Level IV 0% 1.375%
Status
Level V 0% 1.50%
Status
Level VI 0.20% 1.70%
Status
Level VII 0.35% 1.85%
Status
Level VIII 0.50% 2.00%
Status
</TABLE>
"Approved Appraisal" shall mean a FIRREA appraisal prepared by an MAI
appraiser reasonably satisfactory to the Administrative Agent.
"Approved Lender" shall have the meaning provided in the definition
of "Cash Equivalents."
"Appurtenant Rights" shall mean (i) all easements, rights of way or
use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to each Hotel or the improvements thereon, including, without limitation, the
use of any streets, ways, alleys, vaults or strips of land adjoining, abutting,
adjacent or contiguous to such Hotel and (ii) all permits, licenses and rights,
whether or not of record, appurtenant to such Hotel.
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<PAGE>
"Arranger" shall mean each of Paine Webber Real Estate Securities,
Inc. and The Chase Manhattan Bank.
"Asset Encumbrance" shall mean the placement of any Lien, claim or
encumbrance on any Hotel or any other assets, or group of related assets, with a
fair market value equal to or greater than $25,000,000 of Patriot REIT, the
Borrower, any other Guarantor or any of their respective Subsidiaries or
Unconsolidated Entities.
"Asset Sale" shall mean any sale, conveyance, transfer, assignment,
lease or other disposition (including, without limitation, by merger or
consolidation, and by condemnation, eminent domain, loss, damage, or
destruction, and whether by operation of law or otherwise) by Patriot REIT, the
Borrower, any of the other Guarantors or any of their respective Subsidiaries or
Unconsolidated Entities to any Person (other than to Patriot REIT, the Borrower,
any of the other Guarantors or any of their respective Subsidiaries or
Unconsolidated Entities) of any Stock (other than new issuances of Stock) of any
of its Subsidiaries, any Stock Equivalents (other than new issuances of Stock
Equivalents) of any of its Subsidiaries or any Hotel or any other assets, or
group of related assets, the fair market value of which is equal to or greater
than $25,000,000.
"Assignment and Assumption Agreement" shall mean an Assignment and
Assumption Agreement substantially in the form of Exhibit J (appropriately
completed).
"Authorized Financial Officer" of any Credit Party shall mean any of
the Chairman, President, Chief Financial Officer, the Treasurer or the Chief
Accounting Officer of such Credit Party, or in the case of the Borrower, the
Authorized Financial Officer of the general partner of the Borrower.
"Authorized Officer" of any Credit Party shall mean any of the
President, any Authorized Financial Officer or any Vice-President of such Credit
Party or any other officer of such Credit Party which is designated in writing
to the Administrative Agent by any of the foregoing officers of such Credit
Party as being authorized to give such notices under this Agreement.
"Bankruptcy Code" shall have the meaning provided in Section 8.05.
"Base Rate" at any time shall mean the higher of (i) the rate of
interest announced publicly by Chase at its principal office, from time to time,
as Chase's base rate and (ii) the sum (adjusted to the nearest 1/8 of 1% or, if
there is no nearest 1/8 of 1%, to the next higher 1/8 of 1%) of (x) 1/2 of 1%
per annum plus (y) the Federal Funds Rate.
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<PAGE>
"Base Rate Loan" shall mean each Loan designated or deemed designated
as such by the Borrower at the time of the incurrence thereof or conversion
thereto.
"Best Knowledge" shall mean, with respect to any Person, the actual
knowledge of any member of the Senior Management of such Person.
"Borrower" shall have the meaning set forth in the first paragraph of
this Agreement.
"Borrower OP Units" shall mean the partnership units of the Borrower.
"Borrowing" shall mean the borrowing of one Type of Loan from all the
Lenders on a given date (or resulting from a conversion or conversions on such
date) having in the case of Eurodollar Loans the same Interest Period, provided
--------
that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered
part of the related Borrowing of Eurodollar Loans.
"Borrowing Base" shall mean (i) 55% of Aggregate Borrowing Base Value
prior to the first anniversary of the Revolver Effective Date and 50% of
Aggregate Borrowing Base Value thereafter, less (ii) the aggregate principal
amount of all unsecured Indebtedness for borrowed money (other than the Loans)
of, and the maximum amount available to be drawn under letters of credit issued
for the account of, Patriot REIT, the Borrower, any other Guarantor or any
Eligible Borrowing Base Entity.
"Borrowing Base Certificate" shall mean a certificate signed by an
Authorized Financial Officer of the Borrower in the form of Exhibit J.
"Borrowing Base Deficiency" shall have the meaning provided in
Section 3.02(a).
"Brand Fees" shall mean the following items paid by an owner, lessee,
or operator of a Hotel other than an Independent Hotel to a franchisor: (a)
royalties, trademark, licensing, sales representation or other fees for the use
of a brand name for a chain or system of hotels and for participation in chain
or system marketing activities; (b) fees or other charges for access or use of
reservation systems and (c) preferred guest programs, mandatory franchisor
reimbursed costs and required advertising programs.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New
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<PAGE>
York City a legal holiday or a day on which banking institutions are authorized
or required by law or other government action to close and (ii) with respect to
all notices and determinations in connection with, and payments of principal and
interest on, Eurodollar Loans, any day which is a Business Day described in
clause (i) above and which is also a day for trading by and between banks in the
New York interbank Eurodollar market.
"Calculation Period" shall mean the period of four consecutive Fiscal
Quarters last ended before the date of the respective event or incurrence which
requires calculations to be made on a Pro Forma Basis.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under generally accepted accounting principles, are or will
be required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.
"Cash Available for Distribution" shall mean, for any period (i)
Adjusted Funds From Operations less (ii) the FF&E Reserves with respect to
Patriot REIT, its Subsidiaries and Unconsolidated Entities, multiplied by the
applicable Allocation Percentage.
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
--------
States of America is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any Lender or
(y) any bank whose short-term commercial paper rating from S&P is at least A-1
or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank or Lender, an "Approved Lender"), in each case with
maturities of not more than six months from the date of acquisition, (iii)
commercial paper issued by any Approved Lender or by the parent company of any
Approved Lender and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing within six months after
the date of acquisition, (iv) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within six months from the date
of acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's, (v)
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<PAGE>
proceeds from the sale of any asset of Patriot REIT, the Borrower or any other
Guarantor or any of their respective Subsidiaries held in trust by any Approved
Lender or other Person satisfactory to the Administrative Agent for not more
than six months in connection with a proposed like-kind transaction under
Section 1031 of the Code and (vi) investments in money market funds
substantially all the assets of which are comprised of securities of the types
described in clauses (i) through (iv) above.
"Casualty Event" shall mean any theft, loss, physical destruction,
damage or similar event with respect to any Hotel (or any portion thereof).
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.CA. (S) 9601 et seq.
-- ----
"Change of Control" shall mean any of the following events: (i) the
failure of Patriot REIT, or a Wholly-Owned Subsidiary of Patriot REIT, to be the
sole general partner of the Borrower; (ii) the acquisition, directly or
indirectly, by any one "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) of more than 30% of the common stock of Patriot REIT;
or (iii) during any period of 24 consecutive calendar months, individuals who at
the beginning of such period constituted the Board of Directors of Patriot REIT
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders or members, as the case may
be, of Patriot REIT was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of such Board of Directors then in office;
provided, that no Change of Control shall be deemed to have occurred as a result
- --------
of the Wyndham Transaction.
"Chase" shall mean The Chase Manhattan Bank, in its individual
capacity.
"CHC Acquisition" shall mean the acquisition by Patriot REIT and its
Affiliates of Carnival Hotel Corporation, Inc. and its Affiliates, including
without limitation the transactions contemplated pursuant to a certain Agreement
and Plan of Merger by and among Patriot REIT, the Borrower and CHC
International, Inc.
"Claims" shall have the meaning provided in the definition of
"Environmental Claims."
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"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder. Section references to
the Code are to the Code, as in effect at the date of this Agreement, and to any
subsequent provision of the Code, amendatory thereof, supplemental thereto or
substituted therefor.
"Commitment" shall mean, for each Lender, the amount set forth
opposite such Lender's name in Schedule I hereto as same may be (x) reduced from
time to time pursuant to Sections 2.02 or (y) adjusted from time to time as a
result of assignments to or from such Lender pursuant to Section 1.13 or
11.04(b).
"Company Combined Basis" shall mean, with respect to any financial
statement, that such statement is calculated on a consolidated basis for each of
Patriot REIT and its Subsidiaries and NPOC and its Subsidiaries and that such
calculations are then combined in accordance with GAAP.
"Condemnation Proceeds" shall mean all compensation, awards, damages,
rights of action and proceeds awarded to any Credit Party by reason of any
Taking.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee (including, without
limitation, as a result of such Person being a general partner of the other
Person, unless the underlying obligation is expressly made non-recourse as to
such general partner) any Indebtedness, leases, dividends or other obligations
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of any
such primary obligation or (y) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the holder of such primary obligation
against loss in respect thereof in the manner of a guaranty; provided, however,
-------- -------
that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
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"Credit Documents" shall mean this Agreement and, after the execution
and delivery thereof pursuant to the terms of this Agreement, each Note and the
Affiliate Guaranty.
"Credit Party" shall mean Patriot REIT, the Borrower and each other
Guarantor.
"Crow Transaction" shall mean the transaction by which Patriot REIT
shall acquire certain hotel assets pursuant to the acquisition agreement (as
amended, the "Crow Acquisition Agreement") entered into by Patriot REIT dated
April 14, 1997.
"Crow Transaction Documents" shall mean the Crow Acquisition
Agreement and all other documents and agreements entered into in connection with
the Crow Transaction.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
"Determination Date" shall have the meaning provided in the
definition of Pro Forma Basis.
"Dividends" with respect to any Person shall mean that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders or partners or authorized or made any other distribution, payment
or delivery of property (other than common stock of such Person) or cash to its
stockholders or partners as such, or redeemed, retired, purchased or otherwise
acquired, directly or indirectly, for a consideration any shares of any class of
its capital stock or any partnership interests outstanding on or after the
Effective Date (or any options or warrants issued by such Person with respect to
its capital stock or partnership interest), or set aside any funds for any of
the foregoing purposes, or shall have permitted any of its Subsidiaries to
purchase or otherwise acquire for a consideration any shares of any class of the
capital stock or any partnership interests of such Person outstanding on or
after the Effective Date (or any options or warrants issued by such Person with
respect to its capital stock or partnership interest).
"Documentation Agent" shall mean PaineWebber Real Estate Securities,
Inc.
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"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"EBITDA" shall mean, for any Person for any period, the net income of
such Person for such period, plus (a) the sum of the following amounts of such
Person for such period determined in conformity with GAAP to the extent included
in the determination of such net income: (i) depreciation expense, (ii)
amortization expense and other non-cash charges, (iii) interest expense, (iv)
income tax expense, (v) extraordinary losses (and other losses on Asset Sales
not otherwise included in extraordinary losses determined in conformity with
GAAP), and (vi) minority interests attributable to the OP Units, less (b)
extraordinary gains of such Person determined in conformity with GAAP to the
extent included in the determination of such net income (and other gains on
sales or other dispositions or assets not otherwise included in extraordinary
gains determined in conformity with GAAP).
"Effective Date" shall have the meaning provided in Section 11.10
"Eligible Borrowing Base Entity" shall mean any joint venture,
corporation, partnership or other business entity which is not the Borrower or a
Guarantor in which Patriot REIT, the Borrower or any Guarantor (i) owns directly
or indirectly at least 50%, but less than 100%, of the ownership interest
therein, (ii) is the managing general partner, or equivalent thereof, for such
entity and/or (iii) has the sole and exclusive authority and power to encumber
any Hotel owned or leased by such entity; provided, that the following shall
--------
also be Eligible Borrowing Base Entities: PAH Ravinia, Inc. and PAH Windwatch,
LLC.
"Eligible Hotel" shall mean each Hotel owned or leased pursuant to a
Qualified Ground Lease by Patriot REIT, the Borrower, any of the other
Guarantors, or any Eligible Borrowing Base Entity as shall meet at any time and
from time to time, each of the following minimum criteria:
(a) such Hotel is Unencumbered;
(b) such Hotel is free of all material structural and title
defects;
(c) such Hotel is (i) in compliance, in all material respects, with
all applicable Environmental Laws, and (ii) not subject to any
material Environment Claims;
(d) such Hotel is fully-operating with less than 20% of rooms out
of service due to casualty;
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(e) such Hotel is either a Refurbishment Hotel or a Turnaround
Hotel or is operating free of material construction or
structural renovation, such that no more than 25% of rooms are
out of service;
(f) such Hotel is leased to an Operator pursuant to an Operating
Lease; and
(g) such Hotel is (i) owned in fee simple or (ii) leased pursuant
to a Qualified Ground Lease in favor of, Patriot REIT, the
Borrower, a Guarantor or an Eligible Borrowing Base Entity;
provided that, if a Hotel is owned by an Eligible Borrowing Base Entity which
- --------
owns more than a single Hotel, such Hotel shall only be an Eligible Hotel if all
such Hotels are Eligible Hotels.
"Eligible Hotel Documents" shall mean, with respect to each Eligible
Hotel, each of the following:
(i) A copy of the most recent ALTA or other prescribed form of
Owner's Policy of Title Insurance (or commitment to issue such a policy to
the Credit Party owning or to own such Hotel) relating to such Hotel
showing the identity of the fee titleholder thereto and all matters of
record as of its date;
(ii) recent Phase I environmental assessments on such Hotel from an
independent environmental firm dated no earlier than one year prior to the
date of such request, and any additional environmental studies or
assessments available to the Borrower performed with respect to such Hotel;
(iii) copies of all engineering, mechanical, structural and
maintenance studies performed by third party consultants with respect to
such Hotel;
(iv) a true and correct copy of any Third Party Operating Lease for
such Hotel;
(v) true and correct copies of any management agreements or
franchise agreements entered into in respect of such Hotel to the extent
not included in the Operating Lease; and
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(vi) if such Hotel is owned pursuant to a Qualified Ground Lease, a
copy of such lease together with all and any amendments thereto or
modifications thereof.
"Eligible Service EBITDA" shall mean for any period, 50% of Eligible
Service Fee Revenue for such period.
"Eligible Service Fee Revenue" shall mean for any period with respect
to Patriot REIT, the Borrower, any other Guarantor or any Eligible Borrowing
Base Entity:
(a) without duplication, and to the extent Unencumbered (i) with
respect to Hotels managed or franchised by such Person pursuant to an
Affiliated Operating Lease the revenues received during such period by such
Person with respect to such Hotels, calculated as (x) a Management Fee
equal to the greater of (A) 3% of Hotel Operating Revenues and (B) actual
Management Fees and (y) with respect to Hotels which are franchised to a
brand controlled by Patriot REIT, any other Guarantor or any Eligible
Borrowing Base Entity, franchise costs equal to the greater of (A) 7% of
Gross Room Revenues and (B) actual Brand Fees, (ii) Lessee Leakage received
by such Person in respect of Non-Owned Hotel Operating Leases, (iii)
recurring accounting asset management and purchasing fees received from any
Person and (iv) with respect to Hotels managed or franchised by such Person
pursuant to a management, franchise or license agreement with parties which
are not Affiliates of such Person, the revenues received during such period
by such Person pursuant to such management, franchise or license agreement
which is satisfactory to the Administrative Agent with respect to (w) the
term thereof, (x) the fees payable thereunder, (y) the termination rights
thereunder and (z) the identity of the other parties to such agreement.
Notwithstanding the foregoing, Eligible Service Fee Revenue with respect to
agreements described in clause (iv) above shall exclude the following: (1)
all such revenues (or the portion thereof) that shall be subject to
reduction, repayment or adjustment in any subsequent period other than
normal year-end adjustments, (2) all such revenues (or the portion thereof)
that shall constitute payments of principal, interest, dividends or other
amounts in respect of the return of or return on any investment or
guaranty, as determined by the Administrative Agent in its sole discretion,
(3) all such revenues (or the portion thereof) that are payable in
consideration of or otherwise in respect of the amendment, modification,
extension, expiration, cancellation or termination of such management
agreement or franchise agreement, as the case may be, (4) except as
expressly described in clause (a)(iii) above, all such revenues (or the
portion thereof) that are payable in consideration of or otherwise in
respect of
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the performance of any service not directly related to the management or
operation of a hotel property, including, without limitation, fees or other
amounts payable for design, construction management and construction
purchasing services and (5) fees or charges received on a nonrecurring
basis from the management, leasing, franchising, or licensing of Hotels or
Hotel related services or intellectual property; and
(b) multiplied as to each component by the Allocation Percentage
applicable to such Person.
"Eligible Transferee" shall mean (i) a commercial bank or Federal
savings bank organized under the laws of the United States, or any State
thereof, and having total assets in excess of $5,000,000,000; (ii) a commercial
bank organized under the laws of any other country which is a member of the
OECD, or a political subdivision of any such country, and having total assets in
excess of $5,000,000,000, provided that such bank is acting through a branch or
agency located in the country in which it is organized or another country which
is also a member of the OECD or the Cayman Islands; (iii) the central bank of
any country which is a member of the OECD; corporation organized under the laws
of the United States, or any State thereof, and having total assets in excess of
$3,000,000,000; (iv) an insurance company organized under the laws of the United
States, or any State thereof, and having total assets in excess of
$5,000,000,000; (v) any Lender; (vi) any Affiliate of any Lender; and (vii) any
Person other than an Affiliate of a Credit Party, in each case acceptable (a) to
the Administrative Agent, and (b) provided no Default or Event of Default
exists, to the Borrower, which acceptance will not be unreasonably withheld,
conditioned or delayed.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any Environmental Law (hereafter "Claims") or any permit issued
under any such law, including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any applicable Federal, state, foreign
or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative
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interpretation thereof, including any judicial or administrative order, consent
decree or judgement relating to the environment, employee health and safety or
Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, 33 U.S.CA. (S) 2601 et seq., the Clean Air Act, 42
-- ----
U.S.CA. (S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.CA. (S) 3803 et
-- ---- --
seq.; the Oil Pollution Act of 1990, 33 U.S.CA. (S) 2701 et seq.; the Emergency
- ---- -- ----
Planning and the Community Right-to-Know Act of 1986, 42 U.S.CA. (S) 11001 et
--
seq., the Hazardous Material Transportation Act, 49 U.S.CA. (S) 1801 et seq. and
- ---- -- ----
the Occupational Safety and Health Act, 29 U.S.CA. (S) 651 et seq. (to the
-- ----
extent it regulates occupational exposure to Hazardous Materials); and any state
and local or foreign counterparts or equivalents, in each case as amended from
time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with Patriot REIT, the Borrower, any Guarantor or any
Subsidiary of any such Person would be deemed to be a "single employer" within
the meaning of Section 414(b),(c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean each Loan designated as such by the Bor-
rower at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" means, for any Interest Period, an interest rate per
annum equal to the rate per annum obtained by multiplying (a) a rate per annum
equal to the rate for U.S. dollar deposits with maturities comparable to such
Interest Period which appears on Telerate Page 3750 as of 11:00 a.m., London
time, two (2) Business Days prior to the commencement of such Interest Period,
provided, however, that if such rate does not appear on Telerate Page 3750, the
"Eurodollar Rate" applicable to a particular Interest Period shall mean a rate
per annum equal to the rate at which U.S. dollar deposits in an amount
approximately equal to the Principal Balance (or the portion thereof which will
bear interest at a rate determined by reference to the Eurodollar Rate during
the Interest Period to which such Eurodollar Rate is applicable in accordance
with the provisions hereof), and with maturities comparable to the last day of
the Interest Period with respect to which such Eurodollar Rate is applicable,
are offered in immediately available funds in the London Interbank Market to the
London office of Chase by leading banks in the Eurodollar market at 11:00 a.m.,
London time, two (2) Business Days prior to the commencement of the Interest
Period to which such
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Eurodollar Rate is applicable, by (b) a fraction (expressed as a decimal) the
numerator of which shall be the number one and the denominator of which shall be
the number one minus the Eurodollar Rate Reserve Percentage for such Interest
Period.
"Eurodollar Rate Reserve Percentage" for any Interest Period means the
aggregate reserve percentages (expressed as a decimal) from time to time
established by the Board of Governors of the Federal Reserve System of the
United States and any other banking authority to which any of the Lenders are
now or hereafter subject, including, but not limited to any reserve on
Eurocurrency Liabilities as defined in Regulation D of the Board of Governors of
the Federal Reserve System of the United States at the ratios provided in such
Regulation from time to time, it being agreed that any portion of the Principal
Balance bearing interest at a rate determined by reference to the Eurodollar
Rate shall be deemed to constitute Eurocurrency Liabilities, as defined by such
Regulation, and it being further agreed that such Eurocurrency Liabilities shall
be deemed to be subject to such reserve requirements without benefit of or
credit for prorations, exceptions or offsets that may be available to any of the
Lenders from time to time under such Regulation and irrespective of whether such
Lender actually maintains all or any portion of such reserve.
"Event of Default" shall have the meaning provided in Section 8.
"Excluded Unconsolidated Entity" shall mean any Person which would be
an Unconsolidated Entity (without giving effect to the parenthetical in the
definition thereof) designated as an Excluded Unconsolidated Entity by written
notice from the Borrower to the Administrative Agent so long as (i) the maximum
liability of Patriot REIT, the Borrower, the other Guarantors, their respective
Subsidiaries and the Unconsolidated Entities to or on the behalf of such
Excluded Unconsolidated Entity is limited to the Investments made, or to be made
by such Person in compliance with all the limitations on such Investments under
this Agreement, in such Excluded Unconsolidated Entity and (ii) the obligations
of such Excluded Unconsolidated Entity are otherwise without recourse (other
than claims in respect of customary indemnities and non-recourse covenants) to
Patriot REIT, the Borrower, the other Guarantors, their respective Subsidiaries
and the Unconsolidated Entities, and/or any of their respective assets.
"Existing Indebtedness" shall have the meaning provided in Section
5.19.
"Extended-Stay Hotel" shall mean a Hotel which may reasonably be
categorized as one which (i) primarily services guests needing accommodations
for a period of five days or longer, (ii) offers limited or no food or beverage
facilities or meeting space, (iii) offers services and facilities designed to
appeal to longer-term
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residents, such as grocery shopping and laundry services, (iv) offers some type
of kitchen facility, and (v) quotes rates on a weekly or monthly basis (e.g.,
hotels operated as Residence Inns by Marriott, Homewood Suites, Candlewood
Suites and Suburban Lodges).
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 2.01.
"FF&E" shall mean, with respect to any Hotel, any furniture, fixtures
and equipment, including any beds, lamps, bedding, tables, chairs, sofas,
curtains, carpeting, smoke detectors, mini bars, paintings, decorations,
televisions, telephones, radios, desks, dressers, towels, bathroom equipment,
heating, cooling, lighting, laundry, incinerating, loading, swimming pool,
landscaping, garage and power equipment, machinery, engines, vehicles, fire
prevention, refrigerating, ventilating and communications apparatus, carts,
dollies, elevators, escalators, kitchen appliances, restaurant equipment,
computers, reservation systems, software, cash registers, switchboards, cleaning
equipment or any other items of furniture, fixtures and equipment typically used
in hotel properties (including furniture, fixtures and equipment used in guest
rooms, lobbies and common areas).
"FF&E Reserve" shall mean, with respect to any Hotel for any period,
the actual reserve required under the Operating Lease for such Hotel, provided,
--------
that if the Operating Lease does not create contractual FF&E obligations, or
such Hotel is not subject to an Operating Lease, the FF&E Reserve for such Hotel
shall be a reserve equal to 4% of Gross Revenues from such Hotel for such
period.
"Fiscal Quarter" shall mean each fiscal quarter of the Borrower ending
on March 31, June 30, September 30 and December 31 of each calendar year.
"Fiscal Year" shall mean each fiscal year of the Borrower ending on
December 31 of each calendar year.
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"Fixed Charge Coverage Ratio" shall mean, for any Test Period, the
ratio of (i) Total Adjusted EBITDA for such Test Period plus EBITDA of each
Excluded Unconsolidated Entity multiplied by the applicable Allocation
Percentage to (ii) the sum of (w) Total Interest Expense for such Test Period,
(x) all scheduled principal amortization payments (excluding final payments due
at maturity) on Total Indebtedness made during such Test Period, (y) preferred
stock dividends (excluding dividends in respect of preferred stock issued in
connection with the CHC Acquisition or other acquisitions to the extent such
dividends are paid on a non-fixed basis which is the functional equivalent of
paying dividends in respect of the common stock of Patriot REIT (or on a basis
which is more favorable to the Lenders)) accrued by Patriot REIT or NPOC during
such Test Period and (z) interest expense (including capitalized interest) and
scheduled principal amortization payments (excluding final payments due at
maturity) on Indebtedness of Excluded Unconsolidated Entities multiplied by the
applicable Allocation Percentage.
"Foreign Pension Plan" means any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by the Borrower or any one or
more of its Affiliates primarily for the benefit of employees of the Borrower or
such Affiliates residing outside the United States of America, which plan, fund
or other similar program provides, or results in, retirement income, a deferral
of income in contemplation of retirement or payments to be made upon termination
of employment, and which plan is not subject to ERISA or the Code, and as to
which plan Patriot REIT, the Borrower or any Guarantor has any material
liability.
"Forward Purchase Obligations" shall mean obligations to purchase
Hotels and related property upon the completion of construction or renovation
thereof, or upon the occurrence of another future contingency (excluding
obligations under purchase, sale and acquisition agreements entered into in the
ordinary course of business).
"Franchise Fees" shall mean the sum of (a) in respect of Hotels other
than Independent Hotels, Brand Fees plus (b) in respect of Independent Hotels,
Hotel Marketing Expenses.
"Full-Service Hotel" shall mean a Hotel (including an all-suites
Hotel) which may reasonably be categorized as one which offers customary food
and beverage facilities and room service.
"GAAP" shall have the meaning provided in Section 11.07(a).
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"Gross Revenues" shall mean all revenues derived from the operation of
Hospitality/Leisure-Related Businesses.
"Gross Room Revenues" shall mean revenues derived from the sale of
room nights.
"Guaranteed Obligations" shall mean all obligations of the Borrower to
each Lender for the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of the principal and interest on each
Note issued by the Borrower to such Lender, and Loans made, under this
Agreement, together with all the other obligations and liabilities (including,
without limitation, indemnities, fees and interest thereon) of the Borrower to
such Lender now existing or hereafter incurred under, arising out of or in
connection with the Agreement or any other Credit Document and the due
performance and compliance with all the terms, conditions and agreements
contained in the Credit Documents by the Borrower.
"Guarantor" shall mean each Affiliate Guarantor and Patriot REIT, in
its capacity as guarantor under Section 12.
"Guarantor Event of Default" shall have the meaning provided in the
Affiliate Guaranty.
"Guaranty" shall mean and include each of the Affiliate Guaranty and
the Patriot REIT Guaranty.
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law.
"Hospitality/Leisure-Related Business" shall mean the hotel, resort,
extended stay lodging, other hospitality, vacation or timeshare business or any
casino (but only if part of a Hotel and not as a stand-alone or primary
business), senior living (excluding congregate care) or recreational business
and other businesses incidental to, or in support of such business, including
without limitation, (i) developing, managing, operating, improving or acquiring
lodging facilities, restaurants and other food-service
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facilities, golf facilities or other entertainment facilities or club,
convention or meeting facilities and marketing services or reservation systems
related thereto, and (ii) acquiring, developing, managing or improving any real
estate ancillary or connected to any hotel, resort, extended stay lodging, other
hospitality-related business, casino (but only if a part of a Hotel and not as a
stand-alone or primary business), senior living (excluding congregate care) or
recreational business or reservation system constructed, leased, owned, managed
or operated (or proposed to be constructed, leased, owned, managed or operated)
by Patriot REIT, the Borrower, the other Guarantors or any of their Subsidiaries
at any time; provided, that the operation of a horse racing facility and pari-
mutuel wagering in the manner so operated on the Effective Date shall be
permitted.
"Hotel" shall mean any Real Property (including Improvements thereon
and any retail, golf, tennis, spa or other resort amenities appurtenant thereto)
comprising an operating facility offering hotel or lodging services.
"Hotel Marketing Expenses" shall mean expenses (excluding wages and
salaries) accrued by an owner, lessee, or operator of a Hotel (including an
Independent Hotel) for the following: (a) promotional and advertising expenses;
(b) direct sales activities; (c) costs for promotional items or events,
including the occupancy or use of Hotel facilities on a discounted or free
basis; (d) fees, charges, or other costs of any reservation or referral system,
or joint marketing arrangement; and (e) other expenses (excluding wages and
salaries) directly and substantially related to the marketing of the Hotel and
the sale of room, food and beverage, or other services or facilities of the
Hotel.
"Hotel Net Operating Income" shall mean, with respect to any Hotel
owned or leased pursuant to a Qualified Ground Lease or ground lease by any
Person, for any period, Hotel Operating Revenues less Hotel Operating Expenses.
"Hotel Operating Expenses" shall mean with respect to any Hotel, all
fixed and variable operating expenses relating specifically to such Hotel except
for (i) depreciation, amortization, or other noncash charges, (ii) principal or
interest payments on account of any indebtedness related to the Hotel or rent
payable under any capital lease, (iii) rent or other charges payable to the
lessor under any Operating Lease, (iv) income taxes, (v) extraordinary losses,
and (vi) capital expenditures of any kind as determined in accordance with GAAP.
"Hotel Operating Revenues" shall mean, for any Hotel all cash revenues
and receipts of every kind derived from operating such Hotel and parts thereof,
including, but not limited to: income (from both cash and credit transactions),
before
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commissions and discounts for prompt or cash payments, from rental or sales of
rooms, gift shops, meeting, exhibit, conference center or sales space of every
kind; retail operations; license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); golf, club
and spa operations; income from telephone and facsimile charges; income from
vending machines; food and beverage sales; sales of merchandise (other than
proceeds from the sale of FF&E no longer necessary to the operation of such
Hotel); service charges, to the extent not distributed to the employees at such
Hotel as, or in lieu of, gratuities; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Hotel
-------- -------
Operating Revenues shall not include the following: gratuities to employees of
such Hotel, federal, state or municipal excise, sales, use or similar taxes
collected directly from patrons or guests or included as part of the sales price
of any goods or services; insurance proceeds (other than proceeds from business
interruption or other loss of income insurance); condemnation proceeds; any
proceeds from any sale or other disposition of such Hotel.
"Improvements" shall mean all buildings, structures, fixtures, tenant
improvements and other improvements of every kind and description now or
hereafter located in or on or attached to any Real Property, including all
building materials, water, sanitary and storm sewers, drainage, electricity,
steam, gas, telephone and other utility facilities, parking areas, roads,
driveways, walks and other site improvements; and all additions and betterments
thereto and all renewals, substitutions and replacements thereof.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property
(including Forward Purchase Obligations) or services, (ii) the maximum amount
available to be drawn under all letters of credit issued for the account of such
Person and all unpaid drawings in respect of such letters of credit, (iii) all
Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or
(vii) of this definition secured by any Lien on any property owned by such
Person, whether or not such Indebtedness has been assumed by such Person, (iv)
the aggregate amount required to be capitalized in accordance with GAAP under
leases under which such Person is the lessee, (v) all obligations of such person
to pay a specified purchase price for goods or services, whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all
----
Contingent Obligations of such Person, and (vii) all obligations under any
Interest Rate Protection Agreement or under any similar type of agreement or
arrangement; provided, that Indebtedness shall not include (a) trade payables
--------
incurred in the ordinary course of business, (b) operating lease obligations
(including, without limitation, the lessee's obligations under (i) the eleven
(11) Lease Agreements dated as of May 2, 1996 and/or May 3, 1996 originally
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between HPTWN Corporation, as lessor, and Garden Hotel Associates Two LP, as
lessee (subsequently assigned to GHALP Corporation, as lessee), (ii) the Lease
dated as of January 8, 1997 originally between HPTSLC Corporation, as lessor,
and WHC Salt Lake City Corporation, as lessee, and (iii) any other operating
lease pursuant to which Patriot REIT, the Borrower, any of the other Guarantors
or any of their respective Subsidiaries or Unconsolidated Entities, as lessee,
leases all or any portion of a Hotel from the holder of a superior interest in
such Hotel, as lessor), (c) short term notes evidencing earnest money deposits
until delivered to the payee and (d) at the time of determination of outstanding
Indebtedness at any time, the aggregate amount of Forward Purchase Obligations
not in excess of $150,000,000 then outstanding.
"Independent Hotel" shall mean a Hotel which is not associated or
designated to become associated within six months of such designation with a
nationally or regionally recognized hotel or resort brand or franchise or hotel
membership organization encompassing at least 5 Hotels, provided, that
--------
notwithstanding the foregoing, Hotels operating under any of the names of Grand
Heritage, Carefree, and to the extent the right to use or ownership is acquired,
West Coast, Homegate, Club House, Grand Bay, Registry and Carnival shall not be
considered Independent Hotels.
"Initial Eligible Hotels" shall mean the Hotels listed on Schedule IV
and designated as Eligible Hotels.
"Insurance Proceeds" shall mean all insurance proceeds, damages,
claims and rights of action and the right thereto under any insurance policies
relating to any portion of any Hotel.
"Intangible Asset" shall mean, with respect to any Person, a long-
lived asset that is useful in the operations of such Person, that is not
directly used in revenue generation and is not held for sale, and is without
physical qualities, including but not limited to patents, copyrights and
goodwill, but excluding capitalized costs associated with the acquisition of
brand names, franchises and trademarks, franchise agreements and management
agreements.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate
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hedging agreement, interest rate floor agreement or other similar agreement or
arrangement.
"Investment" shall have the meaning provided in Section 7.04.
"Lease Net Operating Income" shall mean, with respect to any Hotel
owned or leased pursuant to a Qualified Ground Lease or other ground lease by
any Person for any period, and leased pursuant to a Third Party Operating Lease,
the sum of the following (without duplication): (a) all gross income, revenues,
receipts and all other consideration received by such Person under the Operating
Lease for such Hotel, including, without limitation, base rent, percentage and
similar rentals, late charges and interest payments, but excluding extraordinary
income and, until earned, security deposits, prepaid rents and other refundable
receipts, minus (b) all expenses incurred by such Person during such period
pursuant to its obligations as lessor under the Operating Lease for such Hotel,
including, without limitation, real estate taxes, personal property taxes,
maintenance and repair costs of a non-capital nature for the structural portions
of such Hotels and premiums payable for insurance required to be carried by such
Person on or with respect to such Hotels pursuant to the Operating Lease
therefor, but excluding extraordinary expenses.
"Leasehold" of any Person shall mean all of the right, title and
interest of such Person as lessee or licensee in, to and under any lease or
license of land, improvements and/or fixtures.
"Legal Requirements" shall mean all Federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting each Hotel, the improvements on
such Hotel or the demolition, construction, use or alteration thereof, whether
now or hereafter enacted and in force, including any that require repairs,
modifications or alterations in or to such Hotel or in any way limit the use and
enjoyment thereof (including all building, zoning and fire codes and the
Americans with Disabilities Act of 1990, 42 U.S.C. (S) 12101 et seq. and any
-- ----
other similar Federal, state or local laws or ordinances and the regulations
promulgated thereunder) and any that may relate to environmental requirements
(including all Environmental Laws), and all permits, certificates of occupancy,
licenses, authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances affecting such Hotel, the Appurtenant
Rights and any easements, licenses or other agreements entered respect to such
Hotel.
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"Lender" shall mean each financial institution listed on Schedule I,
and any Person which becomes a "Lender" hereunder pursuant to Sections 1.13
and/or 11.04(b).
"Lender Default" shall mean (i) the refusal (which has not been
retracted) of a Lender to make available its portion of any Borrowing or (ii) a
Lender having notified in writing the Borrower and/or the Administrative Agent
that it does not intend to comply with its obligations under Section 1.01 for
any reason including, without limitation, as a result of any takeover of such
Lender by any regulatory authority or agency.
"Lessee Leakage" shall mean, with respect to any Hotel owned or leased
pursuant to a Qualified Ground Lease or other ground lease to any Person for any
period, and leased pursuant to an Operating Lease, (a) Hotel Net Operating
Income, plus (b) all Hotel Operating Expenses paid by the lessor with respect to
such Hotel less (c) all gross income, revenues, receipts and all other
consideration paid by the Operator pursuant to the Operating Lease for such
Hotel.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other) or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing and excluding any
equipment operating leases and any precautionary filings related thereto).
"Limited-Service Hotel" shall mean a Hotel which may reasonably be
categorized as one which (i) offers either no, or very limited, meeting space
and food and beverage facilities such as restaurants, lounges and catering
facilities, (ii) may be described as a "rooms-only" property, and (iii) does not
have amenities such as bell-service, health spas or entertainment facilities
(e.g., hotels operated as Hampton Inns, Comfort Inns, La Quinta Inns and Red
Roof Inns). For the purpose of this agreement, Limited-Service Hotels shall not
include Hotels where the majority of rentable rooms are suites and the average
daily room rate over the preceding 12 months was $80 or more.
"Loan" shall have the meaning provided in Section 1.01.
"LTV Ratio" shall mean, at any time, the ratio of (i) Total
Indebtedness at such time to (ii) Total Value at such time.
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"Management Agreement" shall mean any agreement pursuant to which any
Hotel is managed, operated, franchised or licensed and which (i) with respect to
the management or operation of such Hotel, is between Patriot REIT, the
Borrower, any other Guarantor or any Eligible Borrowing Base Entity on one hand
and the Operator of such Hotel on the other hand, and (ii) with respect to the
franchising or licensing of such Hotel, is in favor of either Patriot REIT, the
Borrower, any other Guarantor or the Operator of such Hotel and which permits
the use of hotel system trademarks, trade names and any related rights in
connection with the ownership or operation of such Hotel.
"Management Fees" shall mean base or incentive management fees paid by
an owner or lessee of a Hotel to an Operator by way of compensation for
providing hotel management services, exclusive of reimbursement of the
Operator's expenses, fees or charges for special or nonrecurring services (such
as for construction management), termination fees or penalties, payments
pursuant to any indemnification obligation to the Operator, interest, late
charges, or other damages, or any other extraordinary payment.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, operations, property or condition (financial or otherwise) of Patriot
REIT, the Borrower, the other Guarantors, and their respective Subsidiaries,
taken as a whole.
"Maturity Date" shall mean January 31, 1999.
"Minimum Borrowing Amount" shall mean, for each Loan, $1,000,000.
"Minimum Tangible Net Worth" shall mean, at any time, the sum of (a)
75% of Tangible Net Worth as of the Revolver Effective Date plus (b) 60% of the
aggregate net proceeds received by Patriot REIT, the Borrower or any of the
other Guarantors after the Revolver Effective Date in connection with any
issuance of Stock, Stock Equivalents or any OP Units, in each case to any Person
other than the Borrower or any Guarantor.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage Note" shall mean a duly authorized, executed and delivered
promissory note, which promissory note (i) is secured by a first priority
mortgage lien encumbering a Hotel that is owned or leased pursuant to a
Qualified Ground Lease by the obligor under such promissory note, (ii) is not in
default beyond applicable notice
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and cure periods, (iii) bears cash interest after the Effective Date at minimum
rate of at least 7% per annum and is payable at least quarterly and (iv) is not
an obligation of Patriot REIT, the Borrower, any other Guarantor, any of their
Subsidiaries or any Unconsolidated Entity.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA subject to Title IV of ERISA.
"New Construction" shall mean any of the following: (i) the
construction of any new Hotels, (ii) any conversion of any property to Hotel
use, or (iii) the addition of rooms to any Hotel which requires such Hotel to
shut down for any period of time or which increases the number of rooms of such
Hotel by 50% or more.
"New Patriot Operating Partnership" shall mean Patriot American
Hospitality Operating Partnership, L.P., a Delaware limited partnership.
"New Patriot Operating Partnership OP Units" shall mean the
partnership units of New Patriot Operating Partnership.
"Non-Defaulting Lender" shall mean and include each Lender other than
a Defaulting Lender.
"Non-Owned Hotel Operating Lease" shall mean an operating lease of a
Hotel between a Guarantor, and a Subsidiary of the Borrower or any Guarantor, or
any Unconsolidated Entity, as lessee, and a third party as lessor, approved by
the Administrative Agent.
"Non-Recourse Indebtedness" shall mean Indebtedness with respect to
which no portion is guaranteed by, and no recourse claim (other than claims in
respect of customary indemnities and non-recourse carveouts) can be made
against, Patriot REIT, the Borrower, any other Guarantor, or any of their
respective Subsidiaries.
"Note" shall have the meaning provided in Section 1.05(a).
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at 380 Madison Avenue, New York, New York 10017, Attention: Fred
Hammer, or
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such other office as the Administrative Agent may hereafter designate in writing
as such to the other parties hereto.
"NPOC" shall mean Patriot American Hospitality Operating Company, a
Delaware Corporation.
"Obligations" shall mean all amounts owing to the Administrative
Agent, any Arranger or any Lender pursuant to the terms of this Agreement or any
other Credit Document.
"OECD" shall mean the Organization for Economic Cooperation and
Development.
"OP Units" shall mean and include Borrower OP Units and New Patriot
Operating Partnership OP Units.
"Operating Account" shall have the meaning provided in Section 6.16.
"Operating Lease" shall mean a lease or sublease relating to all or
substantially all of any Hotel, between Patriot REIT, the Borrower, any of the
other Guarantors or any of their respective Subsidiaries or Unconsolidated
Entities, as lessor, and an Operator, substantially in the form approved by the
Administrative Agent.
"Operator" shall mean and include each Affiliated Operator and each
Third Party Operator.
"PaineWebber" shall mean Paine Webber Real Estate Securities, Inc. in
its individual capacity.
"Patriot REIT" shall have the meaning provided in the first paragraph
to this Agreement.
"Patriot REIT Guaranty" shall mean the guaranty of Patriot REIT
pursuant to Section 12 of this Agreement.
"Patriot REIT Net Income" shall mean (i) net income of Patriot REIT,
determined on a consolidated basis in accordance with GAAP, plus (ii) to the
extent not accounted for in clause (i), net income of each of Patriot REIT's
Unconsolidated Entities times the applicable Allocation Percentage.
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"Payment Office" shall mean the office of the Administrative Agent
located at 380 Madison Avenue, New York, New York 10017, or such other office as
the Administrative Agent may hereafter designate in writing as such to the other
parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Liens" shall mean, collectively:
(a) Liens arising by operation of law in favor of materialmen,
mechanics, warehousemen, carriers, lessors or other similar Persons
incurred by Patriot REIT, the Borrower, any of their respective
Subsidiaries, any of the other Guarantors, any of their Subsidiaries or any
Eligible Borrowing Base Entity in the ordinary course of business which
secure its obligations to such Person; provided, however, that (i) Patriot
REIT, the Borrower, such Guarantor or such Subsidiary or Eligible Borrowing
Base Entity is not in default with respect to such payment obligation to
such Person, or (ii) Patriot REIT, the Borrower, such Guarantor or such
Subsidiary or Eligible Borrowing Base Entity is in good faith and by
appropriate actions, measures or proceedings diligently contesting such
obligation and adequate provision is made for the payment thereof;
(b) Liens securing taxes, assessments or governmental charges or
levies (excluding Environmental liens) and any Lien which is being
contested in good faith and by proper proceedings if adequate reserves have
been maintained with respect thereto in accordance with generally accepted
accounting principles; provided, however, that neither Patriot REIT, the
Borrower nor any of its Subsidiaries, any of the other Guarantors nor any
of their Subsidiaries nor any of the Eligible Borrowing Base Entities is in
default in respect of any payment obligation with respect thereto;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workmen's compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, performance and return of
money bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(d) zoning restrictions, subleases, licenses or concessions for
restaurants, bars, gift shops, antennas, communications equipment and
similar
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agreements entered into in the ordinary course of such Person's business in
connection with the ownership and operation of a Hotel; and easements,
licenses, reservations, restrictions on the use of real property or minor
irregularities incident thereto which do not in the aggregate materially
detract from (x) the value of the property or assets of, or (y) the use of
such property for the purposes for which such property is held by, the
Borrower, the Guarantors or any of their Subsidiaries, in each case taken
as a whole;
(e) Liens securing Indebtedness of not more than $500,000 in the
aggregate incurred solely for the purpose of acquiring personal property;
provided, however, that no such purchase money security interest shall
-------- -------
extend to any property other than the particular property so acquired;
provided further, that the amount of any such purchase money Indebtedness
----------------
shall not exceed the fair value of such property at the time of
acquisition;
(f) Liens in favor of other Credit Parties, so long as such Person
remains a Credit Party and such Lien is not transferred to any other Person
other than another Credit Party; and
(g) Liens encumbering Hotels which Liens, in the reasonable judgment
of the Administrative Agent, are not material.
"Person" shall mean any individual, partnership, limited liability
company, joint venture, firm, corporation, association, trust or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) Patriot REIT, the Borrower or any of their
respective Subsidiaries or ERISA Affiliates, and each such plan for the five-
year period immediately following the latest date on which Patriot REIT, the
Borrower or any of their respective Subsidiaries or ERISA Affiliates maintained,
contributed to or had an obligation to contribute to such plan.
"Principal Balance" shall mean the outstanding principal amount of the
Loans.
"Pro Forma Basis" shall mean, with respect to any incurrence of
Indebtedness, issuance of preferred stock by Patriot REIT or NPOC or acquisition
of a Hotel (or the equity interest of the Person or Persons owning such Hotel),
the calculation of
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the consolidated results of Patriot REIT, the Borrower, the other Guarantors and
their respective Subsidiaries otherwise determined in accordance with this
Agreement as if the respective Indebtedness, issuance of preferred stock or
acquisition (and all other Indebtedness incurred, other preferred stock issued
or other such acquisition effected during the respective Calculation Period or
thereafter and on or prior to the date of determination) (each such date, a
"Determination Date") had been effected on the first day of the respective
Calculation Period; provided that all such calculations shall take into account
the following assumptions:
(i) pro forma effect shall be given to (1) any Indebtedness
--- -----
incurred or preferred stock issued subsequent to the end of the Calculation
Period and prior to the date of determination, (2) any Indebtedness
incurred or preferred stock issued during such period to the extent such
Indebtedness or preferred stock is outstanding at the date of determination
and (3) any Indebtedness to be incurred or preferred stock to be issued on
the date of determination, in each case as if such Indebtedness had been
incurred or such preferred stock had been issued on the first day of such
Calculation Period and after giving effect to the application of the
proceeds thereof;
(ii) interest expense attributable to interest on any Indebtedness
(whether existing or being incurred) bearing a floating interest rate shall
be computed as if the rate in effect on the date of computation (taking
into account any Interest Rate Protection Agreement applicable to such
Indebtedness if such Interest Rate Protection Agreement has a remaining
term in excess of 12 months) had been the applicable rate for the entire
period;
(iii) except as provided in preceding clause (ii), there shall be
excluded from interest expense any interest expense related to any amount
of Indebtedness that was outstanding during such Calculation Period or
thereafter but that is not outstanding or is to be permanently repaid on
the date of determination;
(iv) there shall be excluded from preferred stock dividends any
preferred stock dividends related to any preferred stock issued or
outstanding during such Calculation Period or thereafter but that is not
outstanding or is to be redeemed on the date of determination; and
(v) pro forma effect shall be given to all sales and acquisitions
--- -----
of Hotel that occur during such Calculation Period or thereafter and on or
prior to the Determination Date (including any Indebtedness assumed or
acquired in connection therewith) as if they had occurred on the first day
of such
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Calculation Period, provided that in connection with any such acquisitions,
pro forma effect (for periods prior to such acquisition) shall be given to
the management fees payable pursuant to the respective Management Agreement
as if such management fees had been payable throughout the Calculation
Period.
"Projections" shall have the meaning provided in Section 4.09.
"Qualified Ground Lease" shall mean (i) the leases described on
Schedule VII and (ii) any lease (a) which is a direct ground lease (or indirect
ground lease, so long as each ground lease in the chain of title meets the
following criteria) granted by the fee owner of real property, (b) which may be
transferred and/or assigned without the consent of the lessor (or as to which
the lease expressly provides that (i) such lease may be transferred and/or
assigned with the consent of the lessor and (ii) such consent shall not be
unreasonably withheld or delayed), (c) which has a remaining term (including any
renewal terms exercisable at the sole option of the lessee) of at least 40
years, (d) under which no material default has occurred and is continuing, (e)
with respect to which a security interest may be granted without the consent of
the lessor (or as to which the lease expressly provides that (i) a security
interest may be granted with respect to such lease with the consent of the
lessor and (ii) such consent shall not be unreasonably withheld or delayed), and
(f) which contains lender protection provisions reasonably acceptable to the
Administrative Agent including, without limitation, provisions to the effect
that (A) the lessor shall notify any holder of a security interest in such lease
of the occurrence of any default by the lessee under such lease and shall afford
such holder the right to cure such default, and (B) in the event that such lease
is terminated, such holder shall have the option to enter into a new lease
having terms substantially identical to those contained in the terminated lease.
Upon the submission to the Administrative Agent of a written request for
approval of the lender protection provisions and other terms of a proposed
Qualified Ground Lease, the Administrative Agent may waive any non-compliances
with the foregoing which it considers in its reasonable judgment not to be
material and adverse with respect to the eligibility of the Hotel subject to the
Qualified Ground Lease, and shall use its best effort to accept or reject such
proposal within five Business Days, and shall accept or reject such proposal
within ten Business Days, in each case following receipt of such request.
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. (S) 6901 et seq.
-- ----
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
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"Recourse Secured Indebtedness" shall mean Indebtedness which is
secured or collateralized by any asset of, and all or a portion of which is
guaranteed by, or for which a recourse claim (other than claims in respect of
customary indemnities and non-recourse carveouts) may be made against, Patriot
REIT, the Borrower, any other Guarantor, or any of their respective Subsidiaries
or Unconsolidated Entities.
"Refurbishment Hotels" shall mean new or recently acquired Hotels (i)
which will experience or are experiencing a disruption in hotel operations due
to refurbishment, (ii) which are continuously operating with at least 55% of its
rooms in service at all times, and (iii) which are either (A) Hotels owned by
Patriot REIT, the Borrower, any other Guarantor, any of their respective
Subsidiaries or Unconsolidated Entities as of the Revolver Effective Date or (B)
Hotels acquired by any such Person after the Revolver Effective Date and for
which the Borrower shall elect to characterize as Refurbishment Hotels for the
purpose of calculating the Aggregate Borrowing Base Value and Total Value within
the first four Fiscal Quarters following the Revolver Effective Date or the date
of such acquisition. Any given Hotel may only be characterized as a
Refurbishment Hotel for a maximum of six consecutive Fiscal Quarters.
"Register" shall have the meaning provided in Section 11.16.
"Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and
X, respectively, of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration into the environment.
"Replaced Lender" shall have the meaning provided in Section 1.13.
"Replacement Lender" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Single Employer Plan other than those events as to which
the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of
PBGC Regulation Section 4043.
"Required Lenders" shall mean Non-Defaulting Lenders the sum of whose
outstanding Loans (or, if prior to the Effective Date, Commitments) represent
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an amount greater than 50% of the sum of all outstanding Loans (or, if prior to
the Effective Date, the Total Commitment) of all Non-Defaulting Lenders.
"Returns" shall have the meaning provided in Section 5.09.
"Revolving Credit Agreement" shall mean the Credit Agreement, dated as
of July 18, 1997, amended as of September 26, 1997 and amended and restated as
of the date hereof, among Patriot REIT, the Borrower, various Lenders party
thereto, PaineWebber, as Documentation Agent, and Chase, as Administrative
Agent, as amended, modified or supplemented from time to time.
"Revolver Effective Date" shall mean July 18, 1997.
"S&P" shall mean Standard & Poor's Ratings Services.
"SEC" shall have the meaning provided in Section 6.01(i).
"Section 3.04(b)(ii) Certificate" shall have the meaning provided in
Section 3.04(b).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Senior Management" shall mean with respect to any Person, any of the
Chairman of the Board of Directors, the President and the Chief Financial
Officer of such Person, provided, that the Senior Management of Patriot REIT
--------
shall in any event include Paul A. Nussbaum, William W. Evans, III and Rex E.
Stewart for so long as such individuals are employed by Patriot REIT, the
Borrower or any of the other Guarantors.
"Single Employer Plan" shall have the meaning set forth in Section
5.10.
"Status" shall mean the existence of Level I Status, Level II Status,
Level III Status, Level IV Status, Level V Status, Level VI Status, Level VII
Status or Level VIII Status, as the case may be;
"Level I Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of A- or better from S&P or A3 or better from Moody's;
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"Level II Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of BBB+ from S&P or Baa1 from Moody's; and
"Level III Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of BBB from S&P or Baa2 from Moody's;
"Level IV Status" exists on any date if, on such date, Patriot
REIT has received and maintained a long-term senior unsecured actual or
implied debt rating of BBB- from S&P or Baa3 from Moody's;
"Level V Status" exists on any date if, on such date (x) none of
Level I Status through Level IV Status exist and (y) the LTV Ratio is less
than 35%;
"Level VI Status" exists on any date if, on such date (x) none of
Level I Status through Level IV Status exist and (y) the LTV Ratio is equal
to or greater than 35% but less than 45%;
"Level VII Status" exists on any date if, on such date (x) none
of Level I Status through Level IV Status exist and (y) the LTV Ratio is
equal to or greater than 45% but less than 50%;
"Level VIII Status" exists on any date if, on such date (x) none
of Level I Status through Level IV Status exist and (y) the LTV Ratio is
equal to or greater than 50% but less than 55%;
provided that (i) if S&P and/or Moody's shall cease to issue ratings of debt
- --------
securities of real estate investment trusts generally, then the Administrative
Agent and the Borrower shall negotiate in good faith to agree upon a substitute
rating agency or agencies (and to correlate the system of ratings of each
substitute rating agency with that of the rating agency for which it is
substituting) and (a) until such substitute rating agency or agencies are agreed
upon, Status shall be determined on the basis of the rating assigned by the
other rating agency (or, if both S&P and Moody's shall have so ceased to issue
such ratings, on the basis of the Status in effect immediately prior thereto)
and (b) after such substitute rating agency or agencies are agreed upon, Status
shall be determined on the basis of the rating assigned by the other rating
agency and such substitute rating agency or the two substitute rating agencies,
as the case may be; (ii) if the long term senior unsecured actual or implied
debt ratings of Patriot REIT by S&P and Moody's are not equivalent, the higher
rating will apply for the purposes of
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determining Status; and (iii) if the long term senior unsecured actual or
implied debt ratings of Patriot REIT by S&P and Moody's are two or more Levels
apart, the rating one Level below the higher rating will apply for the purposes
of determining Status.
"Stock" shall mean shares of capital stock, beneficial or partnership
interests, participations or other equivalents (regardless of how designated) of
or in a corporation or equivalent entity, whether voting or non-voting, and
includes, without limitation, common stock and preferred stock.
"Stock Equivalents" shall mean all securities (other than Stock)
convertible into or exchangeable for Stock and all warrants, options or other
rights to purchase or subscribe for any stock, whether or not presently
convertible, exchangeable or exercisable.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, limited liability
company, association, joint venture or other entity in which such Person and/or
one or more Subsidiaries of such Person has more than a 50% equity interest at
the time.
"Supermajority Lenders" shall mean those Non-Defaulting Lenders which
would constitute the Required Lenders under, and as defined in, this Agreement
if the percentage "50%" contained therein were changed to "66-2/3%".
"Syndication Date" shall mean that date upon which the Administrative
Agent determines in its sole discretion (and notifies the Borrower) that the
primary syndication (and resultant addition of institutions as Lenders pursuant
to Section 11.04) has been completed.
"Taking" shall mean the taking or appropriation (including by deed in
lieu of condemnation or by voluntary sale or transfer under threat of
condemnation or while legal proceedings for condemnation are pending) of any
Hotel, or any part thereof or interest therein, for public or quasi-public use
under the power of eminent domain, by reason of any public improvement or
condemnation proceeding, or in any other manner or any damage or injury or
diminution in value through condemnation, inverse condemnation or other exercise
of the power of eminent domain.
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"Tangible Net Worth" shall mean, without duplication, (a) the sum of
(i) the shareholders' equity of Patriot REIT and NPOC on a combined basis in
accordance with GAAP, and (ii) the value of all OP Units owned by Persons other
than Patriot REIT or NPOC, or Wholly-Owned Subsidiaries thereof minus (b) the
sum of all Intangible Assets (net of accumulated amortization) of Patriot REIT,
the Borrower and the other Guarantors, each as shown on the balance sheets of
Patriot REIT and NPOC on a Company Combined Basis as of such date.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Test Period" shall mean (i) for any determination made on and prior
to September 30, 1998, the four consecutive Fiscal Quarters then last ended
calculated on a Pro Forma Basis on the last day of such Test Period (in each
case taken as one accounting period), and (ii) for any determination made
thereafter, the four consecutive Fiscal Quarters then last ended, in each case
taken as one accounting period.
"Third Party Operator" shall mean either a lessee under an Operating
Lease or an Affiliate of such Person which operates the respective Hotel, which
is not Patriot REIT, NPOC or any of their respective Subsidiaries and which is
satisfactory to the Administrative Agent.
"Third Party Operating Lease" shall mean an Operating Lease with a
Third Party Operator or an Affiliate of such Person and which Operating Lease is
satisfactory to the Administrative Agent with respect to (i) the term thereof,
(ii) the rent and fees payable thereunder, (iii) the termination rights
thereunder and (iv) the lessee thereunder (including the ability of such Person
to assign its obligations).
"Total Adjusted EBITDA" shall mean, for any period, the sum of (i) (a)
EBITDA of Patriot REIT and its Subsidiaries and Unconsolidated Entities, NPOC
and its Unconsolidated Entities, all on a combined basis in accordance with GAAP
for such period (b) multiplied, in the case of each such Person, by the
Allocation Percentage applicable to such Person, less (ii) the Aggregate FF&E
Reserve Contribution for such Period.
"Total Commitment" shall mean, at any time, the sum of the Commitments
of each of the Lenders.
"Total Indebtedness" shall mean the sum (without duplication) of all
Indebtedness of Patriot REIT, the Borrower, the other Guarantors plus the
Allocation Percentage of Indebtedness of all Eligible Borrowing Base Entities,
other Subsidiaries and Unconsolidated Entities of such Persons, determined on a
Company Combined
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Basis (adjusted to exclude the portion of Indebtedness of Eligible Borrowing
Base Entities, other Subsidiaries and Unconsolidated Entities in excess of the
Allocation Percentages of such Persons' Indebtedness).
"Total Interest Coverage Ratio" shall mean, for any Test Period, the
ratio of (i) Total Adjusted EBITDA for such Test Period to (ii) Total Interest
Expense for such Test Period.
"Total Interest Expense" shall mean the sum of the total interest
expense in respect of Total Indebtedness for such period determined in
conformity with GAAP, plus, without duplication, capitalized interest.
"Total Recourse Secured Indebtedness" shall mean any portion of Total
Secured Indebtedness all or any portion of which is guaranteed by, or for which
a recourse claim (other than claims in respect of customary indemnities and non-
recourse carveouts) can be made against, Patriot REIT, the Borrower, the other
Guarantors and their respective Subsidiaries and Unconsolidated Entities.
"Total Secured Indebtedness" shall mean for any period any portion of
Total Indebtedness which is secured or collateralized by any asset of the
obligor thereunder.
"Total Service Fee Revenue" shall mean for any period with respect to
Patriot REIT, the Borrower, any other Guarantor, any Eligible Borrowing Base
Entity, any of their respective Subsidiaries or any Unconsolidated Entity:
(a) without duplication (i) with respect to Hotels managed or
franchised by such Person pursuant to an Affiliated Operating Lease the
revenues received during such period by such Person with respect to such
Hotels, calculated as (x) a Management Fee equal to the greater of (A) 3%
of Hotel Operating Revenues and (B) actual Management Fees management fees,
(y) with respect to Hotels which are franchised to a brand controlled by
Patriot REIT, any other Guarantor or any Eligible Borrowing Base Entity,
franchise costs equal to the greater of (A) 7% of Gross Room Revenues and
(B) actual Brand Fees, (ii) Lessee Leakage received by such Person in
respect of Non-Owned Hotel Operating Leases, (iii) recurring accounting,
asset management and purchasing fees received from any Person and (iv) with
respect to Hotels managed or franchised by such Person pursuant to a
management, franchise or license agreement with parties which are not
Affiliates of such Person, the revenues received during such period by such
Person pursuant to such management, franchise or license agreement which is
satisfactory to the
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Administrative Agent with respect to (w) the term thereof, (x) the fees
payable thereunder, (y) the termination rights thereunder and (z) the
identity of the other parties to such agreement. Notwithstanding the
foregoing, Total Service Fee Revenue with respect to agreements described
in clause (iv) above shall exclude the following: (1) all such revenues
(or the portion thereof) that shall be subject to reduction, repayment or
adjustment in any subsequent period other than normal year-end adjustments,
(2) all such revenues (or the portion thereof) that shall constitute
payments of principal, interest, dividends or other amounts in respect of
the return of or return on any investment or guaranty, as determined by the
Administrative Agent in its sole discretion, (3) all such revenues (or the
portion thereof) that are payable in consideration of or otherwise in
respect of the amendment, modification, extension, expiration, cancellation
or termination of such management agreement or franchise agreement, as the
case may be, (4) except as expressly provided in clause (a)(iii) above, all
such revenues (or the portion thereof) that are payable in consideration of
or otherwise in respect of the performance of any service not directly
related to the management or operation of a hotel property, including,
without limitation, fees or other amounts payable for design, construction
management and construction purchasing services and (5) fees or charges
received on a nonrecurring basis from the management, leasing, franchising,
or licensing of Hotels or Hotel related services or intellectual property;
and (b) multiplied as to each component by the Allocation
Percentage applicable to such Person.
"Total Value" shall mean at any time of determination the sum of:
(i) in respect of Hotels owned or leased pursuant to a Qualified
Ground Lease or other ground lease by Patriot REIT, the Borrower, any other
Guarantor, their respective Subsidiaries and Unconsolidated Entities on
such date (other than Hotels described in clause (ii) below), the sum of
Adjusted Hotel NOI or Adjusted Lease NOI (based on Acceptable Financial
Information) from all such Hotels for the preceding four Fiscal Quarters
(including Fiscal Quarters before acquisition of an ownership or leasehold
interest by such Person) capitalized at 10%; plus
(ii) in respect of any Hotel owned or leased pursuant to a Qualified
Ground Lease or other ground lease by Patriot REIT, the Borrower, any other
Guarantor, and their respective Subsidiaries and Unconsolidated Entities on
such date, (I) with respect to which the Borrower has certified in writing
to the Administrative Agent that either (i) Patriot REIT, the Borrower or
the respective
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Guarantor or Eligible Borrowing Base Entity does not have, or is not able
to reasonably obtain financial information audited or reviewed by
accountants for the previous four Fiscal Quarters (including Fiscal
Quarters before acquisition of an ownership or leasehold interest by such
Person) with respect to such Eligible Hotel or (ii) the Borrower believes
that the financial information covering such Eligible Hotel (to the extent
not audited or reviewed by accountants) does not accurately reflect the
historical financial performance of such Eligible Hotel, and (II) any
Refurbishment Hotel or Turnaround Hotel owned by such Persons, the sum of
(a) 95% of all such Persons' Undepreciated Cost Basis in each such Hotel on
such date (b) multiplied in the case of each Hotel by the Allocation
Percentage applicable to the Person which owns or ground leases such Hotel;
provided, that (x) no more than 15% of Total Value may be attributable to
--------
Refurbishment Hotels, (y) no more than 7.5% of Total Value may be
attributable to Turnaround Hotels and (z) no more than 25% of Total Value
may be attributable to Hotels pursuant to this (ii); plus
(iii) an amount equal to (a) Total Service Fee Revenue earned by
Patriot REIT, the Borrower, any other Guarantor, and their respective
Subsidiaries and Unconsolidated Entities during the four Fiscal Quarters
ending prior to such date (b) multiplied by 3.5; provided, that the
--------
percentage of Total Value derived from such revenues from third parties
pursuant to this clause (iii) shall not exceed 10% of Total Value; plus
(iv) the amount equal to (a) all cash or Cash Equivalents owned or
held by Patriot REIT, the Borrower, any other Guarantor or any Subsidiary
thereof on such date (b) multiplied by the Allocation Percentage applicable
to the Person which holds same; plus
(v) an amount equal to (a) 95% of the acquisition cost of all
Mortgage Notes owned or held by Patriot REIT, the Borrower, any other
Guarantor or any Subsidiary thereof (b) multiplied by the Allocation
Percentage applicable to such Person which holds same on such date.
"Treasury Regulation" shall mean regulations promulgated under the
Code.
"Turnaround Hotels" shall mean Hotels acquired by Patriot REIT, the
Borrower, any other Guarantor, any of their respective Subsidiaries or
Unconsolidated Entities after the Effective Date or designated as a Turnaround
Hotel on Schedule IV which are expected by the Borrower to experience a
significant initial improvement in operations and which the Borrower shall elect
to characterize as Turnaround Hotels on
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the date of such acquisition for the purpose of calculating the Aggregate
Borrowing Base Value and Total Value. Any given Hotel may only be characterized
as a Turnaround Hotel for a maximum of six consecutive Fiscal Quarters. Any
Hotel characterized as a Turnaround Hotel shall not be characterized as a
Refurbishment Hotel at any time.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
----
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unconsolidated Entity" shall mean, with respect to any Person, at any
date, any other Person (excluding any Excluded Unconsolidated Entity) in whom
such Person holds an Investment, and whose financial results would not be
consolidated under GAAP with the financial results of such Person on the
consolidated financial statements of such Person, if such statements were
prepared as of such date.
"Undepreciated Cost Basis" in respect of any Hotel means the purchase
price paid for such Hotel plus the actual amounts paid and capitalized in
respect of improvements thereon (without giving effect to any depreciation),
plus reasonable capitalized acquisition costs.
"Unencumbered" shall mean, with respect to any Hotel, Operating Lease
or to Management Agreements, other management agreements, franchise agreements
or time share agreements, at any date of determination, the circumstance that
such Hotel or such agreement, as the case may be, on such date:
(a) is not subject to any Liens (including restrictions on
transferability or assignability, other than commercially reasonable
restrictions in the organizational documents of any Eligible Borrowing Base
Entity which do not prohibit such Eligible Borrowing Base Entity from
disposing or realizing the value of, any Eligible Hotel owned by it, or the
Stock or other form of ownership of any kind (including any such Lien or
restriction imposed by (i) any agreement governing Indebtedness, and (ii)
the organizational documents of Patriot REIT, the Borrower, any of the
other Guarantors or any Eligible Borrowing Base Entity)) other than
Permitted Liens, and, in the case of any Qualified Ground Lease (to the
extent permitted by the definition thereof), restrictions on
transferability or assignability in respect of such Qualified Ground Lease;
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(b) (x) is not subject to any agreement (including (i) any
agreement governing Indebtedness, and (ii) if applicable, the
organizational documents of Patriot REIT, the Borrower, any of the other
Guarantors or any Eligible Borrowing Base Entity) which prohibits or limits
the ability of such Person to create, incur, assume or suffer to exist any
Lien upon such Hotel or such agreement, as the case may be, other than
Permitted Liens (excluding any agreement or organizational document (x)
which limits generally the amount of Indebtedness which may be incurred by
such Person or (y) which limits the amount of obligations secured by Liens
upon such Hotel in a manner which would not prohibit a Lien securing
Obligations in an amount equal to such Person's pro rata share of the value
of such Hotel); and
(c) is not subject to any agreement (including any agreement
governing Indebtedness) which entitles any Person to the benefit of any
Lien, other than Permitted Liens, on such Hotel or such agreement, as the
case may be, or would entitle any Person to the benefit of any such Lien
upon the occurrence of any contingency (including, without limitation,
pursuant to an "equal and ratable" clause).
For the purposes of this Agreement, any Hotel owned by a Guarantor (other than
Patriot REIT) or Eligible Borrowing Base Entity shall not be deemed to be
Unencumbered unless both (i) such Hotel and (ii) all Stock or other form of
ownership owned directly or indirectly by Patriot REIT or the Borrower in such
Eligible Borrowing Base Entity or Guarantor, is Unencumbered.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan.
"United States" and "U.S." shall each mean the United States of
America.
"Unsecured Interest Coverage Ratio" shall mean, for any Test Period,
the ratio of (i) the sum of (x) Adjusted Actual NOI from all Eligible Hotels for
such Test Period plus (y) Eligible Service EBITDA for such Test Period to (ii)
Unsecured Interest Expense for such Test Period.
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"Unsecured Interest Expense" shall mean that portion of Total Interest
Expense which is attributable to Indebtedness which is unsecured.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person (ii) any partnership, limited liability company,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time and (iii) any Subsidiary or Patriot REIT or NPOC shall also be considered a
Wholly-Owned Subsidiary of each such Person if (x) 100% of such Subsidiary's
capital stock (other than director's qualifying shares) is at the time owned by
both such Persons and/or one or more Wholly-Owned Subsidiaries of such Persons
and (y) if such Subsidiary is a partnership, limited liability company,
association, joint venture or any other noncorporate entity, both such Persons
and/or one or more Wholly-Owned Subsidiaries of such Persons have a 100% equity
interest in such Subsidiary at such time.
"Wyndham Transaction" shall mean the transaction by which the Wyndham
Hotel Corporation will merge with and into Patriot REIT with Patriot REIT being
the surviving entity pursuant to the merger agreement (the "Wyndham Merger
Agreement") and related stockholders agreement entered into by Patriot REIT
dated April 14, 1997.
"Wyndham Transaction Documents" shall mean the Wyndham Merger
Agreement and all other documents and agreements entered into in connection with
the consummation of the Wyndham Transaction.
SECTION 10. The Agents.
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10.01 Appointment. The Lenders hereby designate Chase as
-----------
Administrative Agent to act as specified herein and in the other Credit
Documents. The Lenders hereby designate PaineWebber as Documentation Agent to
act as specified herein and in the other Credit Documents. Chase and
PaineWebber are together referred to in such capacities as the Agents (which for
purposes hereof shall also include Chase and PaineWebber in their capacities as
Arrangers). Each Lender hereby irrevocably authorizes, and each holder of any
Note by the acceptance of such Note shall be deemed irrevocably to authorize,
any Agent to take such action on its behalf under the provisions of this
Agreement, the other Credit Documents and any other instruments and agreements
referred to herein or therein and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or
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required of such Agent by the terms hereof and thereof and such other powers as
are reasonably incidental thereto. Each Agent may perform any of its duties
hereunder by or through its respective officers, directors, agents, employees or
affiliates.
10.02 Nature of Duties. No Agent shall have any duties or
----------------
responsibilities except those expressly set forth in this Agreement and in the
other Credit Documents. Neither any Agent nor any of its respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its gross negligence or
willful misconduct. The duties of each Agent shall be mechanical and
administrative in nature; no Agent shall have by reason of this Agreement or any
other Credit Document a fiduciary relationship in respect of any Lender or the
holder of any Note; and nothing in this Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose upon
any Agent any obligations in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein.
10.03 Lack of Reliance on the Agents. Independently and without
------------------------------
reliance upon any Agent, each Lender and the holder of each Note, to the extent
it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of each Credit
Party and each of their Subsidiaries in connection with the making and the
continuance of the Loans and the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of each
Credit Party and each of their Subsidiaries and, except as expressly provided in
this Agreement, no Agent shall have any duty or responsibility, either initially
or on a continuing basis, to provide any Lender or the holder of any Note with
any credit or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times thereafter.
No Agent shall be responsible to any Lender or the holder of any Note for any
recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of this Agreement or any
other Credit Document or the financial condition of any Credit Party or any of
its Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document, or the financial condition of any
Credit Party or any of its Subsidiaries or the existence or possible existence
of any Default or Event of Default.
10.04 Certain Rights of the Agents. If any Agent shall request
----------------------------
instructions from the Required Lenders with respect to any act or action
(including failure to
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act) in connection with this Agreement or any other Credit Document, such Agent
shall be entitled to refrain from such act or taking such action unless and
until such Agent shall have received instructions from the Required Lenders; and
such Agent shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, no Lender or the holder of any Note shall have
any right of action whatsoever against any Agent as a result of such Agent
acting or refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Lenders.
10.05 Reliance. Each Agent shall be entitled to rely, and shall be
--------
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person, and, with respect
to all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by such
Agent (which may be counsel for the Borrower or any other Credit Party).
10.06 Indemnification. To the extent any Agent is not reimbursed and
---------------
indemnified by the Borrower, the Lenders will reimburse and indemnify such
Agent, in proportion to their respective "percentages" as used in determining
the Required Lenders, for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by such Agent in performing its respective duties hereunder
or under any other Credit Document, in any way relating to or arising out of
this Agreement or any other Credit Document; provided that no Lender shall be
--------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Agent's gross negligence or willful misconduct.
10.07 Each Agent in its Individual Capacity. With respect to its
-------------------------------------
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include each Agent in its
individual capacity. Each Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with any Credit
Party or any Affiliate of any Credit Party as if they were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrower or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Lenders.
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10.08 Holders. Each Agent may deem and treat the payee of any Note
-------
as the owner thereof for all purposes hereof unless and until a written notice
of the assignment, transfer or endorsement thereof, as the case may be, shall
have been filed with such Agent. Any request, authority or consent of any
Person who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
10.09 Removal of or Resignation by Either of the Agents. (a) The
-------------------------------------------------
Administrative Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
20 Business Days' prior written notice to the Borrower and the Lenders. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
Furthermore, in the event that at any time the Administrative Agent assigns its
entire interest as a Lender hereunder to an Eligible Transferee as permitted by
Section 11.04(b) hereof, which Eligible Transferee is not an Affiliate of the
Administrative Agent, then the Administrative Agent shall offer to resign as
Administrative Agent, which resignation shall become effective only if (i) the
Required Lenders accept such resignation in writing within 20 Business Days
after it has been tendered by the Administrative Agent, and (ii) so long as
there exists no Event of Default at such time, the Borrower has given its
consent with respect to the proposed successor Administrative Agent. If the
Required Lenders do not timely accept such resignation, then the resignation
offer shall be deemed withdrawn and the Administrative Agent shall continue as
the Administrative Agent pursuant to the terms hereof unless the Administrative
Agent has indicated in its notice that said resignation is intended to be
irrevocable, in which case such resignation shall take effect upon the
appointment of a successor Administrative Agent pursuant to clauses (b) and (c)
below or as otherwise provided below. Each Agent may resign from the
performance of all of its other functions and duties hereunder and/or under the
other Credit Documents at any time by giving notice to the Borrower, the
Administrative Agent and the Lenders. Such resignation shall take effect upon
delivery of such notice.
(b) Upon any such notice of resignation by the Administrative Agent,
the Required Lenders shall appoint a successor Administrative Agent hereunder or
thereunder who shall be a commercial bank or trust company reasonably acceptable
to the Borrower.
(c) If a successor Administrative Agent shall not have been so
appointed within such 20 Business Day period, the Administrative Agent, with the
consent of the Borrower, shall then appoint a successor Administrative Agent who
shall serve as
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Administrative Agent hereunder or thereunder until such time, if any, as the
Required Lenders appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 25th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Agents (if one or more so agrees), or
if there are no Agents or no Agent so agrees, then the Required Lenders, shall
thereafter perform all the duties of the Administrative Agent hereunder and/or
under any other Credit Document until such time, if any, as the Required Lenders
appoint a successor Administrative Agent as provided above.
SECTION 11. Miscellaneous.
-------------
11.01 Payment of Expenses, etc. (a) The Borrower agrees that it
-------------------------
shall: (i) whether or not the transactions contemplated herein are consummated,
and subject to the obligations of the Lender or the Arrangers to pay their own
costs and expenses set forth in Section 6.02, pay all reasonable out-of-pocket
costs and expenses of the Arrangers (including, without limitation, the
reasonable fees and disbursements of White & Case and, to the extent reasonably
necessary, local counsel and environmental, engineering, real estate and
insurance independent consultants retained by the Administrative Agent;
provided, that once the Effective Date has occurred and all of the documentation
- --------
related thereto has been completed, the Borrower shall, except as expressly
provided below, only be obligated to pay the fees and disbursements of one
counsel for the Arrangers for work performed after such date) in connection with
the preparation, execution, delivery and performance of this Agreement and the
other Credit Documents and the documents and instruments referred to herein and
therein, any amendment, waiver or consent relating hereto or thereto, of the
Arrangers in connection with their primary syndication efforts with respect to
this Agreement and, upon the occurrence and during the continuance of an Event
of Default, the reasonable costs and expenses of each of the Lenders in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Arrangers and, following an Event of Default, for each of the Lenders); (ii) pay
and hold each of the Lenders harmless from and against any and all present and
future stamp, excise and other similar taxes with respect to the foregoing
matters and save each of the Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Arranger and each Lender, and each of their respective officers,
directors, employees, repre-
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sentatives and agents from and hold each of them harmless against any and all
liabilities, obligations (including removal or remedial actions), losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses and
disbursements (including reasonable attorneys' and consultants' fees and
disbursements) incurred by, imposed on or assessed against any of them as a
result of, or arising out of, or in any way related to, or by reason of, (a) any
investigation, litigation or other proceeding (whether or not such Arranger or
any Lender is a party thereto) related to the entering into and/or performance
of this Agreement or any other Credit Document or the proceeds of any Loans
hereunder or the consummation of any transactions contemplated herein or in any
other Credit Document or the exercise of any of their rights or remedies
provided herein or in the other Credit Documents, or (b) the actual or alleged
presence of Hazardous Materials in the air, surface water or groundwater or on
the surface or subsurface of any Real Property owned or at any time operated by
any Credit Party or any of its Subsidiaries, the Release, generation, storage,
transportation, handling or disposal of Hazardous Materials at any location,
whether or not owned or operated by any Credit Party or any of its Subsidiaries,
the non-compliance of any Real Property with foreign, federal, state and local
laws, regulations, and ordinances (including applicable permits thereunder)
applicable to any Real Property, or any Environmental Claim asserted against any
Credit Party, any of its Subsidiaries or any Real Property owned or at any time
operated by any Credit Party or any of its Subsidiaries, including, in each
case, without limitation, the reasonable fees and disbursements of counsel and
other consultants incurred in connection with any such investigation, litigation
or other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified). To the extent that the undertaking
to indemnify, pay or hold harm less any Arranger or any Lender set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Borrower shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
(b) Notwithstanding anything in paragraph (a) to the contrary,
promptly after receipt by an indemnified person of notice of any loss, claim,
damage or liability or the commencement or threat of any action or proceeding,
such indemnified person shall, if a claim in respect thereof is to be made by
such indemnified person against the Borrower pursuant to this Section 11.01,
notify the Borrower in writing of the loss, claim, damage or liability or the
commencement or threat of the action or proceeding; provided, however, that the
failure to notify the Borrower shall not relieve the Borrower from any liability
which it may have under this paragraph except to the extent that it has been
materially prejudiced by such failure and, provided further, that the failure to
----------------
notify the Borrower shall not relieve it from any liability which it may have to
an indemnified person otherwise than under the indemnification provisions of
this
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Section 11.01. If any such claim, action or proceeding shall be brought or
threatened against an indemnified person, and such indemnified person shall
notify the Borrower thereof, the Borrower shall be entitled to participate
therein and, to the extent that the Borrower wishes, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified person. In the
event the Borrower assumes the defense of an indemnified person, it may not
thereafter dispute its liability hereunder for any liability the defense of
which the Borrower has assumed which may be imposed upon an indemnified person
in connection with such claim, action or proceeding; provided, however, the
Borrower shall give prompt notice of any election to assume or not assume the
defense of any claim, action or proceeding. After notice from the Borrower to
such indemnified person of its election to assume the defense of such claim,
action or proceeding, the Borrower shall not be liable to such indemnified
person under this Section 11.01 for any legal or other expenses subsequently
incurred by such indemnified person in connection with the defense thereof
except as provided in the following sentence. The indemnified person shall have
the right to employ separate counsel with respect to any such claim, action or
proceeding and to participate in the defense thereof but the fees and expenses
of such counsel shall be at the expense of such indemnified person unless: (i)
the employment thereof has been specifically authorized by the Borrower in
writing; or (ii) with respect to such claim, action or proceeding there is, in
the opinion of independent counsel, a conflict concerning any material issue
between the position of the Borrower and such indemnified person, in which case
if such indemnified person notifies the Borrower in writing that such indem
nified person elects to employ separate counsel at the expense of the Borrower,
the Borrower shall not have the right to assume the defense of such claim,
action or pro ceeding on behalf of such indemnified person; provided, however,
that unless an actual or potential conflict exists between two or more
indemnified persons, the Borrower shall not be required to pay the fees and
disbursements of more than one separate counsel for all indemnified persons.
Nothing set forth herein is intended to or shall impair the right of any
indemnified person to retain separate counsel at its own expense. Without the
prior written consent of such indemnified person, neither the Borrower nor any
of its affiliates will settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding in respect of
which indem nification may be sought hereunder (whether or not any indemnified
person is an actual or potential party to such claim, action or proceeding)
unless (a) the Borrower shall have given each such indemnified person reasonable
prior written notice thereof and used all reasonable efforts, after consultation
with such indemnified person, to obtain an unconditional release of such
indemnified person and each other indemnified person from all liability arising
out of such claim, action, suit or proceedings, or (b) the Borrower reaffirms in
writing its indemnity obligations hereunder. As long as the Borrower has
complied with its obligations to defend and indemnify hereunder, it shall
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not be liable hereunder for any settlement made by such indemnified person or
any other indemnified person without the Borrower's consent.
11.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Lender is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Lender (including,
without limitation, by branches and agencies of such Lender wherever located) to
or for the credit or the account of any Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Lender under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Lender pursuant to
Section 11.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Lender shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
11.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to the Borrower, at
the Borrower's address specified opposite its signature below; if to Patriot
REIT, at Patriot REIT's address specified opposite its signature below; if to
any Arranger or Lender, at its address specified opposite its name on Schedule
II; and if to the Administrative Agent, at its Notice Office; or, as to the
Borrower or any Arranger, at such other address as shall be designated by such
party in a written notice to the other parties hereto and, as to each Lender, at
such other address as shall be designated by such Lender in a written notice to
the Borrower and the Administrative Agent. All such notices and communications
shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by
overnight courier, be effective when deposited in the mails, delivered to the
telegraph company, cable company or overnight courier, as the case may be, or
sent by telex or telecopier, except that notices and communications to the
Arranger and the Borrower shall not be effective until received by the Arranger
or the Borrower, as the case may be.
11.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, however, the Borrower may not
-------- -------
assign or transfer any of its rights, obligations or interest hereunder or under
any other Credit Document
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without the prior written consent of the Lenders and, provided further, that,
----------------
although any Lender may transfer, assign or grant participations in its rights
hereunder, such Lender shall remain a "Lender" for all purposes hereunder (and
may not transfer or assign all or any portion of its Obligations hereunder
except as provided in Section 11.04(b)) and the transferee, assignee or
participant, as the case may be, shall not constitute a "Lender" hereunder and,
provided further, that no Lender shall transfer or grant any participation under
- ----------------
which the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such amendment
or waiver would (i) extend the final scheduled maturity of any Loan or Note in
which such participant is participating, or reduce the rate or extend the time
of payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of a mandatory prepayment of Loans
or any amendment to the Borrowing Base shall not constitute a change in the
terms of such participation, and that an in crease in any Loan shall be
permitted without the consent of any participant if the participant's
participation is not increased as a result thereof) or (ii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement. In the case of any such participation, the participant
shall not have any rights under this Agreement or any of the other Credit
Documents (the participant's rights against such Lender in respect of such
participation to be those set forth in the agreement executed by such Lender in
favor of the participant relating thereto) and all amounts payable by the
Borrower hereunder shall be determined as if such Lender had not sold such
participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender together
with one or more other Lenders) may (x) assign all or a portion of its
outstanding Obligations hereunder to its parent company and/or any affiliate of
such Lender which is at least 50% owned by such Lender or its parent company or
to one or more Lenders and (y) assign a constant, and not a varying, ratable
percentage of all of the assigning Lender's rights and obligations under this
Agreement, to an Eligible Transferee, and, in the case of a partial assignment
of such rights and Obligations, shall be in a minimum amount of $5,000,000 (and
the assignor shall maintain a minimum amount of $5,000,000 for its own account
unless the assignor shall assign its entire interest), and all assignees shall
become a party to this Agreement as a Lender by execution of an Assignment and
Assumption Agreement substantially in the form of Exhibit J, provided that (i)
--------
at such time Schedule I shall be deemed modified to reflect the outstanding
Loans of such new Lender and of the existing Lenders, (ii) upon surrender of the
old Notes, new Notes will be issued to such new Lender and to the assigning
Lender, such new Notes to be in conformity with the requirements of Section 1.05
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(with appropriate modifications) to the extent needed to reflect the revised
outstanding Loans, (iii) the consent of the Administrative Agent shall be
required in connection with any such assignment pursuant to clause (y) above
(which consent shall not be unreasonably withheld), (iv) the Administrative
Agent shall receive at the time of each such assignment, from the assigning or
assignee Lender, the payment of a non-refund able assignment fee of $3,500, and
(v) upon the occurrence and continuance of an Event of Default, none of the
restrictions on assignments contained in clause (y) above shall apply, provided,
however, that while an Event of Default (other than an Event of Default that
shall have required that the Administrative Agent shall have delivered a notice
of the underlying Default) shall be continuing but prior to termination of the
Loans, the applicable Lender shall give the Borrower five (5) days' written
notice by telecopy of its intention to assign any or all of its interest in this
Agreement and, provided further, that such transfer or assignment will not be
----------------
effective until recorded by the Administrative Agent on the Register pursuant to
Section 11.16. To the extent of any assignment pursuant to this Section
11.04(b), the assigning Lender shall be relieved of its obligations hereunder
with respect to its assigned Loans. At the time of each assignment pursuant to
this Section 11.04(b) to a Person which is not already a Lender hereunder and
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Lender shall provide to the Borrower and the Administrative Agent the
appropriate Internal Revenue Service Forms (and, if applicable a Section
3.04(b)(ii) Certificate) described in Section 3.04(b). To the extent that an
assignment of all or any portion of a Lender's outstanding Obligations pursuant
to Section 1.13 or this Section 11.04(b) would, at the time of such assignment,
result in increased costs under Section 1.10, 1.11 or 3.04 from those being
charged by the respective assigning Lender prior to such assignment, then the
Borrower shall not be obligated to pay or reimburse such increased costs
(although the Borrower shall be obligated to pay any other increased costs of
the type described above resulting from changes after the date of the respective
assignment).
(c) Nothing in this Agreement shall prevent or prohibit any Lender
from pledging its Loans and Note hereunder to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank.
11.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of any Arranger or any Lender or any holder of any Note in exercising any
right, power or privilege hereunder or under any other Credit Document and no
course of dealing between any Borrower or any other Credit Party and any
Arranger or any Lender or the holder of any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other
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right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Credit Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which any
Arranger or any Lender or the holder of any Note would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of any Arranger or any Lender or the holder
of any Note to any other or further action in any circumstances without notice
or demand.
11.06 Payments Pro Rata. (a) Except as otherwise provided in this
-----------------
Agreement, the Administrative Agent agrees that promptly after its receipt of
each payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Lenders (other than any
Lender that has consented in writing to waive its pro rata share of any such
--- ----
payment) pro rata based upon their respective shares, if any, of the Obligations
--- ----
with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, of a sum which with respect to the related sum or sums received
by other Lenders is in a greater proportion than the total of such Obligation
then owed and due to such Lender bears to the total of such Obligation then owed
and due to all of the Lenders immediately prior to such receipt, then such
Lender receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the respective
Credit Party to such Lenders in such amount as shall result in a proportional
participation by all the Lenders in such amount; provided that if all or any
--------
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 11.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
11.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied
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throughout the periods involved (except as set forth in the notes thereto or as
otherwise disclosed in writing by the Borrower to the Lenders) ("GAAP");
provided that, (i) except as otherwise specifically provided herein, all
- --------
computations determining compliance with Sections 7.06 through 7.10, inclusive,
shall utilize accounting principles and policies in conformity with those used
to prepare the annual financial statements first delivered to the Lenders
pursuant to Section 6.01(b) and (ii) PAH Ravinia, Inc. and PAH Windwatch, L.L.C.
shall be treated as Subsidiaries.
(b) All computations of interest and Fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Fees are payable; provided, that the computation of interest payable
--------
on Base Rate Loans shall be made on the basis of a year of 365 days.
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
-----------------------------------------------------------
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
- ----------
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF PATRIOT REIT AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH OF PATRIOT REIT AND THE BORROWER
HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK
JURISDICTION OVER SUCH CREDIT PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS
JURISDICTION OVER SUCH CREDIT PARTY. EACH OF PATRIOT REIT AND THE BORROWER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH CREDIT PARTY
AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF PATRIOT REIT AND THE BORROWER
HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH
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<PAGE>
SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT
DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY ARRANGER UNDER THIS AGREEMENT, ANY LENDER
OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY
IN ANY OTHER JURISDICTION.
(b) EACH OF PATRIOT REIT AND THE BORROWER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HERE AFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
11.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
11.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which (i) Patriot REIT, the Borrower, each
Arranger and each of the Lenders set forth on Schedule I shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered the same to the Administrative Agent at its Notice Office or, in the
case of the Lenders, shall have given to the Administrative Agent telephonic
(confirmed in writing), written or telex notice (actually received) at such
office that the same has been signed and mailed to it and (ii) the conditions
contained in Section 4 are met to the satisfaction of the Arrangers and the
Required Lenders. Unless the Administrative Agent has received actual notice
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from any Lender that the conditions described in clause (ii) of the preceding
sentence have not been met to its satisfaction, upon the satisfaction of the
condition described in clause (i) of the immediately preceding sentence and upon
the Arrangers' good faith determination that the conditions described in clause
(ii) of the immediately preceding sentence have been met, then the Effective
Date shall have deemed to have occurred, regardless of any subsequent
determination that one or more of the conditions thereto had not been met
(although the occurrence of the Effective Date shall not release the Borrower
from any liability for failure to satisfy one or more of the applicable
conditions contained in Section 4). The Administrative Agent will give Patriot
REIT, the Borrower, each Arranger and each Lender prompt written notice of the
occurrence of the Effective Date.
11.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any
-------------------------
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Lenders, provided that no such change, waiver, discharge or termination
--------
shall, without the consent of each Lender (other than a Defaulting Lender) with
Obligations being directly modified thereby, (i) extend the final scheduled
maturity of any Loan or Note, or reduce the rate or extend the time of payment
of interest (except in connection with a waiver of applicability of any post-
default increase in interest rates) or Fees thereon, or reduce the principal
amount thereof (except to the extent repaid in cash), (ii) amend, modify or
waive any provision of this Section 11.12, (iii) reduce the percentage
specified in the definition of Required Lenders (it being understood that,
with the consent of the Required Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of the Required
Lenders on substantially the same basis as the extensions of Loans are included
on the Effective Date), (iv) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement or (v)
release any of Patriot REIT, NPOC or New Patriot Operating Partnership from its
obligations as a Guarantor under this Agreement or any other Credit Document;
provided further, that no such change, waiver, discharge or termination shall
- -------- -------
(w) increase the Commitment or the amount of outstanding Loans of any Lender
over the amount thereof then in effect without the consent of such Lender (it
being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default shall not constitute an increase of the
Commitment or the amount of outstanding Loans of any Lender, (x) without the
consent of each Agent affected thereby, amend, modify or waive any provision of
Section 10 as same applies
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to such Agent or any other provision as same relates to the rights or
obligations of such Agent or (y) without the consent of the Supermajority
Lenders, change the definitions of Borrowing Base, Aggregate Borrowing Base
Value, Eligible Hotel (as to the definition therefor, but not as to the
qualification of any individual Hotel as an Eligible Hotel), Eligible Borrowing
Base Entity or Supermajority Lenders (provided that the foregoing shall not
apply to changes in any defined terms used in such definitions).
(b) If, in connection with any proposed change, waiver, discharge or
termination with respect to any of the provisions of this Agreement as
contemplated by clauses (i) through (iv), inclusive, of the first proviso to
Section 11.12(a), the consent of the Required Lenders is obtained but the
consent of one or more of such other Lenders whose consent is required is not
obtained, then the Borrower shall have the right, so long as all non-consenting
Lenders whose individual consent is required are treated as described below, to
replace each such non-consenting Lender or Lenders with one or more Replacement
Lenders pursuant to Section 1.13 so long as at the time of such replacement,
each such Replacement Lender consents to the proposed change, waiver, discharge
or termination, provided, that in any event the Borrower shall not have the
--------
right to replace a Lender solely as a result of the exercise of such Lender's
rights (and the withholding of any required consent by such Lender) pursuant to
the second proviso to Section 11.12(a).
11.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Sections 1.10, 1.11, 3.04, 11.01 and 11.06 shall survive the
execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Loans.
11.14 Domicile of Loans. Each Lender may transfer and carry its
-----------------
Loans at, to or for the account of any office, Subsidiary or Affiliate of such
Lender. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 11.14 would, at the
time of such transfer, result in increased costs under Section 1.10, 1.11 or
3.04 from those being charged by the respective Lender prior to such transfer,
then the Borrower shall not be obligated to pay such increased costs (although
the Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
transfer).
11.15 Confidentiality. (a) Subject to the provisions of clause (b)
---------------
of this Section 11.15, each Lender agrees that it will use its reasonable
efforts not to disclose without the prior consent of the Borrower (other than to
its employees, auditors, advisors or counsel or to another Lender if the Lender
or such Lender's holding or parent company in its sole discretion determines
that any such party should have access
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<PAGE>
to such information, provided such Persons shall be subject to the provisions of
this Section 11.15 to the same extent as such Lender) any information with
respect to any Credit Party or any of its Subsidiaries which is now or in the
future furnished pursuant to this Agreement or any other Credit Document,
provided that any Lender may disclose any such information (a) as has become
- --------
generally available to the public, (b) as may be required or appropriate in any
report, statement or testimony submitted to any municipal, state or Federal
regulatory body having or claiming to have jurisdiction over such Lender or to
the Federal Reserve Board or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors, (c) as may be required or appropriate in respect to any summons or
subpoena or in connection with any litigation, (d) in order to comply with any
law, order, regulation or ruling applicable to such Lender, (e) to any Arranger
and (f) to any prospective or actual transferee or participant in connection
with any contemplated transfer or participation of any of the Notes or Loans or
any interest therein by such Lender, provided, that such prospective transferee
--------
agrees with such Lender to be subject to the provisions of this Section
11.15(a).
(b) Patriot REIT and the Borrower hereby acknowledge and agree that
each Lender may share with any of its affiliates any information related to
Credit Parties or any of their respective Subsidiaries (including, without
limitation, any non public customer information regarding the creditworthiness
of the Credit Parties and their respective Subsidiaries, provided such Persons
shall be subject to the provisions of this Section 11.15 to the same extent as
such Lender), it being understood that for purposes of this Section 11.15(b) the
term "affiliate" shall mean any direct or indirect holding company of a Lender
as well as any direct or indirect Subsidiary of such holding company.
11.16 Register. The Borrower hereby designates the Administrative
--------
Agent to serve as the Borrower's agent, solely for purposes of this Section
11.16, to maintain a register (the "Register") on which it will record the
Obligations from time to time of each of the Lenders, the Loans made by each of
the Lenders and each repayment in respect of the principal amount of the Loans
of each Lender. Failure to make any such recordation, or any error in such
recordation shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Lender, the transfer of the Obligations of such
Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Obligations shall not be effective until such transfer is
recorded on the Register maintained by the Administrative Agent with respect to
ownership of such Obligations and Loans and prior to such recordation all
amounts owing to the transferor with respect to such Obligations and Loans shall
remain owing to the transferor. The registration of assignment or transfer of
all or part of any Obligations and Loans shall be recorded by the Administrative
Agent on the
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Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
11.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Administrative Agent for acceptance and registration of
assignment or transfer of all or part of a Loan, or as soon thereafter as
practicable, the assigning or transferor Lender shall surrender the Note
evidencing such Loan, and thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the assigning or transferor Lender and/or
the new Lender. The Borrower agrees to indemnify the Administrative Agent from
and against any and all losses, claims, damages and liabilities of whatsoever
nature which may be imposed on, asserted against or incurred by the
Administrative Agent in performing its duties under this Section 11.16, provided
that the Borrower shall have no obligation to indemnify the Administrative Agent
for any loss, claim, damage, liability or expense to the extent resulting solely
from the gross negligence, willful misconduct or breach of agreement of the
Administrative Agent.
SECTION 12. Patriot REIT Guaranty.
---------------------
12.01 The Guaranty. In order to induce each Arranger and the Lenders
------------
to enter into this Agreement and to extend credit hereunder and in recognition
of the direct benefits to be received by Patriot REIT from the proceeds of the
Loans, Patriot REIT hereby agrees with each Arranger and the Lenders as follows:
Patriot REIT hereby unconditionally and irrevocably guarantees as primary
obligor and not merely as surety the full and prompt payment when due, whether
upon maturity, by acceleration or otherwise, of any and all of the Guaranteed
Obligations of the Borrower to each Lender. If any or all of the Guaranteed
Obligations becomes due and payable hereunder, Patriot REIT unconditionally
promises to pay such indebtedness to the Lenders or order, on written demand,
together with any and all reasonable expenses which may be incurred by the
Lenders in collecting any of the Guaranteed Obligations.
12.02 Bankruptcy. Additionally, Patriot REIT unconditionally and
----------
irrevocably guarantees the payment of any and all of the Guaranteed Obligations
of the Borrower to the Lenders whether or not then due or payable by the
Borrower upon the occurrence in respect of the Borrower of any of the events
specified in Section 8.05, and unconditionally and irrevocably promises to pay
such Guaranteed Obligations to the Lenders, or order, on demand, in lawful money
of the United States. This Guaranty shall constitute a guaranty of payment, and
not of collection.
12.03 Nature of Liability. The liability of Patriot REIT hereunder
-------------------
is exclusive and independent of any security for or other guaranty of the
Guaranteed Obligations of the Borrower whether executed by Patriot REIT, any
other guarantor or
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<PAGE>
by any other party, and the liability of Patriot REIT hereunder shall not be
affected or impaired by (a) any direction as to application of payment by the
Borrower or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
Guaranteed Obligations of the Borrower, or (c) any payment on or in reduction of
any such other guaranty or under taking, or (d) any dissolution, termination or
increase, decrease or change in personnel by the Borrower, or (e) any payment
made to any Arranger or the other Lenders on the indebtedness which such
Arranger or such other Lenders repay the Borrower pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and Patriot REIT waives any right to the deferral or modification of
its obligations hereunder by reason of any such proceeding.
12.04 Independent Obligation. The obligations of Patriot REIT
----------------------
hereunder are independent of the obligations of any other guarantor or the
Borrower, and a separate action or actions may be brought and prosecuted against
Patriot REIT whether or not action is brought against any other guarantor or the
Borrower and whether or not any other guarantor or the Borrower be joined in any
such action or actions. Any payment by the Borrower or other circumstance which
operates to toll any statute of limitations as to the Borrower shall operate to
toll the statute of limitations as to Patriot REIT.
12.05 Authorization. Patriot REIT authorizes each Arranger and the
-------------
other Lenders without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Guaranteed Obligations (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Guaranty herein made
shall apply to the Guaranteed Obligations as so changed, extended, renewed
or altered;
(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any of
those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset thereagainst;
-109-
<PAGE>
(c) exercise or refrain from exercising any rights against the
Borrower, any other Credit Party or any other Person or otherwise act or
refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors;
(e) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to its creditors other than
the Lenders;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Lenders regardless of what
liability or liabilities of the Borrower remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any of the instruments or agreements
referred to herein, or otherwise amend, modify or supplement this Agreement
or any of such other instruments or agreements; and/or
(h) take any other lawful action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable
discharge of Patriot REIT from its liabilities under this Section 12.
12.06 Reliance. It is not necessary for any Arranger or the other
--------
Lenders to inquire into the capacity or powers of the Borrower or any other
Credit Party or the officers, directors, partners or agents acting or purporting
to act on its behalf, and any Guaranteed Obligations made or created in reliance
upon the professed exercise of such powers shall be guaranteed hereunder.
12.07 Subordination. Any of the indebtedness of the Borrower now or
-------------
hereafter owing to Patriot REIT is hereby subordinated to the Guaranteed
Obligations of the Borrower owing to the Arrangers and the other Lenders; and if
the Administrative Arranger so requests at a time when an Event of Default
exists, all such indebtedness of the Borrower to Patriot REIT shall be
collected, enforced and received by Patriot REIT for the benefit of the Lenders
and be paid over to the Administrative Arranger on behalf of the Lenders on
account of the Guaranteed Obligations of the Borrower to the Lenders, but
without affecting or impairing in any manner the liability of Patriot REIT under
the other provisions of this Guaranty. Prior to the transfer by
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<PAGE>
Patriot REIT of any note or negotiable instrument evidencing any of the
indebtedness relating to the Guaranteed Obligations of the Borrower to Patriot
REIT, Patriot REIT shall mark such note or negotiable instrument with a legend
that the same is subject to this subordination. Without limiting the generality
of the foregoing, Patriot REIT hereby agrees with the Lenders that it will not
exercise any right of subrogation which it may at any time otherwise have as a
result of this Guaranty (whether contractual, under Section 509 of the
Bankruptcy Code, or otherwise) until all Guaranteed Obligations have been paid
in full in cash (it being understood that Patriot REIT is not waiving any right
of subrogation that it may otherwise have but is only waiving the exercise
thereof as provided above).
12.08 Waiver. (a) Patriot REIT waives any right (except as shall be
------
required by applicable law and cannot be waived) to require any Arranger or the
other Lenders to (i) proceed against the Borrower, any other guarantor or any
other party, (ii) proceed against or exhaust any security held from the
Borrower, any other guarantor or any other party or (iii) pursue any other
remedy in such Arranger's or the other Lenders' power whatsoever. Patriot REIT
waives (except as shall be required by applicable law and cannot be waived) any
defense to its obligations under this Section 12 based on or arising out of any
defense of the Borrower, any other guarantor or any other party, other than
payment in full of the Guaranteed Obligations, based on or arising out of the
disability of the Borrower, any other guarantor or any other party, or the
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Borrower other
than payment in full of the Guaranteed Obligations. Each Arranger and the other
Lenders may, at their election, foreclose on any security held by such Arranger,
the Administrative Agent or the other Lenders by one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
reasonable (to the extent such sale is permitted by applicable law), or exercise
any other right or remedy any Arranger and the other Lenders may have against
the Borrower or any other party, or any security, without affecting or impairing
in any way the liability of Patriot REIT hereunder except to the extent the
Guaranteed Obligations have been paid. Patriot REIT waives any defense arising
out of any such election by any Arranger and the other Lenders, even though such
election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of Patriot REIT against the Borrower or any
other party or any security.
(b) Patriot REIT waives, except as shall be required by applicable
law and cannot be waived, all presentments, demands for performance, protests
and notices, including without limitation notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty, and
notices of the existence, creation or incurring of new or additional Guaranteed
Obligations. Patriot REIT assumes all re-
-111-
<PAGE>
sponsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks which Patriot REIT assumes and incurs hereunder, and agrees that the
Arrangers and the other Lenders shall have no duty to advise Patriot REIT of
information known to them regarding such circumstances or risks.
Patriot REIT warrants and agrees that each of the waivers set forth above is
made with full knowledge of its significance and consequences and that if any of
such waivers are determined to be contrary to any applicable law or public
policy, such waivers shall be effective only to the maximum extent permitted by
law. All such waivers in this Section apply only to the matters described in
this Section and shall not operate as a waiver of any other rights of Patriot
REIT or the Borrower.
12.09 Nature of Liability. It is the desire and intent of Patriot
-------------------
REIT and the Lenders that this Guaranty shall be enforced against Patriot REIT
to the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. If, however, and to the
extent that, the obligations of Patriot REIT under this Guaranty shall be
adjudicated to be invalid or unenforceable for any reason (including, without
limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers), then the amount of the Guaranteed
Obligations shall be deemed to be reduced and Patriot REIT shall pay the maximum
amount of the Guaranteed Obligations which would be permissible under applicable
law.
-112-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
- -------
1950 Stemmons Freeway PATRIOT AMERICAN
Suite 6001 HOSPITALITY, INC.
Dallas, Texas 75207
Telephone No.: (214) 863-1000
Telecopier No.: (214) 863-1527
Attention: Rex Stewart By /s/ William W. Evans III
--------------------------
Title: Chairman
1950 Stemmons Freeway PATRIOT AMERICAN
Suite 6001 HOSPITALITY PARTNERSHIP, L.P.
Dallas, Texas 75207
Telephone No.: (214) 863-1000 By: PAH GP, INC., its
Telecopier No.: (214) 863-1527 General Partner
Attention: Rex Stewart
By /s/ William W. Evans III
------------------------------
Title: President and Secretary
<PAGE>
1285 Avenue of the Americas PAINE WEBBER REAL ESTATE
19th Floor SECURITIES, INC., Individually,
New York, New York 10019 as an Arranger and the Documentation
Telephone No.: (212) 713-2000 Agent
Telecopier No.: (212) 713-7949
Attention: Christopher S. Johnson
By /s/ Christopher S. Johnson
----------------------------
Title: Senior Vice President
<PAGE>
380 Madison Avenue THE CHASE MANHATTAN BANK
New York, New York 10017 Individually, as an Arranger
Telephone No.: (212) 622-3250 and the Administrative Agent
Telecopier No.: (212) 622-3395
Attention: Fred Hammer
By /s/ James Rolison
------------------------
Title: Vice President
<PAGE>
130 Liberty Street BANKERS TRUST COMPANY
New York, New York 10006
Telephone No.: (212) 250-2500
Telecopier No.: (212) 454-0743
Attention: Garrett Thelander By /s/ Garrett Thelander
-------------------------
Title: Vice President
<PAGE>
399 Park Avenue CITIBANK, N.A.
New York, New York 10043
Telephone No.: (212) 559-1000
Telecopier No.: (212) 935-2019
Attention: Jeff Warner By: /s/ Jeffrey A. Warner
------------------------
Title: Attorney-In-Fact
<PAGE>
BANKBOSTON, N.A.
By /s/ Jeff Warwick
-------------------------
Title: Director
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By /s/ John B. Lamb
----------------------------
Title: Senior Vice President
<PAGE>
PACIFIC LIFE INSURANCE COMPANY
By /s/ Marc D. Ley
-------------------------------
Title: Assistant Vice President
By /s/ C.S. Dillion
-------------------------------
Title: Assistant Secretary
<PAGE>
SOCIETE GENERALE, SOUTHWEST
AGENCY
By /s/ Thomas K. Day
-------------------------
Title: Vice President
<PAGE>
CIBC INC.
By /s/ Cheryl L. Boot
----------------------------------
Title: Director, Oppenheimer Corp.,
As Agent
<PAGE>
DRESDNER BANK AG,
NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By /s/ Michael A. Seton
-------------------------
Title: Assistant Vice
President
By /s/ Neil J. Crawford
-------------------------
Title: Vice President
<PAGE>
Exhibit 10.26
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 31st day of
December, 1997, by and among Patriot American Hospitality, Inc., a Delaware
corporation (the "REIT"), Patriot American Hospitality Operating Company, a
Delaware corporation (the "OPCO") (the REIT and the OPCO, each a "Company" and
collectively the "Companies"), and UBS Limited, an English corporation ("UBS
Limited") and Union Bank of Switzerland, London Branch ("UBS-LB"), acting
through its agent UBS Securities LLC (UBS Limited and UBS-LB being hereinafter
collectively called the "UBS Parties" and sometimes individually, a "UBS
Party"). References herein to the "Companies" refer to the REIT and the OPCO,
and those entities respectively owned or controlled by the REIT or the OPCO.
IN CONSIDERATION of the mutual covenants contained in this Purchase
Agreement, the REIT, the OPCO and the UBS Parties agree as follows:
SECTION 1. Authorization of Sale of the Shares. Subject to the terms
-----------------------------------
and conditions of this Agreement, the REIT has authorized the issuance to UBS
Limited of up to an aggregate of 3,250,000 shares of common stock, par value
$0.01 per share, of the REIT (the "REIT Shares") and the OPCO has authorized the
issuance to UBS Limited of up to an aggregate of 3,250,000 shares of common
stock, par value $0.01 per share (the "OPCO Shares"), which REIT Shares and OPCO
Shares are paired and traded as a unit consisting of one (1) REIT Share and one
(1) OPCO Share (hereinafter each such paired unit is referred to as a "Paired
Share" and the Paired Shares referred to in this sentence are herein called the
"Purchase Shares"). In addition, the REIT and the OPCO may issue to UBS-LB
additional Paired Shares in settlement of certain of its obligations under the
Forward Stock Purchase Agreement, dated December 31, 1997 (the "Forward Stock
Purchase Agreement"), among the REIT, the OPCO and UBS-LB (the "Additional
Shares"). The Purchase Shares and the Additional Shares are hereinafter
collectively called the "Shares."
SECTION 2. Agreement to Sell and Purchase the Purchase Shares.
--------------------------------------------------
Subject to the terms and conditions of this Agreement, on the Closing Date (as
defined in Section 3 hereof), the Companies will sell to UBS Limited the
Purchase Shares, the number of which shall equal 3,250,000 paired shares for a
per paired share purchase price of $28.8125 per Paired Share.
SECTION 3. Delivery of the Shares at the Closing.
-------------------------------------
3.1. Closing. The completion of the purchase and sale of the
-------
Purchase Shares (the "Closing") shall occur as soon as practicable, on such date
to be agreed upon among the REIT, the OPCO and the UBS Parties, but in no event
later than the earlier of (i) December 31, 1997 or (ii) three business days
after the execution of this Agreement (hereinafter, the "Closing Date").
<PAGE>
3.2. Conditions. At Closing, the Companies shall deliver or cause to
----------
be delivered to UBS Limited one or more stock certificates registered in the
name of UBS Limited representing the number of Purchase Shares set forth in
Section 2 above.
The obligation of the Companies to complete the sale of the Purchase
Shares and deliver such stock certificate(s) to UBS Limited at the Closing shall
be subject to the following conditions, any one or more of which may be waived
by both of the Companies acting together: (i) receipt by the Companies of
Federal Funds (or other mutually agreed upon form of payment) in the full amount
of the purchase price for the Purchase Shares being purchased hereunder, (ii)
the accuracy in all material respects, as of the Closing Date, of the
representations and warranties made by the UBS Parties herein and the
fulfillment, in all material respects, as of the Closing Date, of those
undertakings of the UBS Parties to be fulfilled prior to the Closing, (iii) the
Forward Stock Purchase Agreement shall have been fully executed by the parties
thereto and (iv) receipt by the Companies of a cross-receipt with respect to the
Purchase Shares executed by UBS Limited.
UBS Limited's obligation to accept delivery of such stock
certificate(s) and to pay for the Purchase Shares evidenced thereby shall be
subject to the following conditions: (i) the accuracy in all material respects,
as of the Closing Date, of the representations and warranties made by the
Companies herein and the fulfillment in all material respects, as of the Closing
Date, of those undertakings of the Companies to be fulfilled prior to Closing;
and (ii) the UBS Parties shall have received all opinions and certificates to be
delivered by the Companies pursuant to this Agreement.
SECTION 4. Representations, Warranties and Covenants of the
------------------------------------------------
Companies. The Companies hereby represent and warrant to, and covenant with,
- ---------
the UBS Parties as follows:
4.1. Organization and Qualification. The REIT has been formed as a
------------------------------
real estate investment trust under Delaware law pursuant to a Certificate of
Incorporation filed as of January 27, 1983 in the office of the Delaware
Secretary of State, as amended and restated as of July 1, 1997 and filed in the
office of the Delaware Secretary of State on such date. The REIT's existence
has not been suspended or terminated nor have any dissolution, revocation or
forfeiture proceedings regarding the REIT been commenced. The REIT has been
duly qualified to do business in each jurisdiction (i) wherein it owns, leases
or manages real property or (ii) where the failure so to qualify to do business
would have a material adverse effect on the financial condition, business,
operations or prospects of the Companies taken as a whole (a "Material Adverse
Effect"). The OPCO has been duly organized, is validly existing and in good
standing under the laws of Delaware. The OPCO's corporate existence has not
been suspended or terminated, nor have any dissolution, liquidation or
forfeiture proceedings involving the OPCO been commenced. The OPCO has been
duly qualified to do business in each jurisdiction (i) wherein such entity owns,
leases or manages real property or (ii) where the failure so to qualify to do
business would have a Material Adverse Effect.
4.2. Authorized Capital Stock. The REIT has 1.5 billion authorized
------------------------
shares as of December 1, 1997, consisting of 650 million REIT Shares, par value
$0.01 per share, 750 million
2
<PAGE>
shares of excess stock, par value $0.01 per share, and 100 million shares of
preferred stock, par value $0.01 per share. The OPCO has authorized capital
stock as of December 1, 1997 of 1.5 billion shares, consisting of 650 million
OPCO Shares, par value $0.01 per share, 750 million shares of excess stock, par
value $0.01 per share and 100 million shares of preferred stock, par value $0.01
per share. As of December 1, 1997, there were 70,120,137 Paired Shares
outstanding, 7,975,970 Paired Shares were reserved for issuance pursuant to
equity plans filed pursuant to the Companies' SEC Filings (as defined below),
and 12,795,851 Paired Shares were reserved for issuance upon the election by the
Companies to acquire, in exchange for Paired Shares, units of limited
partnership interest in Patriot American Hospitality Partnership, L.P. and
Patriot American Hospitality Operating Partnership, L.P. tendered by redeeming
unit holders. No preferred shares of the REIT are currently outstanding. The
issued and outstanding Paired Shares of the Companies have been duly authorized
and validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and conform to the description thereof included in
the Companies' SEC Filings. Other than as described in the Companies' SEC
Filings, the REIT does not have outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the REIT's stock,
stock bonus and other stock plans or arrangements and the options or other
rights granted and exercised thereunder in the Companies' SEC Fillings
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
4.3. Issuance, Sale and Delivery of the Shares. The Purchase Shares
-----------------------------------------
to be sold by the Companies have been duly authorized and, when issued,
delivered and paid for in the manner set forth in this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable, and will conform to
the description thereof included in the Companies' SEC Filings or incorporated
by reference in the Registration Statements, if available. The Additional
Shares, if and when issued pursuant to the Forward Stock Purchase Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, and will
conform to the description thereof included in the Companies' SEC filings or
incorporated by reference in the Registration Statements. None of the Purchase
Shares when issued and delivered to the UBS Parties shall be subject to any
lien, security interest, claim, charge or encumbrance of any nature. No further
approval or authority of the stockholders or the Board of Directors of the REIT
or the OPCO will be required for the issuance and/or sale of the Purchase Shares
to be sold by the Companies as contemplated herein or in the Forward Stock
Purchase Agreement, except such as shall have been obtained on or before the
Closing Date. The issuance and/or sale of the Purchase Shares to the UBS Parties
by the Companies pursuant to this Agreement or the Forward Stock Purchase
Agreement (as the case may be), the compliance by the Companies with the other
provisions of this Agreement or the Forward Stock Purchase Agreement and the
consummation of the other transactions contemplated hereby or thereby do not
require the consent, approval, authorization, registration or qualification of
or with any governmental authority, except such as shall have been obtained on
or before the Closing Date other than the registration of the resale of the
Shares by the UBS Parties with the Securities and Exchange Commission (the
"SEC") and any required Blue Sky
3
<PAGE>
filings with the States. The Companies meet and will continue to meet the
requirements for use of Form S-3 under the Securities Act and the rules and
regulations promulgated thereunder (the "Rules and Regulations"). The Companies
have filed and will file all documents which are required to file under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and all such
documents (collectively, together with the Companies' registration statements
filed under the Securities Act which have been declared effective since January
1, 1997 and have not been withdrawn, the "Companies' SEC Filings") comply in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder, as applicable, and none of such documents, when so
filed, contained or will contain any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and any documents so filed and incorporated by
reference subsequent to the effective date of the Registration Statements (as
defined in Section 7 below) shall, when they are filed with the SEC, conform in
all material respects with the requirements of the Securities Act and the Rules
and Regulations and the Exchange Act and the rules and regulations thereunder,
as applicable. No Registration Statement filed in respect of any of the Purchase
Shares or Additional Shares, when so filed, will contain any untrue statement of
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.4. Due Execution, Delivery and Performance of the Agreement. Each
--------------------------------------------------------
Company has full legal right, power and authority to enter into the Purchase
Agreement and the Forward Stock Purchase Agreement and perform the transactions
contemplated hereby and thereby. The Purchase Agreement and the Forward Stock
Purchase Agreement have been duly authorized, executed and delivered by the
Companies. The making and performance of the Purchase Agreement and the Forward
Stock Purchase Agreement by the Companies and the consummation of the
transactions herein and therein contemplated will not violate any provision of
the certificate of incorporation, bylaws, or other organizational documents, of
the Companies, and will not conflict with, result in the breach or violation of,
or constitute, either by itself or upon notice or the passage of time or both, a
default under any material agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which either Company is a
party or by which either Company or its respective properties may be bound or
affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to either Company or any of its respective
properties. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required by
or on the part of either Company for the execution and delivery of this
Agreement, the Forward Stock Purchase Agreement or the consummation of the
transactions contemplated hereby or thereby, except in connection with the
filing of any Registration Statements pursuant to Section 7 below or for
compliance with the Blue Sky laws applicable to the offering of the Shares.
Upon the execution and delivery hereof, each of this Agreement and the Forward
Stock Purchase Agreement will constitute the valid and binding obligation of the
Company, enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of
4
<PAGE>
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law) and except as the enforceability of the indemnification
agreements of the Companies in Section 7.5 hereof may be limited by public
policy.
4.5. Accountants. The Companies' independent certified public
-----------
accountants, who have expressed their opinion with respect to the Most Recent
Financial Statements (as defined below) are independent accountants as required
by the Securities Act and the Rules and Regulations. Each Company shall cause
its independent certified public accountants to deliver, on the effective date
of the Registration Statement, and thereafter upon the request of a UBS Entity
(which shall be made no more frequently than once during any 30-day period), a
letter stating that such accountants are independent public accountants within
the meaning of the Securities Act and otherwise in customary form and covering
such financial and accounting matters as are then customarily covered by letters
of independent certified public accountants delivered in connection with
secondary public offerings of equity securities pursuant to a shelf registration
statement.
4.6. No Defaults. Except as to defaults, violations and breaches
-----------
which individually or in the aggregate would not be material to the Companies
taken as a whole, neither Company is in violation or default of any provision of
its certificate of incorporation or bylaws, or other organizational documents,
and is not in breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and there does not exist any state
of fact which constitutes an event of default on the part of the Company as
defined in such documents or which, with notice or lapse of time or both, would
constitute such an event of default except such defaults which individually or
in the aggregate would not be material to the Companies.
4.7. Contracts. Neither Company, nor to the best of the knowledge of
---------
each Company, any other party is in breach of or default under any contracts to
which the REIT is a party except such breach or default which individually or in
the aggregate would not have a Material Adverse Effect.
4.8. No Actions. There are no legal or governmental actions, suits
----------
or proceedings pending or, to the best of the Companies' knowledge, threatened
to which either Company is or may be a part or of which property owned or leased
by either Company is or may be the subject, or related to environmental or
discrimination matters, which actions, suits or proceedings might, individually
or in the aggregate, prevent or adversely affect the transactions contemplated
by this Agreement or result in a material adverse change in the condition
(financial or otherwise), of the properties, business, results of operations or
prospects of the Company, and no labor disturbance by the employees of the
Companies exists or is imminent which might be expected to affect adversely such
condition, properties, business, results of operations or prospects. Except as
may be described in the Companies' SEC Filings, neither Company is a party or
subject to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body administrative agency or other governmental body.
5
<PAGE>
4.9. Properties. Each Company has good and marketable title to all
----------
the properties and assets reflected as owned by such Company in the financial
statements included in the Most Recent Financial Statements, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except (i) those, if any,
reflected in such financial statements or the Companies' SEC Filings, or (ii)
those which are not material in amount and do not adversely affect the use made
and promised to be made of such property by the Company. Each Company holds its
leased properties under valid and binding leases, with such exceptions as are
not materially significant in relation to the business of the Companies. Each
Company owns or leases all such properties as are necessary to its operations as
now conducted. The REIT is qualified as a real estate investment REIT under the
Internal Revenue Code of 1986, as amended, with respect to its taxable years
ended December 31, 1995 and December 31, 1996, and is organized in conformity
with the requirements for qualification as a real estate investment trust, and
its manner of operation has enabled it to meet the requirements for
qualification as a real estate investment trust as of the date hereof, and its
proposed manner of operation will enable it to meet the requirements for
qualification as a real estate investment trust in the future.
4.10. No Material Change. Since the date of the Most Recent
------------------
Financial Statements, and except as otherwise disclosed in the Companies' SEC
Filings as of the Closing Date or in writing to the UBS Parties (i) neither
Company has incurred any liabilities or obligations, indirect, or contingent,
which will have a Material Adverse Effect or entered into any material verbal or
written agreement or other material transaction which is not in the ordinary
course of business (it being agreed that for purposes of this sentence the
REIT's ordinary course of business shall include the acquisition or disposition,
directly indirectly, of real estate properties or businesses of a type that may
be owned by a "real estate investment trust" (as defined under the Internal
Revenue Code) and the OPCO's ordinary course of business shall include the
acquisition or disposition, directly or indirectly of assets or business related
to or engaged in the lodging industry) or which could reasonably be expected to
result in a material reduction in the future earnings of the Companies; (ii)
neither Company has sustained any loss or interference with its businesses or
properties (taken as a whole) from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance, which has had a material adverse
effect on such business or properties; (iii) neither Company is in default in
the payment of principal or interest on any outstanding debt obligations; (iv)
there has not been any change in the authorized capital of the Companies or
material increase in the principal amount of outstanding indebtedness of the
Companies (other than in the ordinary course of business); and (v) there has not
been any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the Companies.
4.11. Intellectual Property. Each Company believes it has sufficient
---------------------
trademarks, trade names, patent rights, copyrights, licenses, approvals and
governmental authorizations to conduct its businesses as now conducted; and
neither Company has knowledge of any material infringement by it of trademark,
trade name rights, patent rights, copyrights, licenses, trade secrets or other
similar rights of others, and no claim has been made against either Company
regarding trademark, trade name, patent, copyright, license, trade secrecy or
other infringement which could have a Material Adverse Effect.
6
<PAGE>
4.12. Compliance. Neither Company has been advised, nor has reason
----------
to believe, that it is conducting business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Companies.
4.13. Taxes. Each Company has filed all necessary federal, state and
-----
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon (except for those taxes which are being contested in good faith
through appropriate proceedings, for which adequate reserves have been
established and which are either reflected in the Most Recent Financial
Statements or disclosed by the Companies to UBS in writing), and neither Company
has knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company which could have a Material Adverse Effect.
4.14. Transfer Taxes. On the Closing Date, all stock transfer or
--------------
other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Purchase Shares to be sold to UBS
Limited hereunder will be, or will have been, fully paid or provided for by the
Companies and all laws imposing such taxes will be or will have been fully
complied with.
4.15. Investment Company. Neither of the Companies are required to
------------------
register as an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
4.16. Insurance. Each Company maintains insurance (or insurance is
---------
maintained on its behalf) of the types and in the amounts generally deemed
adequate under customary industry standards for its business, including, but not
limited to, insurance covering all real and personal property owned or leased by
such Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect.
4.17. SEC Filings. The information contained in the following
-----------
documents, which the Companies have furnished to the UBS Parties, or will
furnish prior to the Closing, is or will be true and correct in all material
respects as of their respective filing dates:
(a) Joint Annual Report on Form 10-K for the year ended December 31,
1996, which Joint Annual Report includes the REIT's and the
OPCO's most recently available audited financial statements
together with the report thereon of the independent certified
public accountants (the "Most Recent Financial Statements");
(b) Joint Quarterly Report on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997;
7
<PAGE>
(c) the Companies' proxy statements on Form 14A relating to (i) the
most recent Annual Meetings of the OPCO's and the REIT's
Stockholders and (ii) any Special Meetings of the OPCO's
Stockholders and the REIT's Stockholders which occurred during
the 12-month period prior to the date hereof or for which a
meeting date has been fixed and a proxy statement distributed;
(d) all other documents, if any, filed by or with respect to the REIT
and the OPCO with the SEC since January 1, 1997 pursuant to
Sections 13, 15(d) or 16(a) of the Exchange Act; and
(e) a covenant compliance certification stating that none of the REIT
and the OPCO and their respective subsidiaries are in default
under any of its credit agreements or other financing
arrangements.
4.18. Legal Opinion. Prior to the Closing, counsel to the Companies
-------------
will deliver their legal opinions to the UBS Parties in substantially the forms
of Exhibits A-1 and A-2 hereto.
4.19. ERISA. The Companies and their affiliates are in compliance in
-----
all material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended and the rules and regulations
promulgated thereunder ("ERISA"). Neither a Reportable Event (as defined under
ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with
respect to any Plan (as defined below) of the Companies and/or their affiliates;
no notice of intent to terminate a Plan has been filed nor has any Plan been
terminated within the past five years; no circumstance exists which constitutes
grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty
Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee
to administer, a Plan, nor has the PBGC instituted any such proceedings; the
Companies and their affiliates have not completely or partially withdrawn under
Sections 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein);
the Companies and their affiliates have met the minimum funding requirements of
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and
Section 302 of ERISA with respect to each Plan and there is no unfunded current
liability (as defined below) with respect to any Plan; the Companies and their
affiliates have not incurred any liability to the PBGC under ERISA (other than
for the payment of premiums under Section 4007 of ERISA); no part of the funds
to be used by the Companies in satisfaction of their obligations under this
Purchase Agreement or the Forward Stock Purchase Agreement constitute "plan
assets" of any "employee benefit plan" within the meaning of ERISA or of any
"plan" within the meaning of Section 4975(e)(1) of the Code, as interpreted by
the Internal Revenue Service and the U.S. Department of Labor in rules,
regulations, releases and bulletins or as interpreted under applicable case law.
As used below, "Plan" means an "employee benefit plan" or "plan" as described in
Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided
in Section 302(d)(8)(A) of ERISA.
4.20. Certificate. A certificate of each Company executed by the
-----------
chief executive, financial or accounting officer of such Company, to be dated
the Closing Date in form and
8
<PAGE>
substance satisfactory to the UBS Parties to the effect that the representations
and warranties of the Companies set forth in this Section 4 are true and correct
as of the date of this Agreement and as of the Closing Date, and such Company
has complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied on or prior to such Closing Date.
4.21. Environmental Protection. To the knowledge of the Companies,
------------------------
except as disclosed in the Companies' SEC Filings, none of the Companies or
their affiliates' properties contain any Hazardous Materials that, under any
Environmental Law, (i) would impose liability on the Companies or any affiliate
that is likely to have a material adverse effect on the condition (financial or
other), business, results of operations, or prospects, of the Companies or (ii)
is likely to result in the imposition of a lien on any material asset owned,
directly or indirectly, by the Companies. To the knowledge of the Companies,
neither of the Companies nor any of their affiliates is subject to any existing,
pending or threatened investigation or proceeding by any governmental agency or
authority with respect or pursuant to any Environmental Law, except any which,
if adversely determined, would not have a Material Adverse Effect. As used
herein, "Environmental Laws" mean all federal, state, local and foreign
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder, including, without limitation laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals, or industrial,
solid, toxic or hazardous substances or wastes; and "Hazardous Material"
includes, without limitation, (i) all substances which are designated pursuant
to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33
U.S.C (S)1251 et seq.; (ii) any element, compound, mixture, solution, or
-- ----
substance which is designated pursuant to Section 102 of the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
(S)9601 et seq.; (iii) any hazardous waste having the characteristics which are
-- ----
identified under or listed pursuant to Section 3001 of the Resource Conservation
and Recovery Act ("RCRA"), 42 U.S.C. (S)6901 et seq.; (iv) any toxic pollutant
-- ----
listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which
is listed under Section 112 of the Clean Air Act, 42 U.S.C. (S)7401 et seq.;
-- ----
(vi) any imminently hazardous chemical substance or mixture with respect to
which action has been taken pursuant to Section 7 of the Toxic Substances
Control Act, 15 U.S.C. (S)2601 et seq.; and (vii) petroleum, petroleum
-- ----
products, petroleum by-products, petroleum decomposition by-products, and waste
oil.
SECTION 5. Representations, Warranties and Covenants of the UBS
----------------------------------------------------
Parties.
- -------
5.1. Investment. UBS Limited and/or UBS-LB represents and warrants
----------
to, and covenants with, the Companies that: (i) UBS Limited, taking into
account the personnel and resources it can practically bring to bear on the
purchase of the Purchase Shares contemplated hereby, is knowledgeable,
sophisticated and experienced in making, and is qualified to make, decisions
with respect to investments in shares presenting an investment decision like
that involved in the purchase of the Purchase Shares, including investments in
securities issued by the Companies, and has requested, received, reviewed and
considered all information it deems
9
<PAGE>
relevant in making an informed decision to purchase the Purchase Shares; (ii)
UBS Limited is acquiring the number of Purchase Shares set forth in Section 2
above in the ordinary course of its business and for its own account for
investment (as defined for purposes of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the regulations thereunder) only and with no
present intention of distributing any of such Purchase Shares or any arrangement
or understanding with any other persons regarding the distribution of such
Shares (this representation and warranty not limiting the rights of either UBS
Party to sell pursuant to any Registration Statement); (iii) neither UBS Party
will, directly or indirectly, sell or otherwise dispose of (or solicit any
offers to purchase or otherwise acquire) any of the Purchase Shares except in
compliance with the Securities Act, the Rules and Regulations and any applicable
state securities or blue sky laws or pursuant to an available exemption or
exclusion therefrom; (iv) each UBS Party has completed or caused to be completed
the Registration Statement Questionnaire and the Stock Certificate
Questionnaire, both attached hereto as Appendix I, for use in preparation of the
Registration Statement and the answers thereto are true and correct to the best
knowledge of the UBS Parties as of the date hereof and will be true and correct
as of the effective date of the Registration Statement; (v) the UBS Parties
have, in connection with their decision to purchase the number of Purchase
Shares set forth in Section 2 above, relied solely upon the documents identified
in Section 4.17, the information referred to in Section 7.7 and the
representations and warranties of the Company contained herein; (vi) each of the
UBS Parties is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act and a "qualified institutional
buyer" within the meaning of Rule 144A promulgated under the Securities Act;
(vii) the UBS Parties do not directly or indirectly have an interest of five
percent or more of the Paired Shares outstanding as shown in the Companies'
Quarterly Reports on Form 10-Q for the quarter ended September 30, 1997 and
(viii) the Purchaser understands that the Shares will contain a legend to the
following effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
5.2. Resale. Each UBS Party acknowledges and agrees that the Shares
------
are not transferable on the books of either the REIT or the OPCO unless the
certificate submitted to the transfer agent evidencing the Shares is accompanied
by a separate officer's certificate: (i) in the form of Appendix II hereto,
(ii) executed by an officer of, or other authorized person designated by, the
UBS Parties, and (iii) to the effect that (A) the Shares have been sold in
accordance with the Registration Statement, the Securities Act and the Rules and
Regulations and any applicable state securities or blue sky laws or pursuant to
valid exemptions or exclusions therefrom and (B) the requirement under the
Securities Act of delivering a current prospectus has been satisfied. Each UBS
Party acknowledges that there may occasionally be times when the Companies must
10
<PAGE>
suspend the right of the UBS Parties to effect sales of the Shares through use
of the Prospectus forming a part of the Registration Statement until such time
as an amendment to the Registration Statement has been filed by the Companies
and declared effective by the SEC, or until such time as the Companies have
filed an appropriate report with the SEC pursuant to the Exchange Act (each, a
"Black-out Period"); provided that no Black-out Period shall exceed 90
consecutive days. Each UBS Party hereby covenants that it will not sell any
Shares pursuant to said Prospectus during the period commencing at the time at
which the Companies give the UBS Parties written notice of the suspension of the
use of said Prospectus and ending at the time the Companies give the UBS Parties
written notice that the UBS Parties may thereafter effect sales pursuant to said
Prospectus. Each UBS Party further covenants to notify the REIT and the OPCO
promptly of the sale of all of its Shares.
5.3. Due Execution, Delivery and Performance of this Agreement. The
---------------------------------------------------------
UBS Parties further represent and warrant to, and covenant with, the Companies
that (i) each UBS Party has full right, power, authority and capacity to enter
into this Agreement and to consummate the transactions contemplated hereby and
has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, and (ii) upon the execution and delivery of this
Agreement, this Agreement shall constitute a valid and binding obligation of the
UBS Parties enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' and contracting parties' rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the UBS
Parties in Section 7.5 hereof may be legally unenforceable.
5.4. Residence of UBS Limited. UBS Limited is organized under the
------------------------
laws of England and has its principal place of business in London.
5.5. Beneficial Ownership of Company Common Stock. The UBS Parties
--------------------------------------------
further represent and warrant to, and covenant with, the Companies that (i) as
of the date of this Agreement and immediately prior to the purchase and sale of
the Purchase Shares, UBS Limited is not a beneficial owner, as such term is
defined by Rule 13d-3 under the Exchange act of more than five (5) percent of
the total number of outstanding shares of any Company, and (ii) no officer,
director or affiliate of UBS Limited is an officer, director or affiliate of any
Company. The term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
SECTION 6. Survival of Representations, Warranties and Agreements.
------------------------------------------------------
Notwithstanding any investigation made by any party to this Purchase Agreement,
all covenants, agreements, representations and warranties made by the Companies
and the UBS Parties herein and in the certificates for the Shares delivered
pursuant hereto shall survive the execution of this Purchase Agreement, the
Forward Stock Purchase Agreement, the delivery to UBS Limited of the Purchase
Shares being purchased and the payment therefor.
SECTION 7. Registration of the Shares; Compliance with the
-----------------------------------------------
Securities Act.
- --------------
11
<PAGE>
7.1. Registration Procedures and Expenses. The Companies shall:
------------------------------------
(a) within 60 days after receipt of a demand from the UBS Parties,
which demand may not be made within 30 days after the Closing,
prepare and file with the SEC Registration Statements (as
defined below) covering the resale by the UBS Parties, from time
to time, of the Shares (not to exceed a number of Shares equal to
130% of the number of Purchase Shares) through the facilities of
the New York Stock Exchange, the automated quotation system of
The Nasdaq Stock Market or the facilities of any other national
securities exchange on which the Paired Share is then traded or
in privately negotiated transactions (the "Initial Registration
Statements"). If the total number of Shares issued to the UBS
Parties hereunder and under the Forward Stock Purchase Agreement
exceeds the number of Shares covered by the Initial Registration
Statements, then the Companies shall prepare and file with the
SEC such additional Registration Statements as shall be necessary
to cover the resale by UBS-LB of such excess Shares in the same
manner as contemplated by the Initial Registration Statements for
the Shares covered thereby ("Additional Registration
Statements"); provided that prior to delivering certificates
evidencing any such excess Shares to UBS-LB, the Companies shall
cause such Registration Statements to have become effective. For
purposes of this Purchase Agreement, "Registration Statement"
means a registration statement under the Securities Act on Form
S-3 covering the resale by one or both UBS Parties of up to a
specified number of Shares, filed and maintained effective by the
Companies pursuant to the provisions of this Section 7, including
the Prospectus (as defined below) contained therein, any
amendments and supplements to such registration statement,
including all post-effective amendments thereto, and all exhibits
and all material incorporated by reference into such registration
statement;
(b) use all reasonable best efforts to cause the SEC to notify the
Companies of the SEC's willingness to declare the Initial
Registration Statements effective within 60 days after the
Registration Statements are filed by the Companies; provided that
the Companies will use their reasonable best efforts to cause
such Initial Registration Statements to become effective no later
than 90 days after the Closing Date;
(c) prepare and file with the SEC such amendments and supplements to
the Registration Statements and the prospectus used in connection
therewith (the "Prospectus") as may be necessary to keep the
Registration Statements effective until the date on which the
Shares may be resold by the UBS Parties without registration, by
reason of Rule 144(k) under the Securities Act or any other rule
of similar effect;
12
<PAGE>
(d) furnish to the UBS Parties with respect to the Shares registered
under the Registration Statements (and to each underwriter, if
any, of such Shares) such reasonable number of copies of
Prospectuses, including any supplements and amendments thereto,
promptly following the effectiveness of such Registration
Statements an opinion from counsel to the Companies covering the
matters set forth on Exhibit B hereto and such other documents as
the UBS Parties may reasonably request, in order to facilitate
the public sale or other disposition of all or any of the Shares
by the UBS Parties;
(e) use their reasonable best efforts to prevent the happening of any
event that would cause such Registration Statements to contain a
material misstatement or omission or to be not effective and
usable for resale of the Shares during the period that such
Registration Statements are required to be effective and usable;
provided that this paragraph (e) shall in no way limit the
Companies' right to suspend the right of the UBS Parties to
effect sales under the Registration Statement during any Black-
out Period as specified at Section 5.2 above.
(f) file documents required of the Companies for normal blue sky
clearance in states specified in writing by the UBS Parties,
provided, however, that the Companies shall not be required to
-------- -------
qualify to do business or consent to service of process in any
jurisdiction in which it is not now so qualified or has not so
consented; and
(g) bear all reasonable out-of-pocket expenses in connection with the
procedures in paragraphs (a) through (f) of this Section 7.1 and
the registration of the Shares pursuant to the Registration
Statements, including the reasonable fees and reasonable expenses
of counsel or other advisers to the UBS Parties, other than
underwriting discounts, brokerage fees and commissions incurred
by the UBS Parties, if any.
7.2. Covenants in Connection With Registration.
-----------------------------------------
(a) The Companies hereby covenant with the UBS Parties that (i) the
Companies shall not file any Registration Statement or Prospectus relating to
the resale of the Shares or any amendment or supplement thereto, unless a copy
thereof shall have been first submitted to the UBS Parties and the UBS Parties
did not object thereto in good faith (provided that if the UBS Parties do not
object within two business days of receiving any such material, they shall be
deemed to have no objection thereto); (ii) the Companies shall immediately
notify the UBS Parties of the issuance by the SEC of any stop order suspending
the effectiveness of such Registration Statement or the initiation of any
proceedings for such purpose; (iii) the Companies shall make every reasonable
effort to obtain the withdrawal of any order suspending the effectiveness of
such Registration Statement at the earliest possible moment; (iv) the Companies
shall notify the UBS Parties of the receipt of any notification with respect to
the suspension of
13
<PAGE>
the qualification of the Shares for sale under the securities or blue sky laws
of any jurisdiction or the initiation of any proceeding for such purpose; and
(v) the Companies shall as soon as practicable notify the UBS Parties in writing
of the existence of any fact which results in any Registration Statement, any
amendment or post-effective amendment thereto, the Prospectus, any prospectus
supplement, or any document incorporated therein by reference containing an
untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and shall (except during a Black-out Period) prepare a supplement or
post-effective amendment to such Registration Statement or the Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Shares, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading; provided
that this clause (v) shall in no way limit the Companies' right to suspend the
right of the UBS Parties to effect sales under the Registration Statement during
any Black-out Period as specified at Section 5.2 above.
(b) The UBS Parties shall notify the Companies at least two business
days prior to the date on which it intends to commence effecting any resales of
Shares under Registration Statements and if the Companies do not, within such
two-day period, advise the UBS Parties of the existence of any facts of the type
referred to in Section 7.2(a)(v) above, then the Companies shall be deemed to
have certified and represented to the UBS Parties that no such facts then exist
and the UBS Parties may rely on such certificate and representation in making
such sales. The preceding sentence shall in no way limit the Companies
obligations under Section 7.2(a) above.
7.3. Extension of Required Effectiveness. In the event that the
-----------------------------------
Companies shall give any notice required by Section 7.2(a)(v) hereof, the period
during which the Companies are required to keep such Registration Statements
effective and useable shall be extended by the number of days during the period
from and including the date of the giving of such notice to and including the
date when the UBS Parties are advised in writing by the Companies that the use
of the Prospectuses may be resumed.
7.4. Transfer of Shares After Registration. Each UBS Party agrees
-------------------------------------
that it will not effect any disposition of the Shares or its right to purchase
the Shares that would constitute a sale within the meaning of the Securities Act
or pursuant to any applicable state securities or blue sky laws except as
contemplated in Registration Statements referred to in Section 7.1 or except
pursuant to any exemption from the registration requirements of the Securities
Act (including, without limitation, Rule 144 promulgated thereunder and any
successor thereto) and that it will promptly notify the Company of any changes
in the information set forth in any such Registration Statements regarding the
UBS Parties or its Plan of Distribution.
7.5. Indemnification. For the purpose of this Section 7.5, the term
---------------
"Registration Statement" shall include any final prospectus, exhibit, supplement
or amendment included in or relating to any Registration Statement referred to
in Section 7.1.
14
<PAGE>
(a) Indemnification by Companies. For purposes of this Section 7.5,
the Companies agree to indemnify and hold harmless the UBS Parties and as more
particularly described herein. The Companies agree to indemnify and hold
harmless the UBS Parties and each person, if any, who controls either UBS Party
within the meaning of the Securities Act, against any losses, claims, damages,
liabilities or expenses, joint or several, to which the UBS Parties or such
controlling person may become subject (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Companies), insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, including the Prospectus, financial statements
and schedules, and all other documents filed as a part thereof, as amended at
the time of effectiveness of such Registration Statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant
to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and
Regulations, or the Prospectus, in the form first filed with the SEC pursuant to
Rule 424(b) of the Regulations, or filed as part of such Registration Statement
at the time of effectiveness if no Rule 424(b) filing is required, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading, and will reimburse each UBS Party and each such controlling person
for any legal and other expenses as such expenses are reasonably incurred by the
UBS Parties or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The Companies will also indemnify selling
brokers, dealers and similar securities industry professionals participating in
the sale or resale of the Shares, their officers, directors and partners and
each person who controls any such person within the meaning of the Securities
Act, provided, however, that the Companies will not be liable in any such case
-------- -------
to the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such Registration Statement, such Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Companies (i) by or on behalf of the UBS Parties
expressly for use therein or (ii) any statement or omission in any Prospectus
that is corrected in any subsequent Prospectus that was delivered to a UBS Party
prior to the pertinent sale or sales by such UBS Party and not delivered by such
UBS Party in connection with such sale or sales.
(b) Indemnification by UBS Parties. The UBS Parties will indemnify
and hold harmless the Companies, each of their directors, each of their officers
who signed any Registration Statement and each person, if any, who controls the
Companies within the meaning of the Securities Act, against any losses, claims,
damages, liabilities or expenses, joint and several, to which the Companies,
each of their directors, each of their officers who signed any Registration
Statement or any controlling person may become subject (including in settlement
of any litigation, if such settlement is effected with the written consent of
the UBS Parties) insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained in such Registration Statement, such Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state
15
<PAGE>
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such Registration Statement, such Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Companies by or on behalf of the UBS
Parties expressly for use therein, and will reimburse the Companies, each of
their directors, each of their officers who signed such Registration Statement
and each controlling person for any legal and other expense reasonably incurred
by the Companies, each of their directors, each of their officers who signed
such Registration Statement or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action.
(c) Proceedings. Promptly after receipt by an indemnified party
under this Section 7.5 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 7.5 notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section 7.5 or to the extent it is not prejudiced as
a proximate result of such failure. In case any such action is brought against
any indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume and control the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 7.5 for any reasonable legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall be not liable for the expenses of more than one
separate counsel, approved by such indemnifying party in the case of paragraph
(a), representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of action, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
party. Notwithstanding the foregoing, without the written consent of the
indemnified party, the indemnifying party may not settle or agree to compromise
of any such claim or action for which
16
<PAGE>
the indemnified party intends to seek reimbursement from the indemnifying party,
and the indemnified party will permit the indemnifying party to settle or
compromise any such action or suit at the indemnifying party's sole cost and
expense if as a result thereof the indemnified party is provided a full and
unconditional release of such claim or action.
(d) Contribution. If the indemnification provided for in this
Section 7.5 is required by its terms but is for any reason held to be
unavailable to or otherwise insufficient to hold harmless an indemnified party
under paragraphs (a), (b) or (c) of this Section 7.5 in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
applicable indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein in such proportion as is appropriate to reflect
the relative benefits received by the Companies and the UBS Parties from the
purchase and sale of the Shares and the relative fault of the Companies and the
UBS Parties in connection with the statements or omissions or inaccuracies in
the representations and warranties in this Agreement which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by the
Companies on the one hand and the UBS Parties on the other shall be deemed to be
in the same proportion as the amount paid by the UBS Parties to the Companies
pursuant to this Agreement for the Shares purchased by the UBS Parties that were
sold pursuant to any Registration Statement bears to the difference (the
"Difference") between the amount the UBS Parties paid for the Shares that were
sold pursuant to such Registration Statement and the amount received by the UBS
Parties from such sale. The relative fault of the Companies and the UBS Parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Companies
or by the UBS Parties and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in paragraph (c) of this Section 7.5 any
reasonable legal or other fees or expenses incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth
in paragraph (c) of this Section 7.5 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
paragraph (d); provided, however, that no additional notice shall be required
-------- -------
with respect to any action for which notice has been given under paragraph (c)
for purposes of indemnification. The Companies and the UBS Parties agree that
it would not be just and equitable if contribution pursuant to this Section 7.5
were determined solely by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this paragraph. Notwithstanding the provisions of this Section 7.5, the
UBS Parties shall not be required to contribute any amount in excess of the
amount by which the aggregate proceeds received by the UBS Parties from the
transactions contemplated hereby exceeds the amount of any damages that the UBS
Parties has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
17
<PAGE>
(e) Relationship Between the REIT and the OPCO. The obligations set
forth in this Section 8.5 shall in no way limit the ability of the parties to
allocate liability between themselves.
7.6. Termination of Conditions and Obligations. The conditions
-----------------------------------------
precedent imposed by Section 6 or this Section 7 upon the transferability of the
Shares shall cease and terminate as to any particular number of the Shares when
such Shares may be, and in fact are, sold under Rule 144(k) promulgated under
the Securities Act. Further, as to any particular number of Shares, the
conditions precedent imposed by Section 5 or this Section 7 on the
transferability of such Shares shall cease and terminate at such earlier time as
an opinion of counsel satisfactory to the Companies and the UBS Parties shall
have been rendered to the effect that such conditions are not necessary in order
to comply with the Securities Act with respect to such Shares. In each such
case, the Companies' obligation to maintain effective Registration Statements
with respect to such Shares which are no longer be subject to the restrictions
and limitations of Section 5 and this Section 7 shall cease.
7.7. Information Available. So long as any Registration Statement
---------------------
covering the resale of any Shares owned by either UBS Party is effective, the
Companies will furnish to the UBS Parties:
(a) as soon as practicable after available, one copy of (i) its Joint
Annual Report to Stockholders, (ii) its Joint Annual Report on
Form 10-K, (iii) its joint Quarterly Reports to Stockholders,
(iv) its joint quarterly reports on Form 10-Q, (v) a full copy of
the particular Registration Statements covering the Shares (the
foregoing, in each case, excluding exhibits) and (vi) upon
request, any or all other public filings under the Exchange Act
by the Companies; and
(b) upon the reasonable request of either UBS Party, a reasonable
number of copies of the Prospectuses to supply to any other party
requiring such Prospectuses;
and the Companies, upon the reasonable request of the UBS Parties, will meet
with the UBS Parties or a representative thereof at the Companies headquarters
to discuss all information relevant for disclosure in such Registration
Statements covering the Shares, subject to appropriate confidentiality
limitations.
7.8. Non-Exclusivity. The rights and remedies provided under Section
---------------
8.5 hereof shall not be in limitation or exclusion of any other rights or
remedies available to a party, whether by agreement, at law, in equity or
otherwise, with respect to the inaccuracy of any representation or warranty by,
or the breach of any covenant of, the other party made herein or in the Forward
Stock Purchase Agreement.
18
<PAGE>
7.9. Notice Requirement. The REIT and the OPCO each covenants and
------------------
agrees that it will notify the UBS Parties at any time it becomes aware that as
a result of a change in the REIT's and the OPCO's capital stock the UBS Parties
beneficially hold more than 4.9% of the REIT's and the OPCO's Paired Shares.
7.10. Transfer of Shares. The Companies covenant and agree to use
------------------
their best efforts to cause the transfer agent to effect promptly any transfer
of the Shares requested by the UBS Parties and to cause the transfer agent to
remove promptly the restrictive legend from the Shares upon presentation to the
transfer agent of all necessary documentation.
SECTION 8. Registration Exemptions. For so long as the REIT and the
-----------------------
OPCO are subject to the reporting requirements of Section 13 or 15 of the
Exchange Act, the REIT and the OPCO covenant that they will file the reports
required to be filed by them under the Securities Act and Section 13(a) and
15(d) of the Exchange Act and the rules and regulations adopted by the
Commission thereunder.
SECTION 9. Broker's Fee. Other than any fees payable under or in
------------
connection with the Forward Stock Purchase Agreement, each of the parties hereto
hereby represents that, on the basis of any actions and agreements by it, there
are no brokers or finders entitled to compensation in connection with the sale
or issuance of the Shares to the UBS Parties.
SECTION 10. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, by telegram or telecopy or sent by nationally
recognized overnight express courier postage prepaid, and shall be deemed given
when so mailed or for telecopies, when transmitted and receipt confirmed, and
shall be delivered as addressed as follows:
(a) if to the Companies, to:
Patriot American Hospitality, Inc.
Patriot American Hospitality Operating Company
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: John P. Bohlman
Telecopier: 214-863-1527
with a copy so mailed to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attn: Gilbert G. Menna, P.C.
Telecopier: 617-523-1231
19
<PAGE>
or to such other person at such other place as the Companies
shall designate to the UBS Parties in writing; and
(b) if to the UBS Parties, c/o UBS Securities, LLC, 299 Park Avenue,
New York, New York 10171, Telecopier: 212-223-2815 or at such
other address or addresses as may have been furnished to the
Companies in writing.
SECTION 11. Changes. This Agreement may not be modified or amended
-------
except pursuant to an instrument in writing signed by the Companies and the UBS
Parties.
SECTION 12. Headings. The headings of the various sections of this
--------
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 13. Severability. In case any provision contained in this
------------
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
SECTION 14. Governing Law; Jurisdiction.
---------------------------
14.1. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York (without regard to the conflicts of law
principles thereof) and of the federal law of the United States of America.
14.2. Each of the Companies (i) hereby irrevocably submits to the
jurisdiction of, and agrees that any suit shall be brought in, the state and
federal courts located in the City and County of New York for the purpose of any
suit, action or other proceeding arising out of or based upon this Agreement or
the transactions contemplated hereby and (ii) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is brought in an inconvenient forum, that the
venue of any such proceeding brought in one of the above-named courts is
improper, or that this Agreement, or the transactions contemplated hereby may
not be enforced in or by such court.
SECTION 15. Transfer to Affiliate. Notwithstanding anything herein
---------------------
to the contrary, UBS Limited may transfer the Purchase Shares to any affiliate
of UBS Limited, together with all of UBS Limited's rights hereunder; provided
that (i) such affiliate shall assume and be subject to all of UBS Limited's
obligations hereunder; (ii) such affiliate shall be an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act; and (iii) such transfer shall be consistent with the investment
representations set
20
<PAGE>
forth at Section 6.1 hereto. In the event of such an assignment, such affiliate
shall in all respects be substituted for UBS Limited as a party hereto.
SECTION 16. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
SECTION 17. Waiver of Trial by Jury. EACH PARTY HEREBY IRREVOCABLY
-----------------------
WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
Patriot American Hospitality, Inc.
By:/s/ William W. Evans III
-----------------------------------
Name: William W. Evans III
Title: Office of the Chairman
Patriot American Hospitality Operating Company
By:/s/ Leslie Ng
-----------------------------------
Name: Leslie Ng
Title: Senior Vice President
UBS Limited
By:/s/ Larry Wood
-----------------------------------
Name: Larry Wood
Title: Executive Director
By:/s/ Adam Matthews
-----------------------------------
Name: Adam Matthews
Title: Director
Union Bank of Switzerland
London Branch
By:/s/ L. Wood
-----------------------------------
Name: L. Wood
Title: Vice President
By:/s/ Adam Matthews
-----------------------------------
Name: Adam Matthews
Title: Vice President
22
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of Patriot American Hospitality, Inc. and Wyndham International,
Inc. of our report dated March 28, 1997 (which expresses an unqualified option
and includes an explanatory paragraph relating to a proposed merger and certain
disagreements between the Companies), appearing in the Annual Report on Form 10-
K of Bay Meadows Operating Company and of California Jockey Club for the year
ended December 31, 1996 and to the reference to us under the heading "Experts"
in the Prospectus, which is part of this Joint Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
January 8, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of Patriot American Hospitality, Inc. and Wyndham International,
Inc. (formerly known as Patriot American Hospitality Operating Company) of our
report dated September 30, 1997 (relating to the financial statements of
Partnerships of Acquired Hotels as of December 31, 1996 and 1995 and for each of
the two years in the period ended December 31, 1996) appearing in the report on
Form 8-K/A No. 1 dated September 30, 1997 of Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company and to the reference to us
under the heading "Experts" in the Joint Proxy Statement and Prospectus, which
is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
January 8, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Joint Registration Statement on Form S-4
and the related Proxy Statement/Prospectus of Patriot American Hospitality,
Inc., Wyndham International, Inc. (formerly Patriot American Hospitality
Operating Company), and Interstate Hotels Company of our reports (a) dated
January 31, 1997 (except for Note 14, as to which the date is March 18, 1997)
with respect to the Consolidated Financial Statements and financial statement
schedules of Patriot American Hospitality, Inc. included in its 1996 Annual
Report on Form 10-K and included in the Joint Current Report on Form 8-K of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated July 1, 1997; (b) dated February 16, 1996, with respect to the
Combined Financial Statements of the Initial Hotels (which is based in part on
the reports of Coopers & Lybrand L.L.P., independent accountants, as set forth
in their reports on Certain of the Initial Hotels and Troy Hotel Investors)
included in Patriot American Hospitality, Inc.'s 1996 Annual Report on Form 10-
K; (c) dated March 5, 1996, with respect to the Financial Statements of Buckhead
Hospitality Joint Venture included in the Current Report on Form 8-K of Patriot
American Hospitality, Inc., dated April 2, 1996, as amended; (d) dated March 1,
1996 (except for Note 7, as to which the date is April 2, 1996) with respect to
the Combined Financial Statements of Gateway Hotel Limited Partnership and
Wenatchee Hotel Limited Partnership included in the Current Report on Form 8-K
of Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (e)
dated February 28, 1996 (except for Note 5, as to which the date is April 2,
1996) with respect to the Statement of Direct Revenue and Direct Operating
Expenses of Plaza Park Suites Hotel included in the Current Report on Form 8-K
of Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (f)
dated February 26, 1996 (except for Note 5, as to which the date is April 2,
1996) with respect to the Statement of Direct Revenue and Direct Operating
Expenses of Roosevelt Hotel included in the Current Report on Form 8-K of
Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (g) dated
April 10, 1996 with respect to the Statement of Direct Revenue and Direct
Operating Expenses of Marriott WindWatch Hotel for the year ended December 29,
1995 included in the Current Report on Form 8-K of Patriot American Hospitality,
Inc., dated December 5, 1996; (h) dated August 30, 1996 with respect to the
Financial Statements of Concord O'Hare Limited Partnership for the year ended
December 29, 1995 included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc., dated December 5, 1996; (i) dated September 10, 1996 with
respect to the Statement of Direct Revenue and Direct Operating Expenses of the
Mayfair Suites Hotel for the year ended December 31, 1995 included in the
Current report on Form 8-K of Patriot American Hospitality, Inc. dated December
5, 1996; and (j) dated January 23, 1997 (except for Note 8, as to which the date
is September 30, 1997) with respect to the Consolidated Financial Statements of
GAH-II, L.P. for the years ended December 31, 1996 and 1995, included in the
Joint Current Report on Form 8-K of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company dated September 30, 1997, as
amended, all filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
January 8, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Joint Registration Statement on Form S-4
and the related Proxy Statement/Prospectus of Patriot American Hospitality,
Inc., Wyndham International, Inc. (formerly Patriot American Hospitality
Operating Company), and Interstate Hotels Company of our report dated March 5,
1997 with respect to the Financial Statements of NorthCoast Hotels, L.L.C.
included in Patriot American Hospitality, Inc.'s 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Seattle, Washington
January 8, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Joint Registration Statement on Form S-4
and the related Proxy Statement/Prospectus of Patriot American Hospitality,
Inc., Wyndham International, Inc. (formerly Patriot American Hospitality
Operating Company), and Interstate Hotels Company of our reports (a) dated March
14, 1997 with respect to the Consolidated Financial Statements of Resorts
Limited Partnership included in the Current Report on Form 8-K of Patriot
American Hospitality, Inc., dated January 16, 1997, as amended; (b) dated
February 13, 1997, with respect to the Financial Statements of CV Ranch Limited
Partnership included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc. dated January 16, 1997, as amended; and (c) dated February 12,
1997 with respect to the Financial Statements of Telluride Resort and Spa
Limited Partnership included in the Current Report on Form 8-K of Patriot
American Hospitality, Inc., dated January 16, 1997, as amended, all filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
January 8, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Joint Registration Statement on Form S-4
and the related Proxy Statement/Prospectus of Patriot American Hospitality,
Inc., Wyndham International, Inc. (formerly Patriot American Hospitality
Operating Company), and Interstate Hotels Company of our reports (a) dated March
13, 1997 (except for the third paragraph of Note 7, as to which the date is
April 2, 1997) with respect to the Financial Statements of G.B.H. Joint Venture
(d/b/a Grand Bay Hotel) for the years ended December 31, 1995 and 1996; (b)
dated September 23, 1997, with respect to the Financial Statements of River
House Associates (d/b/a Sheraton Gateway Hotel) for the years dated December 31,
1995 and 1996; and (c) dated September 19, 1997 with respect to the Financial
Statements of W-L Tampa, Ltd. (the Sheraton Grand Hotel) for the years ended
December 31, 1995 and 1996; all of which are included in the Joint Current
Report on Form 8-K/A No. 1 of Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company dated September 30, 1997, as amended, all
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Miami, Florida
January 8, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Joint Registration Statement on Form S-4
and the related Proxy Statement/Prospectus of Patriot American Hospitality,
Inc., Wyndham International, Inc. (formerly Patriot American Hospitality
Operating Company), and Interstate Hotels Company of our reports (a) dated April
8, 1997 (except for Note 11, as to which the date is July 31, 1997) with respect
to the Consolidated Financial Statements of ClubHouse Hotels, Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996; (b) dated April 25, 1997 (except for Note 8, as to which the
date is July 31, 1997) with respect to the Combined Financial Statements of
ClubHouse Acquisition Hotels as of December 31, 1996 and 1995 and for the years
then ended; and (c) dated September 9, 1997 with respect to the Financial
Statements of Valdosta C.I. Associates, L.P. as of December 31, 1994 and for the
year then ended; all of which are included in the Current Report on Form 8-K/A
of Wyndham Hotel Corporation dated September 18, 1997, all filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
January 8, 1998
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Joint Registration Statement on Form S-4
and the related Proxy Statement/Prospectus of Patriot American Hospitality,
Inc., Wyndham International, Inc. (formerly Patriot American Hospitality
Operating Company), and Interstate Hotels Company of our reports (a) dated
August 7, 1997 (except for Note 18, as to which the date is September 17, 1997)
with respect to the Consolidated Financial Statements of WHG Resorts & Casinos
Inc. and related financial statement schedule; (b) dated August 7, 1997 with
respect to the financial statements of Posadas de San Juan Associates and
related financial statement schedule; (c) dated August 11, 1997 with respect to
the financial statements of WKA El Con Associates; and (d) dated May 2, 1997
with respect to the financial statements of El Conquistador Partnership L.P.;
all of which are included in the Joint Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company,
dated December 10, 1997, all filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Juan, Puerto Rico
January 8, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-4) and
related Proxy Statement/Prospectus of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our report dated January 15, 1996, on our audit
of the financial statements of Certain of the Initial Hotels.
/s/ COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
January 7, 1998
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-4) and
related Proxy Statement/Prospectus of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our reports (i) dated February 12, 1997 except
for Note 21, Note 22 and the last paragraph of Note 2, as to which the date is
December 1, 1997, of our audit of the consolidated financial statements of
Interstate Hotels Company, (ii) dated January 17, 1996, on our audit of the
financial statements of Troy Hotel Investors and (iii) dated February 7, 1995,
on our audit of the financial statements of Troy Park Associates.
/s/ COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
January 7, 1998
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-4) and
related Proxy Statement/Prospectus of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our reports (i) dated October 15, 1996 on our
audit of the statement of Direct Revenue and Direct Operating Expenses of the
Holiday Inn Miami Airport for the year ended August 31, 1996; (ii) dated
February 19, 1997, on our audits of the consolidated financial statements of
Wyndham Hotel Corporation as of December 31, 1996 and 1995, and for the years
ended December 31, 1996, 1995 and 1994; (iii) dated May 12, 1997 on our audit of
the Combined Financial Statements of the Minneapolis Hotels as of and for the
year ended December 31, 1996, (iv) dated June 27, 1997 on our audit of the
Combined Statement of Direct Revenue and Direct Operating Expenses of the Met
Life Hotels for the year ended December 31, 1996; (v) dated September 8, 1997 on
our audit of the Combined Financial Statements of the Snavely Hotels as of and
for the year ended December 31, 1996; (vi) dated December 12, 1997 on our audit
of financial statements of Sheraton City Centre as of and for the year ended
December 31, 1996; and (vii) dated December 12, 1997 on our audit of the
Statement of Direct Revenue and Direct Operating Expenses of Wyndham Emerald
Plaza for the year ended December 31, 1996.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 7, 1998
<PAGE>
EXHIBIT 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-4) and
related Proxy Statement/Prospectus of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our report dated March 8, 1996 related to the
financial statements of Newporter Beach Hotel Investments L.L.C. as of December
31, 1995, and for the period from March 10, 1995 through December 31, 1995.
/s/ COOPERS & LYBRAND L.L.P.
Newport Beach, California
January 8, 1997
<PAGE>
EXHIBIT 23.13
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-4) and
related Proxy Statement/Prospectus of Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our report (i) dated March 7, 1997 except for
Note 12 as to which the date is October 7, 1997 on our audit of the Financial
Statements of SCP (Buttes), Inc., as of and for the year ended December 31,
1996.
/s/ COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
January 7, 1998
<PAGE>
EXHIBIT 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-4) and
related Joint Proxy Statement and Prospectus of Patriot American Hospitality,
Inc. and Wyndham Hotel Corporation and Patriot American Hospitality, Inc. and
Wyndham International, Inc. of our report dated January 17, 1997, except for
Note 7 as to which the date is November 25, 1997 on our audit of the financial
statements of Royal Palace hotel Associates.
/s/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
January 7, 1998
<PAGE>
EXHIBIT 23.15
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Registration
Statement on Form S-4 of Wyndham International, Inc. and Patriot American
Hospitality, Inc. of our report dated March 1, 1996 with respect to the
financial statements of Historic Hotel Partners of Birmingham, Limited
Partnership as of and for the year ended December 31, 1995, our reports dated
October 8, 1887 and February 28, 1997 on the financial statements of Historic
Hotel Partners of Chicago Limited Partnership, and our reports dated October 8,
1997 and February 21, 1997 on the financial statements of Historic Hotel
Partners of Nashville Limited Partnership.
/s/ Panell Kerr Forster PC
Alexandria, Virginia
January 8, 1998
<PAGE>
EXHIBIT 23.16
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Patriot American
Hospitality, Inc. and Wyndham International, Inc. of our reports (a) dated
October 3, 1997 relating to the financial statements of CHC International Inc.
Hospitality Division as of and for the years ended November 30, 1995 and 1996
which appears in the Current Report on Form 8-K of Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company dated December 10, 1997;
and (b) dated February 13, 1997, except as to Note 4, which is as of March 18,
1997, relating to the financial statements of CHC Lease Partners for the year
ended December 31, 1996 and the period inception (October 2, 1995) through
December 31, 1995 which appears in the Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated July 1, 1997. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Miami, Florida
January 7, 1998
<PAGE>
EXHIBIT 23.17
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated September 17, 1997, on the combined financial statements of the
Crow Family Hotel Partnerships (and to all references to our Firm), incorporated
by reference into this Joint Registration Statement on Form S-4 of Patriot
American Hospitality, Inc. and Wyndham International, Inc.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
January 7, 1998
<PAGE>
EXHIBIT 23.18
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the reference to our firm under the caption "Experts"
and to the incorporation by reference of our reports dated February 8, 1996,
except for Note (4) for which the date is February 15, 1996 (Albuquerque C.I.
Associates, L.P.); February 16, 1996 (C.I. Nashville, Inc.); February 8, 1996
(Wichita C.I. Associates III, L.P.); and February 19, 1996 (Topeka C.I.
Associates, L.P.) appearing in the Joint Proxy Statement and Prospectus included
in the Form S-4 Registration Statement of Patriot American Hospitality, Inc. and
Wyndham International, Inc. filed with the Securities and Exchange Commission on
or about January 9, 1998.
/s/ Mayer Hoffman McCann L.C.
Kansas City, Missouri
January 7, 1998
