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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number 1-9320
Commission File Number 1-9319
WYNDHAM INTERNATIONAL, INC.
PATRIOT AMERICAN HOSPITALITY, INC. -------------------------------------
- ------------------------------------- (Exact name of registrant as specified
(Exact name of registrant as specified in its charter)
in its charter)
Delaware 94-0358820 Delaware 94-2878485
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(State or other (I.R.S. Employer (State or other (I.R.S.
jurisdiction of Identification jurisdiction of Employer
incorporation or No.) incorporation or Identification
organization) organization) No.)
1950 Stemmons Freeway, Suite 6001
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
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(Address of principal executive offices)
(Zip Code) (Address of principal executive
offices)
(Zip Code)
(214) 863-1000 (214) 863-1000
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(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par Common Stock, par
value New York Stock value New York Stock
$0.01 per share Exchange $0.01 per share Exchange
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(Title of each (Name of each (Title of each (Name of each
class) Exchange on which class) Exchange on which
registered) registered)
Securities registered pursuant to Section 12(g) of the Act:
none none
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [_]
The aggregate market value of the paired voting stock held by non-affiliates
of Patriot American Hospitality, Inc. and Wyndham International, Inc. as of
March 22, 1999 was $970,668,027, based upon a price of $4.50 per paired share.
As of March 22, 1999, there were 234,131,492 paired shares of Patriot
American Hospitality, Inc. and Wyndham International, Inc. common stock issued
and outstanding.
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
Form 10-K Annual Report
Index
<TABLE>
<CAPTION>
Form 10-K
Report
Item No. Page
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PART I
1.Business.......................................................... 3
2.Properties........................................................ 3
3.Legal Proceedings................................................. 23
4.Submission of Matters to a Vote of Security Holders............... 23
PART II
5.Market Price for Registrant's Common Equity and Related
Stockholder Matters................................................ 24
6.Selected Financial Information.................................... 25
7.Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 29
8.Financial Statements and Supplementary Data....................... 56
9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 56
PART III
10.Directors and Executive Officers of the Registrant............... 56
11.Executive Compensation........................................... 63
12.Security Ownership of Certain Beneficial Owners and Management... 72
13.Certain Relationships and Related Transactions................... 75
PART IV
14.Exhibits, Financial Statements and Schedules, and Reports on Form
8-K................................................................ 81
SIGNATURES
</TABLE>
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PART I
ITEM 1 AND 2. BUSINESS AND PROPERTIES
General Development of Business
Patriot American Hospitality, Inc. ("Old Patriot") was formed April 17, 1995
as a self-administered real estate investment trust ("REIT"). The Virginia
corporation was formed for the purpose of acquiring equity interests in hotel
properties. On October 2, 1995, Patriot completed an initial public offering
of shares of common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club,
with Cal Jockey being the surviving legal entity. Cal Jockey's shares of
common stock were paired with the shares of common stock of Bay Meadows
Operating Company. The shares traded as a single unit pursuant to a stock
pairing arrangement. In connection with the Cal Jockey merger, Cal Jockey
changed its name to "Patriot American Hospitality, Inc." referred to herein
after to as Patriot and Bay Meadows changed its name to "Patriot American
Hospitality Operating Company." As a result of the merger with Wyndham Hotel
Company ("Old Wyndham") in January, 1998, the operating company subsequently
changed its name to "Wyndham International, Inc." ("Wyndham"). Patriot and
Wyndham are now collectively referred to as the Companies. Patriot and Wyndham
are both Delaware corporations.
The Cal Jockey merger has been accounted for as a reverse acquisition. Cal
Jockey is considered to be the acquired company for accounting purposes.
Consequently, the historical financial information of Old Patriot is the
historical financial information for Patriot. For accounting purposes, Wyndham
commenced its operations concurrent with the closing of the Cal Jockey merger
on July 1, 1997. The financial statements have been adjusted for the purchase
method of accounting whereby the Bay Meadows Racecourse facilities and related
leasehold improvements owned by Cal Jockey and Bay Meadows have been adjusted
to estimated fair market value.
The shares of common stock of Patriot and the shares of common stock of
Wyndham are paired on a one-for-one basis and may only be held and transferred
in units consisting of one share of Patriot common stock and one share of
Wyndham common stock. This single unit herein after is referred to as a paired
share.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in
Patriot American Hospitality Partnership, L.P. referred herein after to as the
Patriot Partnership. In addition, Patriot, through its wholly owned
subsidiary, PAH LP, Inc., owns an approximate 88.0% limited partnership
interest in the Patriot Partnership as of December 31, 1998. The Patriot
Partnership was formed in connection with Old Patriot's initial public
offering. Old Patriot contributed its assets to the partnership in exchange
for units of limited partnership interest ("OP units").
Wyndham owns a 1.0% general partnership interest and an approximate 86.8%
limited partnership interest in Patriot American Hospitality Operating
Partnership, L.P. as of December 31, 1998. As a result of the merger with
Wyndham Hotel Company, the operating company subsequently changed its name to
"Wyndham International Operating Partnership, L.P." referred to herein after
to as Wyndham Partnership. The Patriot Partnership and Wyndham Partnership are
now collectively referred to as the Operating Partnerships.
Generally, Patriot owns and leases hotels to Wyndham, which is responsible
for managing a majority of the hotels. In order for Patriot to qualify as a
REIT under the Internal Revenue Code of 1986 (the "Code"), Patriot leases a
substantial majority of its hotels to Wyndham or to other third-party leasees
who are responsible for operating the hotels. The paired share structure
facilitated the Companies' strategy to become a fully-integrated, multi-brand,
multi-product, multi-tiered hotel operating company. Following the merger with
and into California Jockey Club and the creation of Patriot paired shares, the
Companies acquired major hotel operating companies and brands. Patriot's
ability to utilize the paired share structure was limited as a result of tax
legislation adopted in July 1998.
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During 1998, Patriot and Wyndham, either directly or through the Operating
Partnerships and their subsidiaries, invested over $4.5 billion in the
acquisition of hotels and other related businesses. These acquisitions were
financed primarily with funds drawn on the Companies' revolving credit
facility as well as issuance of paired shares and OP units. The following
describes these acquisitions.
Wyndham Hotel Corporation
On January 5, 1998, Wyndham Hotel Corporation ("Old Wyndham") merged with
and into Patriot, with Patriot being the surviving corporation ("Wyndham
merger").
Patriot, as a result of the Wyndham merger, acquired ownership of ten Old
Wyndham hotels and 14 ClubHouse hotels and leased such hotels to Wyndham.
Thirteen of the 14 hotel leases assumed by Patriot were sub-leased to Wyndham.
Old Wyndham's 52 management and franchise contracts excluding the 16 Patriot
hotels that Wyndham managed prior to the merger, the Wyndham and ClubHouse
proprietary brand names, and the Wyndham hotel management company were
transferred to certain non-controlled subsidiaries. The total purchase
consideration for the Wyndham merger was approximately $982.0 million. The
consideration consisted of 21,594,137 paired shares; 4,860,876 shares of
Series A Convertible Preferred Stock of Patriot (which are convertible on a
one-for-one basis into paired shares); cash of approximately $339.0 million to
repay debt and pay Old Wyndham shareholders who elected to receive cash (which
was financed with funds drawn on Patriot's credit facility); and the
assumption of approximately $59.1 million in debt.
In 1998, the Companies issued an aggregate 261,224 paired shares valued at
approximately $5.8 million in settlement of certain purchase price adjustment
arrangements related to Old Wyndham's acquisition of ClubHouse Hotels, Inc.
prior to the merger with Patriot. In the first quarter of 1998, the Companies
announced conversion of six ClubHouse Inns to Wyndham Garden Hotels.
WHG Casinos & Resorts, Inc. and related transactions
On January 16, 1998, a subsidiary of Wyndham merged with and into WHG
Casinos & Resorts Inc., with WHG being the surviving corporation, ("WHG
merger"). As a result of the WHG merger, Wyndham acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the partnership that owns the 389-room
El San Juan Hotel & Casino and a 23.3% interest in the partnership that owns
the 751-room El Conquistador Resort & Country Club, all of which are located
in Puerto Rico. In addition, Wyndham acquired a 62% interest in Williams
Hospitality Group, Inc., the management company for the three hotels and the
Las Casitas Village at the El Conquistador. A total of 5,004,690 paired shares
were issued in connection with the WHG merger and approximately $21.3 million
of debt was assumed, resulting in total purchase consideration of
approximately $159.4 million.
Effective March 1, 1998, Patriot acquired from unaffiliated third parties a
40% interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity
interest in the El Conquistador and a 38% interest in Williams Hospitality
Group, Inc. for approximately $31 million in cash and issuance of 1,818,182
paired shares valued at approximately $49.2 million and the assumption of
approximately $169.6 million of debt.
On July 13, 1998, Patriot acquired the remaining minority interests held by
a third party in entities that own the El Conquistador and the El San Juan
Hotel & Casino for a total purchase price of approximately $3.9 million.
Wyndham owns the controlling general partner interest in the partnerships that
own the El San Juan Hotel & Casino and the El Conquistador. Wyndham also holds
voting control of Williams Hospitality Group, Inc. Therefore, the operating
results of these entities have been consolidated with those of Wyndham for
financial reporting purposes. During 1998, the El San Juan and the El
Conquistador were converted to Wyndham Resorts.
Arcadian International Limited
On April 6, 1998, Patriot announced the completion of its acquisition of all
of the issued and to-be-issued shares of Arcadian International Limited for 60
pence per share. Including the exercise of all outstanding options
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to purchase shares, the assumption of debt and the acquisition of the
remaining shares in the Malmaison Group, the total transaction cost was
approximately (Pounds)185.9 million (approximately $308.7 million U.S. based
on exchange rates at the time of closing). As a result of the transaction,
Patriot acquired ten owned hotels located throughout England; one owned hotel
in Jersey; five owned and managed Malmaison Hotels; two resorts under
development in Tuscany, Italy and Paris, France; and the proprietary Malmaison
brand name. Patriot also acquired Arcadian's 50% partnership interest in the
redevelopment of the luxury Great Eastern Hotel in London, to be branded as a
flagship Wyndham Hotel and operated by Wyndham once the development has been
completed. The Arcadian acquisition was financed through a short-term
financing agreement with PaineWebber Real Estate Services, Inc., for $160
million, at a rate equal to the borrowing rate on Patriot's credit facility.
In addition, Patriot assumed approximately $112.6 million of debt in
connection with the Arcadian acquisition.
Interstate Hotels Company
On June 2, 1998, pursuant to an Agreement and Plan of Merger dated as of
December 2, 1997, as thereafter amended, between Patriot, Wyndham and
Interstate Hotels Company, Interstate merged with and into Patriot with
Patriot being the surviving company ("Interstate merger"). Pursuant to the
Interstate merger agreement, stockholders of Interstate could elect to convert
each of their shares of Interstate common stock into the right to receive
either (i) $37.50 in cash, subject to proration in certain circumstances, or
(ii) a number of paired shares of Patriot and Wyndham common stock based on an
exchange ratio of 1.341 paired shares for each share of Interstate common
stock not exchanged for cash.
As a result of the Interstate merger, Patriot acquired controlling interest
in, or ownership of, 42 hotels representing over 12,000 rooms; leases for 84
hotels representing over 10,100 rooms and management or service agreements for
82 hotels representing over 20,400 rooms located throughout the United States
and in Canada, the Caribbean and Russia. During 1998, the Companies converted
two hotels acquired in the Interstate merger to Wyndham Hotels.
The total purchase consideration for the Interstate merger of approximately
$2.1 billion consisted of 28,825,875 paired shares, cash of approximately
$525.4 million to pay Interstate shareholders who elected to receive cash,
approximately $787.1 million in debt assumed or refinanced by Patriot and
approximately $73.4 million to pay other transaction-related costs. In
addition, Interstate shareholders received rights to receive a cash
distribution of $0.3997 on each share of Interstate common stock that was
converted into paired shares, aggregating approximately $9.1 million.
SF Hotel Company, L.P.
On June 5, 1998, Patriot, through the Patriot Partnership, acquired all of
the partnership interests in SF Hotel Company, L.P. for approximately $298.9
million ("Summerfield acquisition"). The total purchase consideration for the
Summerfield acquisition consisted of approximately 3,223,795 OP units,
1,397,281 paired shares, cash of approximately $165.5 million and assumption
of debt in the amount of approximately $17.1 million. In addition, the
purchase price is subject to future adjustment based on (i) the market price
of the paired shares through the end of 1998 (the "1998 Summerfield
adjustment") and (ii) achievement of certain performance criteria through 2000
for 24 managed hotels which were not open for business (or had recently
opened) as of the date of acquisition, and (iii) fulfillment of the companies
obligation to develop seven hotels. As a result of the Summerfield
acquisition, Patriot acquired four Summerfield Suites(R) hotels, leasehold and
management interests in 24 Summerfield Suites(R), Sierra Suites(R) and Sunrise
Suites hotels and management contracts and franchise interests for 12
additional Summerfield Suites(R) and Sierra Suites(R) hotels. Patriot has
leased or sub-leased 21 of these hotels to Wyndham. In addition, Patriot
acquired the development contracts for several additional hotels.
Effective January 15, 1999, an additional 1,311,709 OP units valued at
approximately $9.0 million were issued in connection with the Summerfield
acquisition as additional consideration pursuant to the purchase agreement in
satisfaction of the 1998 Summerfield adjustment.
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CHC International Merger
On June 30, 1998, pursuant to an Agreement and Plan of Merger dated as of
September 30, 1997 between Patriot, Wyndham and CHCI ("CHCI merger"), the
hospitality-related business of CHCI merged with and into Wyndham with Wyndham
being the surviving company. CHCI's gaming operations were transferred to a
new legal entity prior to the CHCI merger and such operations were not a part
of the transaction. As a result of the CHCI merger, Wyndham, through its
subsidiaries, acquired the remaining 50% investment interest in GAH-II, L.P.,
the remaining 17 leases and 16 of the associated management contracts related
to the Patriot hotels leased by CHC Lease Partners, 8 third-party management
contracts, two third-party asset management contracts, the Grand Bay
proprietary brand name and certain other hospitality management assets. The
aggregate purchase price of the 17 leasehold interests was approximately $52.7
million, which is reflected as a cost of acquiring leaseholds in the
accompanying statements of operations of Wyndham for the year ended December
31, 1998.
By operation of the CHCI merger, all the issued and outstanding shares of
common stock, par value $0.005 per share, of CHCI and certain stock option
rights were exchanged for an aggregate of 1,781,173 shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham
and 1,781,181 shares of Series B Redeemable Convertible Preferred Stock, par
value $0.01 per share, of Wyndham. In addition, Wyndham assumed CHCI's
outstanding debt in the amount of approximately $16.6 million.
In addition, on September 30, 2000 and September 30, 2002, Wyndham may be
obligated to pay the CHCI stockholders and a subsidiary of Wyndham may be
obligated to pay a Gencom-related entity additional consideration, in each
case based upon the performance of certain specific assets. During 1998, the
Companies converted 4 hotels acquired in the CHCI merger to proprietary
branded hotels.
Other
In July 1998, Wyndham acquired an approximate 49% limited partnership
interest in a partnership with affiliates of Don Shula's Steakhouse, Inc., for
$1.5 million in cash and 156,272 of Preferred OP units of the Wyndham
Partnership which were valued at approximately $3.5 million.
During 1998, Patriot also re-acquired the leasehold interests for nine of
its hotels from the lessees and purchased certain license agreements for an
aggregate purchase price of approximately $11.7 million, which is reflected as
a cost of acquiring leaseholds in the accompanying statements of operations of
Patriot. The Companies issued 118,812 paired shares valued at $3.0 million and
paid cash of $8.7 million. Patriot has leased the hotels to Wyndham.
During 1998, Patriot, through the Patriot Partnership and its subsidiaries,
invested approximately $234.1 million in the acquisition of four hotels with a
total of over 1,700 guest rooms and the Golden Door Spa. These acquisitions
were financed primarily with funds drawn on Patriot's credit facility, the
issuance of 53,989 OP units valued at approximately $1.5 million, the issuance
of 390,335 paired shares valued at approximately $10.0 million and the
assumption of mortgage debt in the amount of approximately $80.1 million. In
addition, Patriot acquired an office building that will be converted into a
hotel for approximately $33.9 million.
During 1998, Patriot sold its interest in four hotel assets: Courtyard by
Marriott Hotel in Orange, Connecticut, Courtyard by Marriott Hotel in St.
Louis, Missouri, Residence Inn in Pittsburgh, Pennsylvania and the Courtyard
by Marriott in Westborough, Massachusetts, collectively hereinafter referred
to as the Fine Transaction, for a net purchase price of approximately $32.5
million. Patriot recognized no gain or loss on sale as a result of the
transaction. The assets were sold to an affiliate of an independent member of
the Board of Directors of Patriot.
Additionally in December 1998, Patriot sold its interest in three hotel
assets previously leased to NorthCoast Hotels, LLC ("NorthCoast") (a third
party lessee of Patriot); the WestCoast Roosevelt Hotel, the WestCoast Gateway
Hotel located in Seattle, Washington and the WestCoast Wenatchee Hotel located
in Wenatchee, Washington to an affiliate of NorthCoast. Patriot received net
cash proceeds of approximately $23.7 million plus
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a mortgage note receivable in the amount of $2.0 million. Patriot has also
contracted with an affiliate of NorthCoast to sell a fourth hotel, the
WestCoast Long Beach Hotel and Marina located in Long Beach, California, for a
total purchase price of approximately $7.0 million. Patriot recognized a loss
on sale of approximately $9.5 million as a result of the sale of these assets.
Upon completion of the sale, the Companies will no longer have leases on owned
hotels with third-party lessees.
Recent Developments
Asset sales
On March 3, 1999, Patriot sold its interest in the Holiday Inn Crockett
Hotel located in San Antonio, Texas. The Companies received cash proceeds of
approximately $18.0 million after payment of legal costs and other closing
costs. Patriot will recognize an estimate gain on sale of asset of $3.3
million in 1999. In connection with the transaction, Patriot terminated its
lease to Wyndham for the hotel.
In February 1999, Patriot sold its interest in the Bay Meadows Racecourse
located in San Mateo, California. The Companies received cash proceeds of
approximately $3.4 million after payment of legal costs and other closing
costs. Patriot has recognized an estimated impairment loss on assets held for
sale of $42.3 million related to the Racecourse facility in 1998. In
connection with the transaction, Patriot terminated its lease to Wyndham for
the Racecourse facilities.
During the first quarter of 1999, the Companies entered into two new
management contracts including the conversion of the Marriott I-Drive in
Orlando, Florida to a Wyndham and the addition of the Lodge at Mountain
Village in Telluride, Colorado as a Wyndham Resort.
Acquisitions
In January 1999, Patriot acquired the remaining 25% minority interests in
each of the five following hotels; Embassy Suites Schaumburg, the Hilton
Dania, the Marriott Suites at Valley Forge, the Marriott Boston Andover and
the Marriott Tysons Corner from CIGNA. The acquisition of such interests was
financed through additional mortgage indebtedness totaling $49.8 million and
the transfer of an additional 10% interest in the Marriott Warner Center.
Consulting Agreements
On February 26, 1999, Patriot, Wyndham and Paul A. Nussbaum entered into a
Separation Agreement (the "Separation Agreement") whereby Mr. Nussbaum
resigned his position as Chairman of the Board of Directors and Chief
Executive Officer of Patriot, effective immediately. Pursuant to the
Separation Agreement, Mr. Nussbaum has been named Chairman Emeritus of the
Board of Directors of Patriot and will remain as a Director of Wyndham. In
addition, pursuant to the terms of the Separation Agreement, Mr. Nussbaum has
agreed to provide consulting services to the Companies for two years.
Securities Purchase Agreement
On February 18, 1999, Patriot, Wyndham, Patriot Partnership, Wyndham
Partnership and affiliates of each of Apollo Real Estate Management III, L.P.,
Apollo Management IV, L.P., Thomas H. Lee Equity Fund IV, L.P., Beacon Capital
Partners, L.P. and Rosen Consulting Group, entered into a purchase agreement
under which the investors will purchase $1 billion of a new series B preferred
stock of Wyndham. Patriot and Wyndham currently plan to use the proceeds from
the investment to settle their forward equity contracts, as described above,
to repay indebtedness, and for working capital and growth purposes.
Wyndham will pay dividends on its series B preferred stock quarterly, on a
cumulative basis, at a rate of 9.75% per year. For the first six years,
dividends will be payable partly in cash and partly in additional shares of
preferred stock, with the cash component initially equal to 30% for the first
dividend payment and declining over the period to approximately 19.8% for the
final dividend payment. Each share of series B preferred stock may be
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converted, at the option of its holder, into that number of shares of Wyndham
common stock equal to $100.00 divided by the conversion price of the series B
preferred stock. Initially the conversion price will be $8.59, but is subject
to adjustment under certain circumstances.
Restructuring
Under the terms of the purchase agreement, relating to the $1 billion equity
investment, Patriot and Wyndham are required to complete a restructuring of
their existing paired share REIT structure prior to the investment. Under the
terms of the restructuring, the following events will occur:
. A reverse stock split of the common stock of Wyndham and Patriot.
. A wholly-owned subsidiary of Wyndham will merge with and into Patriot
with Patriot surviving.
. The pairing agreement between Patriot and Wyndham will terminate.
. Patriot will terminate its status as a real estate investment trust
effective January 1, 1999.
. The non-voting stock of specified corporate subsidiaries held by the
Patriot Partnership will be transferred so that it will be owned
directly by Patriot and/or Wyndham, rather than through the Patriot
Partnership.
. The third party partners in both the Patriot Partnership and the
Wyndham Partnership will be offered an opportunity to exchange their
limited partner interests for Wyndham common stock.
. The preferred stockholders of Wyndham will be offered an opportunity
to exchange their preferred stock for Wyndham common stock.
Reverse Stock Split
Prior to the merger of a subsidiary of Wyndham into Patriot, both Wyndham
and Patriot will implement a one-for-twenty reverse stock split of their
common stock.
Redemption Option
For a period of 170 days following the completion of the $1 billion equity
investment, Wyndham may redeem up to $300 million of the series B preferred
stock at a redemption price of $102.00 per share (102% of the stated amount
$100.00) plus all accrued dividends. Wyndham currently plans to fund this
redemption through the issuance of $300 million of series A preferred stock to
its stockholders. The series A preferred stock has the same economic terms as
the series B preferred stock.
New Debt Financing
New Credit Facility. Patriot has recently signed a commitment letter with
Chase Securities Inc. and The Chase Manhattan Bank for senior credit
facilities for Wyndham in the amount of $1.8 billion, comprised of a term loan
facility and a revolving loan facility. Definitive agreements relating to the
new credit facility are expected to be finalized at the same time that the
$1 billion equity investment is consummated. The Chase Manhattan Bank will act
as the administrative agent and Chase Securities Inc. will act as the lead
arranger for a syndicate of lenders which will provide Wyndham with $1 billion
in term loans and up to $800 million under the revolving loan facility, of
which a maximum of $560 million may be drawn at the closing of the investment.
The term loan facility and the revolving facility carry terms of 7 years and 5
years, respectively. Interest rates for the new credit facility are based upon
LIBOR spreads varying from 1.25% to 3.00% per annum (for the revolving loan
facility) and 2.75% to 3.75% per annum (for the term loan facility), based
both on Wyndham's leverage ratio and on whether any increasing rate loans
(described below) are outstanding. However, at Wyndham's election or under
other specified circumstances, the term loans and revolving loans may instead
bear interest at an alternative base rate plus the applicable spread. The
alternative base rate is equal to the greater of
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The Chase Manhattan Bank's prime rate or federal funds rate plus 0.5%, and the
alternative spread is 1.0% below the applicable LIBOR spread. Subject to
limited agreed-upon exceptions, the New Credit Facility will be guaranteed by
the domestic subsidiaries of Wyndham, and will be secured by pledges of equity
interests held by Wyndham and its subsidiaries. The proceeds from the term
loan facility will be used to finance the restructuring of Wyndham and
Patriot. The proceeds from the revolving loan facility will be used for
working capital and general corporate purposes.
Increasing Rate Loans. Wyndham and Patriot have signed a commitment letter
with The Chase Manhattan Bank, Chase Securities Inc., Bear, Stearns & Co.
Inc., and The Bear Stearns Companies Inc. providing that The Chase Manhattan
Bank, The Bear, Stearns Companies Inc. and a possible syndicate of other
lenders will provide an increasing rate loan facility in the amount of up to
$650 million. The IRL carries a term of 5 years. Interest rates for the IRL
are based on LIBOR spreads and are initially set at 0.25% below the initial
LIBOR spread on the term loan facility, but increase by 0.50% every three
months, with a cap of LIBOR plus 4.75%. However, under other specified
circumstances, interest accrues at an alternate rate equal to the rate borne
by three-month treasury securities plus 1.0%, plus the applicable spread. The
lenders under the IRL receive the benefit of the same guarantees and pledges
of security provided under the New Credit Facility. The proceeds from the IRL
will be used to finance the restructuring of Wyndham and Patriot.
After the six month anniversary of the closing of the investment, lenders
transferring IRLs may exchange the IRLs for exchange notes carrying identical
terms to the IRLs. To the extent any IRLs or exchange notes are outstanding
180 days after the closing of the investment, Wyndham must by such date file
and maintain a shelf registration statement with the Securities and Exchange
Commission allowing the resale of any exchange notes outstanding thereafter.
Wyndham may also offer registered substitute notes in exchange for all
outstanding IRLs and exchange notes.
Wyndham's ability to borrow under its revolving facility is subject to
Wyndham's compliance with a number of customary financial and other covenants,
including total leverage and interest coverage ratios, limitations on
additional indebtedness, and limitations on investments and stockholder
dividends.
Forward Equity Contracts
Patriot is party to forward equity contracts with three counterparties
involving the sale of an aggregate of 13.3 million paired shares, with related
price adjustment mechanisms. Patriot's aggregate obligation under the forward
equity transactions was approximately $319.7 million at March 18, 1999. As of
such date, Patriot has delivered an aggregate of 79 million shares to the
counterparties as collateral in addition to approximately 12.5 million paired
shares currently owned by the counterparties or their affiliates.
Patriot currently intends to settle in full all of the forward transactions
with the proceeds of the $1 billion equity investment. If the forward equity
transactions are settled in cash, the counterparties must deliver to the
Companies' paired shares then owned or held by them as collateral under the
respective forward agreements.
On February 28, 1999, all three counterparties agreed, subject to specified
conditions, not to require settlement under their respective forward equity
agreements or to sell paired shares in connection with the forward equity
agreements until the earlier of (a) the closing of the investment and (b) June
30, 1999. The agreements provide that the standstill obligations terminate if:
(i) the agreement is terminated or the parties publicly announce that they do
not intend to close the investment and Patriot has not entered into another
agreement that provides for a complete settlement of the forward equity
transactions on or before June 30, 1999; (ii) the Companies' default on
certain covenants under the forward agreements or under our credit facility:
(iii) any of the counterparties sells or agrees to sell paired shares; or (iv)
the price of the paired shares falls to a specified threshold, as described
below. Any counterparty whose standstill agreement terminates will have the
right to require an immediate settlement of its forward equity transaction.
9
<PAGE>
The standstill agreement with PaineWebber Financial Products, Inc. provides
that the PaineWebber standstill obligation will terminate if the closing price
of the paired shares on any trading day is less than or equal to $4.50. On
March 22, 1999, the closing price of the paired shares was $4.50. As a result,
PaineWebber's standstill obligation has terminated and PaineWebber is entitled
to require settlement under its forward contract. As of March 25, 1999,
PaineWebber has not indicated that it intends to sell paired shares or require
settlement of its forward transaction.
The standstill agreement with NationsBanc Mortgage Capital Corporation
provides that the NationsBanc standstill obligation will terminate if the
weighted average trading price of the paired shares (excluding the last 30
minutes of trading) on any trading day is less than or equal to $4.50. The
paired share price, as so calculated, has not fallen below this threshold.
The standstill agreement with UBS AG, London Branch provides that the UBS
standstill obligation will terminate if the paired share price (calculated as
provided in the UBS forward contract) falls below $4.50. The closing price of
the paired shares has not been less than $4.50.
Nations has asserted that its standstill obligation has terminated by virtue
of the termination of PaineWebber's standstill obligation, based upon a "most
favored counterparty" clause in the Nations forward contract. UBS has asserted
that its standstill obligation has terminated based upon its interpretation of
the measure of the paired share price. The Companies have disputed both the
Nations and UBS assertions. As of March 25, 1999, neither Nations nor UBS has
indicated that it intends to sell paired shares or require settlement of its
forward transaction.
The Companies may settle the forward transactions by delivering either cash
or paired shares (if such shares are covered by an effective registration
statement). Sources of cash are not currently available for the Companies to
make the payments that would be required to settle one or more of the forward
transactions in cash. Moreover, the Companies cannot assure you that our bank
lenders would consent to any cash settlements prior to the closing of the
transaction. In addition, given the current market price of the paired shares,
any settlement in paired shares would have severely dilutive effects on the
Companies' capital stock. The dilutive effects increase as the market price of
the paired shares decreases below the applicable forward prices. If any of the
counterparties sells paired shares, the conversion price of the preferred
stock to be issued to the investors will be adjusted downward to the extent
that the price recognized by us on the sale is less than $8.75 per share.
Generally, the Companies may settle by delivering paired shares only if a
registration statement covering such paired shares is effective. There are
currently effective registration statements covering the sale by the three
forward counterparties of up to 40 million paired shares and the sale by UBS
of an additional 4 million paired shares in connection with the forward equity
transactions. The Companies cannot be assured that these registration
statements will remain effective or that the Companies will not be required to
register more paired shares in connection with the forward equity
transactions. Two of the counterparties have requested that the Companies
register the balance of the paired shares delivered as collateral to all three
counterparties. The Companies intend to seek to register all such shares.
Agreements Relating to Existing Credit Facility.
Patriot and Wyndham's existing credit facility with The Chase Manhattan
Bank, Chase Securities, Inc. and PaineWebber Real Estate consists of a $900
million revolving credit facility and a series of term loans in the aggregate
amount of $1.8 billion. Interest rates on the existing Credit Facility are
based on Patriot's and Wyndham's leverage ratio and vary from 1.5% to 2.5%
over LIBOR. Under the original terms of the Credit Facility, two of the term
loans matured on January 31, 1999 ($350 million) and March 31, 1999 ($400
million), respectively. All of the requisite lenders under the Credit Facility
have agreed to extend the maturity of these
10
<PAGE>
two terms loans to June 30, 1999. If the Companies do not consummate the
Investment by June 30, 1999, or our agreement with the Investor Group
otherwise terminates, the maturity on these two term loans will be extended to
March 31, 2000 and the Companies will be required to secure the Credit
Facility with mortgages and other security interests by June 30, 1999. In
connection with their agreement to extend the maturities of the term loans to
June 30, 1999, the Companies have paid approximately $11.7 million in fees.
Interstate's Third-Party Hotel Management Business
In May, 1998, the Companies along, with Interstate Hotels Company
("Interstate") entered into a settlement agreement (as amended, the
"Settlement Agreement") with Marriott International, Inc. ("Marriott") which
addressed certain claims asserted by Marriott in connection with Patriot's
then proposed merger with Interstate. The Settlement Agreement provided for
the dismissal of litigation brought by Marriott, and allowed Patriot's merger
with Interstate to close.
. In addition to dismissal of the Marriott litigation, the Settlement
Agreement provides for three principal transactions: (1) the re-
branding of ten Marriott hotels under the Wyndham name,
(2) Marriott's assumption of the management (the "Assumed Management
Contracts") of ten Marriott hotels formerly managed by Interstate for
the remaining term of the Marriott franchise agreement, and (3) the
divestiture, either through a sale or a spin-off of assets, of the
third-party management business which was operated by Interstate (the
"Divestiture").
. For Patriot to sell the third-party management business which was
operated by Interstate to a third party (a "Sale Transaction"),
Patriot must (1) sign a non-binding letter of intent (the "Letter of
Intent") for the Sale Transaction on or before March 31, 1999, (2)
sign a final binding contract (the "Final Binding Contract") for the
Sale Transaction no later than midnight on April 14, 1999, and
(3) consummate the Sale Transaction no later than June 14, 1999. If
Patriot does not complete a Sale Transaction, it must consummate the
spin-off of the third-party management business which was operated by
Interstate (the "Spin-off") no later than the earliest of (1) June
14, 1999, (2) April 30, 1999 (if Patriot does not enter into a Letter
of Intent by March 31, 1999), (3) thirty days after the date Marriott
disapproves the Letter of Intent, (4) May 14, 1999 (if Patriot does
not enter into a Final Binding Contract by April 14, 1999), or (5)
thirty days after the date of Marriott disapproves of the Final
Binding Contract. The last date on which either the Sale Transaction
or the Spin-off may be complete pursuant to the Settlement Agreement
is the "Final Divestiture Date."
If the Companies do not complete the Spin-off or the Sale Transaction by the
Final Divestiture Date, Marriott will be entitled to receive 110% of the fees
otherwise due under the Assumed Management Contracts. The Companies will also
be subject to additional penalties including Marriott's right to purchase,
subject to third-party consents, the hotels to be submanaged by Marriott and
six additional Marriott hotels owned by Patriot at their then appraised
values.
Moreover, subject to any defenses the Companies may have, the Companies
would owe Marriott liquidated damages with respect to the hotels converted to
the Wyndham brand, those to be submanaged by Marriott, and the six additional
Marriott hotels Marriott would have the option to purchase. The Companies also
anticipate that Marriott would require third-party owners of Marriott-branded
hotels that Wyndham manages to replace Wyndham as manager of their hotels. As
a result, each respective hotel would either: (1) lose the Marriott brand, at
which time the Companies would have to compensate Marriott for any lost
franchise fees or (2) terminate the management contract with Wyndham and enter
into a contract with another manager. The Companies would owe liquidated
damages on any third-party Marriott-franchised hotel which chooses to convert
its brand.
Description of Business
The Companies are a fully-integrated and multi-branded hotel enterprise that
operates primarily in the upscale and luxury segments. Through a series of
acquisitions, the Companies have grown from 20 hotels at the time of its
initial public offering in 1995 to become one of the largest U.S. based hotel
operators with a portfolio
11
<PAGE>
totaling 472 hotels and more than 101,000 rooms. The Companies classify their
business into proprietary brand and non-proprietary brand hotel divisions,
under which they manage the business.
Among its proprietary branded hotels, the Companies are positioned in the
luxury segment under the Grand Bay Hotels & Resorts(R); in the upscale segment
under Wyndham(TM); and in the mid-priced segment under the ClubHouse. The core
Wyndham brand offers upscale, full-service accommodations to business and
leisure travelers, ensures a quality and consistent product, and delivers
outstanding service through any of its four products: Wyndham Hotels, Wyndham
Resorts, Wyndham Garden Hotels(R), Wyndham Grand Heritage Hotels(R).
Additionally, the Companies offer proprietary branded all-suite accommodations
through its upscale Summerfield Suites and its mid-priced Sierra Suites. Other
proprietary hotel brands owned and developed by the Companies include
Malmaison, Grand Heritage(R) and Carefree(R).
The Companies primary growth strategy is to develop their proprietary hotel
brands through increasing distribution, generating greater customer awareness,
building brand loyalty, and maintaining customer satisfaction. The Companies
intends to continue to expand and diversity its hotel portfolio through the
rebranding of existing non-proprietary brand hotels to one of its proprietary
brands and through the selective acquisition and development of hotels in
major metropolitan areas and destination. In 1998, the Companies converted 33
owned hotels to one of its proprietary upscale or luxury hotel brands.
Additionally, the Companies have 10 hotels under development which are
expected to open in mid to late 1999. These newly constructed hotels will be
proprietary branded and are situated in major metropolitan markets including
Boston, Chicago, Atlanta and London.
Additionally, the Companies own 93 non-proprietary branded hotels which
consists of 86 full service hotels, 3 resort hotels and 4 limited service
hotels. All but 5 of these hotels are operated under franchise or brand
affiliations with nationally recognized hotel companies, including
Marriott(R), Crowne Plaza(R), Hilton(R), Hyatt(R), Radisson(R), Holiday
Inn(R), Doubletree(R), Embassy Suites(R), Ramada(R), Four Points by
Sheraton(R), WestCoast(R), Hampton Inn(R), Courtyard by Marriott(R). The
Companies non-proprietary brand hotels are mostly operated by one of two
divisions, Patriot American Hospitality Management Services or Interstate
Hotel Management. Both divisions are focused on maximizing hotel profitability
at the owned hotels or for our third-party hotel owners. The Companies non-
proprietary branded business will continue to seek investments in hotels where
management believes that profits can be increased by the introduction of more
professional and efficient management techniques, a change of franchise
affiliation or the injection of capital for market repositioning, renovating,
or expanding a property.
Proprietary Brands
Grand Bay Hotels & Resorts are five-star, luxury hotel properties located in
major metropolitan markets and destination locations. Catering to the upscale
business and leisure traveler, Grand Bay hotels feature between 150 and 300
rooms, numerous fine dining options, the exclusive Golden Door Spa or Golden
Door CitySpa and other luxury amenities. Grand Bay Resorts include the former
Carefree Resorts, which are internationally renowned, signature resorts
distinguished by unique architecture that complements the indigenous
landscape; a wide variety of outdoor activities; Golden Door spas; innovative
service; and retail shopping.
Wyndham is a four-star, upscale hotel brand that offers full-service
accommodations to business and leisure travelers. Wyndham ensures a quality
and consistent product and delivers outstanding service through any of its
four products described below. Each product is geared to the customers
specific needs based on the properties' location and character.
. Wyndham Hotels are typically located in major urban centers, providing
an average of 400 hotel rooms, generally between 15,000 and 250,000
square feet of meeting space, and a full range of guest services and
amenities, including room service and recreational facilities. Wyndham
Hotels are marketed primarily to corporate groups as well as individual
business travelers.
. Wyndham Resorts are full-service, destination resorts targeted to
upscale and luxury leisure and incentive travelers. Primary destinations
currently include Orlando, South Florida and the Caribbean.
12
<PAGE>
Due to the strength and size of the Wyndham Resorts portfolio, the chain
is the largest chain in the Caribbean.
. Wyndham Garden Hotels are located principally in suburban markets,
catering to individual business travelers and small business groups.
These full-service hotels feature between 150 and 225 guest rooms, up to
5,000 square feet of meeting space, a three-meal restaurant, signature
"Garden" libraries and laundry and room service.
. Wyndham Grand Heritage Hotels are the newest addition to the Wyndham
brand, introduced in early 1998. Wyndham Grand Heritage Hotels are
distinguished by their unique combination of historic ambiance and
modern services and amenities. Usually situated in secondary and
tertiary markets throughout the United States, Wyndham Grand Heritage
Hotels are known for their aesthetic and historic appeal as well as
their architectural significance.
ClubHouse Inns are mid-priced, limited service hotels located principally in
secondary markets throughout the Midwest and the Southwest. ClubHouse Inns are
targeted at corporate individual travelers and featuring an average of 135
rooms, two meeting rooms, full-service breakfast buffets and evening
receptions.
Summerfield Suites and Sierra Suites are upscale and mid-priced, all-suite
hotel brands, respectively. Both brands focus on the needs of business
travelers attending corporate training programs but at different price points.
All-suite properties are designed for the business and leisure traveler who
usually anticipates a one to two week stay (suite hotels generally offer
weekly rates to their guests). The suite properties usually have limited
public space and no or limited food and beverage services. However, these
properties generally provide guests with larger partitioned rooms, a full
kitchen, or two rooms for added workspace.
Malmaison, located in the United Kingdom, are full-service, upscale hotels
typically housed in historic buildings that have been redeveloped and
retrofitted. Named "Best Hotels in the World Under (Pounds)100 Per Night"
by England's Tatler magazine, Malmaison hotels are a European equivalent in
size and service to Wyndham Gardens, with award-winning brasseries, which
quickly become popular gathering spots.
Operating Statistics--Owned Hotels
<TABLE>
<CAPTION>
Occupancy ADR REVPAR
------------ --------------- ---------------
1998 1997 1998 1997 1998 1997
----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Wyndham Branded Hotels.......... 70.50% 70.80% $119.57 $112.32 $ 84.35 $ 79.54
Grand Bay Hotels & Resorts...... 67.00 70.50 287.30 266.64 192.52 187.86
Summerfield Suites.............. 79.70 74.20 129.42 123.01 103.17 91.27
Malmaison....................... 83.50 75.40 125.65 117.27 104.89 88.44
Clubhouse....................... 66.40 71.50 68.07 65.75 45.23 47.01
Arcadian........................ 68.80 63.80 142.67 128.43 98.10 81.92
Non Proprietary -- Limited
Service........................ 67.80 74.10 74.57 65.87 50.54 48.83
Non Proprietary Brands.......... 71.70 71.20 99.59 94.29 71.39 67.16
----- ----- ------- ------- ------- -------
Weighted Average............... 71.10% 71.00% $109.94 $103.53 $ 78.15 $ 73.55
</TABLE>
13
<PAGE>
List of Owned Properties
The following table sets forth certain information for the hotels the
Companies owned as of December 31, 1998, and excludes those leased, managed or
franchised from third-party owners.
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Wyndham Brand Properties:
Wyndham Bel Age Hotel Los Angeles California 200 1984
Wyndham Bristol Place Hotel Toronto Canada 287 1974
Wyndham Buena Vista Palace Resort &
Spa (1) Orlando Florida 1,014 1977/1983
Wyndham Buttes Resort (1) Tempe Arizona 353 1986
Wyndham City Centre (2) Washington District of Columbia 352 1969
Wyndham Emerald Plaza San Diego California 436 1991
Wyndham Resort & Spa (1) Fort Lauderdale Florida 496 1961
Wyndham Franklin Plaza Philadelphia Pennsylvania 758 1979
Wyndham Greenspoint Hotel Houston Texas 472 1985
Wyndham Miami Beach Resort (1) Miami Florida 424 1963
Wyndham Gateway--Miami Airport (1) Miami Florida 408 1976
Wyndham Myrtle Beach Resort &
Golf Club (1) Myrtle Beach South Carolina 385 1974
Wyndham Northwest Chicago Chicago Illinois 408 1983
Wyndham Peachtree Conference Center (1) Atlanta Georgia 250 1984
Wyndham Toledo (1) Toledo Ohio 241 1985
Wyndham Riverfront Hotel New Orleans Louisiana 202 1996
Wyndham Washington D.C. (1) Washington District of Columbia 400 1983
Wyndham Westshore Hotel (1) Tampa Florida 324 1984
Wyndham Wind Watch Hotel & Golf Club Hauppage New York 360 1989
Wyndham El Conquistador Resort &
Club (1) San Juan Puerto Rico 751 1962
Wyndham El San Juan Resort & Casino (1) San Juan Puerto Rico 382 1958
Wyndham Rose Hall Golf & Beach Resort Montego Bay Jamaica 489 1984
Wyndham Garden Hotel--Brookfield Brookfield Illinois 178 1990
Wyndham Garden Hotel--Charlotte Charlotte North Carolina 173 1989
Wyndham Garden Hotel--Commerce Los Angeles California 201 1991
Wyndham Garden Hotel--Market Center Dallas Texas 228 1968/1997
Wyndham Garden Hotel--Park Central (1) Dallas Texas 197 1998
Wyndham Garden Hotel--Indianapolis Indianapolis Indiana 171 1990
Wyndham Garden Hotel--K.C. Airport (1) Kansas City Missouri 138 1992
Wyndham Garden Hotel--Knoxville (1) Knoxville Tennessee 137 1989
Wyndham Garden Hotel--LaGuardia Airport New York New York 229 1988
Wyndham Garden Hotel--Las Colinas Dallas Texas 168 1986
Wyndham Garden Hotel--Midtown Atlanta Georgia 191 1987
Wyndham Garden Hotel--Novi Detroit Michigan 148 1988
Wyndham Garden Hotel--Omaha (1) Omaha Nebraska 137 1991
Wyndham Garden Hotel--Overland Park Overland Park Kansas 180 1971/1997
Wyndham Garden Hotel--Pleasanton Pleasanton California 171 1985
Wyndham Garden Hotel--Richardson (1) Richardson Texas 137 1996
Wyndham Garden Hotel--Schaumburg Schaumburg Illinois 188 1985
Wyndham Garden Hotel--West Port (1) St. Louis Missouri 142 1997
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Wyndham Garden Hotel--
Vinings Atlanta Georgia 159 1985
Wyndham Garden Hotel--
Wichita (1) Wichita Kansas 120 1985
Wyndham Garden Hotel--
WoodDale Chicago Illinois 162 1986
Wyndham Grand Heritage--
Ambassador West (1) Chicago Illinois 219 1924
Wyndham Grand Heritage--
Bourbon Orleans (1) New Orleans Louisiana 216 1800s
Wyndham Grand Heritage--
The Fairmount (1) San Antonio Texas 37 1906
Wyndham Grand Heritage--
The Mayfair (1) St. Louis Missouri 182 1925
Wyndham Grand Heritage--
The Tutwiler (1) Birmingham Alabama 147 1913
Wyndham Grand Heritage--
Tremont House (1) Boston Massachusetts 322 1925
Wyndham Grand Heritage--
Union Station (1) Nashville Tennessee 124 1986
Grand Bay Hotels &
Resort:
Carmel Valley Ranch Carmel California 144 1987
Grand Bay Hotel Coconut
Grove Miami Florida 178 1983
The Boulders Scottsdale Arizona 160 1985
The Lodge at Ventana
Canyon Tucson Arizona 49 1985
The Peaks Resort & Spa Telluride Colorado 174 1992
Las Casitas Spa & Villas San Juan Puerto Rico 157
Summerfield Suites:
Summerfield--Denver
South Denver Colorado 136 1997
Summerfield--Hanover Whippany New Jersey 136 1997
Summerfield--Morristown
(Hanover South) Morristown New Jersey 133 1997
Summerfield--Seattle
Downtown (1) Seattle Washington 193 1985
Summerfield--Waltham Waltham Massachusetts 136 1997
Malmaison:
Malmaison Edinburgh Edinburgh United Kingdom 60 1994
Malmaison Glasgow Glasgow United Kingdom 72 1997
Malmaison Manchester Manchester United Kingdom 112 1998
Malmaison Newcastle Newcastle United Kingdom 116 1998
ClubHouse Inns:
ClubHouse Inn--Nashville
Airport Nashville Tennessee 135 1988
ClubHouse Inn--
Albuquerque Albuquerque New Mexico 137 1987
ClubHouse Inn--Atlanta
(Norcross) Atlanta Georgia 147 1988
ClubHouse Inn--Overland
Park Overland Park Kansas 143 1988
ClubHouse Inn--Savannah Savannah Georgia 138 1989
ClubHouse Inn--Topeka Topeka Kansas 121 1986
ClubHouse Inn--Valdosta Valdosta Georgia 121 1988
ClubHouse Inn &
Conference Center Nashville Tennessee 285 1991
Non-Proprietary Brand
Properties:
Marriott Albany Albany New York 359 1985
Marriott Arlington Arlington Texas 310 1985
Marriott Atlanta North
Central Atlanta Georgia 287 1975
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Marriott Boston Andover Andover Massachusetts 293 1985
Marriott Boston
Westborough Westbourough Massachusetts 223 1985
Marriott Houston
Greenspoint North Houston Texas 391 1981
Marriott Minneapolis
Southwest Minnetonka Minnesota 320 1988
Marriott Colorado
Springs Colorado Springs Colorado 311 1989
Marriott Harrisburg Harrisburg Pennsylvania 348 1980
Marriott Indian River
Plantation Resort Stuart Florida 297 1987
Marriott Casa Marina
Resort Key West Florida 311 1980
Marriott Troy Troy Michigan 350 1990
Marriott Reach Resort Key West Florida 149 1978
Marriott Suites At
Valley Forge Valley Forge Pennsylvania 229 1985
Marriott Philadelphia
West West Conshohocken Pennsylvania 286 1991
Marriott Pittsburgh
Airport Pittsburgh Pennsylvania 314 1987
Marriott Roanoke Airport Roanoke Virginia 320 1983
Marriott San Diego
Mission Valley San Diego California 350 1988
Marriott St. Louis West St. Louis Missouri 300 1990
Marriott Syracuse East Syracuse New York 250 1977
Marriott Tysons Corner Tysons Corner Virginia 390 1981
Marriott Warner Center Woodland Hills California 463 1986
Courtyard by Marriott Beachwood Ohio 113 1986
Crowne Plaza Ravinia Atlanta Georgia 495 1986
Doubletree Hotel Anaheim Orange California 454 1984
Doubletree Hotel
Corporate Woods Overland Park Kansas 356 1982
Doubletree Hotel Post
Oak Houston Texas 449 1982
Doubletree Hotel St.
Louis St. Louis Missouri 223 1984
Doubletree Hotel Allen
Center Houston Texas 341 1978
Doubletree Guest Suites Glenview Illinois 252 1988
Doubletree Hotel
Westminster Denver Colorado 180 1980
Doubletree Hotel Tallahassee Florida 244 1977
Doubletree Hotel Des
Plaines Chicago Illinois 242 1969
Doubletree Hotel Minneapolis Minnesota 230 1986
Doubletree Hotel Tulsa Oklahoma 417 1982
Doubletree Park Place Minneapolis Minnesota 298 1981
Doubletree Miami Airport Miami Florida 266 1975
Embassy Suites Chicago Illinois 358 1991
Embassy Suites Schaumburg Illinois 209 1984
Embassy Suites Hunt Valley Maryland 223 1985
Embassy Suites Phoenix
North Phoenix Arizona 314 1985
Hyatt Newporter Newport Beach California 410 1962
Hyatt Regency Lexington Kentucky 365 1977
Hilton Cleveland South Independence Ohio 191 1980
Hilton Gateway Newark Newark New Jersey 253 1971
Hilton Columbus Columbus Georgia 177 1982
Hilton Del Mar San Diego California 245 1989
Hilton Greenwood Village Denver Colorado 305 1982
Hilton Dania Fort Lauderdale Florida 388 1988
Hilton Huntington Melville New York 302 1988
Hilton Parsipanny Parsippany New Jersey 510 1981
Hilton Melbourne Airport Melbourne Florida 237 1986
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Holiday Inn (3) Sebring Florida 148 1983
Holiday Inn San Angelo Texas 148 1984
Holiday Inn--YO Ranch Kerrville Texas 200 1984
Holiday Inn Aristocrat Dallas Texas 172 1925
Holiday Inn Beachwood
(3) Beachwood Ohio 172 1974
Holiday Inn Crockett (4) San Antonio Texas 204 1909
Holiday Inn Lenox Atlanta Georgia 297 1987
Holiday Inn Northwest Houston Texas 193 1982
Holiday Inn Northwest
Plaza Austin Texas 193 1984
Holiday Inn Select--
Farmers Branch Dallas Texas 379 1979
Holiday Inn Westlake Beachwood Ohio 266 1980
Holiday Inn Brentwood Brentwood Tennessee 247 1989
Holiday Inn San Francisco California 224 1964
Redmont Hotel Birmingham Alabama 112 1925
Omni Inner Harbor Hotel Baltimore Maryland 707 1968
Radisson Burlington Burlington Vermont 255 1975
Radisson Hotel & Suites Dallas Texas 198 1986
Radisson Englewood Englewood New Jersey 192 1989
Radisson Suite Hotel Kansas City Kansas 240 1931
Radisson Hotel Lisle Illinois 242 1987
Radisson New Orleans
Hotel New Orleans Louisiana 759 1924
Radisson Northbrook Northbrook Illinois 310 1976
Radisson Overland Park Overland Park Kansas 190 1974
Radisson Riverwalk Jacksonville Florida 322 1979
Radisson Plaza Hotel San
Jose Airport San Jose California 185 1985
Radisson Suites Town &
Country Houston Texas 173 1986
Radisson Hotel Beachwood Ohio 196 1968
Radisson Hotel Akron Ohio 130 1989
Ramada Hotel San Francisco California 323 1962
Sheraton Four Points Blacksburg Virginia 148 1971
Sheraton Four Points Saginaw Michigan 156 1984
WestCoast Hotel & Marina
(3) Long Beach California 195 1978
WestCoast Valley River
Inn Eugene Oregon 257 1973
Condado Plaza Hotel &
Casino San Juan Puerto Rico 570
Fort Magruder Inn &
Conference Center Williamsburg Virginia 303 1975
Pickwick Hotel San Francisco California 189 1928
Park Shore Honolulu Honolulu Hawaii 227 1968
Regency Hotel San Juan Puerto Rico 127 1963
Limited Service Hotels:
Hampton Inn (3) Canton Ohio 107 1985
Hampton Inn (3) Rochester New York 113 1986
Hampton Inn Cleveland
Airport (3) North Olmsted Ohio 113 1986
Hampton Inn Jacksonville
Airport (3) Jacksonville Florida 113 1985
Arcadian Hotels:
Arcadian--Brandschatch Brandschatch Place United Kingdom 41 1980
Arcadian--Chilston Park Chilston Park United Kingdom 53 1985
Arcadian--Ettington Park Ettington Park United Kingdom 48 1984
Arcadian--Haycock Haycock United Kingdom 59 1632
Arcadian--L'Horizon L'Horizon United Kingdom 107 1954
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Arcadian--Mollington
Banastre Mollington Banastre United Kingdom 63 1953
Arcadian--Nutfield
Priory Nutfield Priory United Kingdom 60 1988
Arcadian--Priest House Priest House United Kingdom 45
Arcadian--Rookery Hall Rookery Hall United Kingdom 45 1960
Arcadian--Wood Hall Wood Hall United Kingdom 43 1988
Arcadian--Woodlands Park Woodlands Park United Kingdom 59 1988
Other:
Bay Meadows Racecourse
(4) San Mateo California 1934
Golden Door Spa Escondido California 1954
------
43,893
======
</TABLE>
- --------
Notes: (1) Converted to Wyndham in 1998.
(2) Converted to Wyndham subsequent to December 31, 1998.
(3) Assets under contract to be sold.
(4) Assets sold subsequent to December 31, 1998.
Total Portfolio
<TABLE>
<CAPTION>
(Number of Hotels as of
December 31, 1998) Owned Leased Managed Franchised Total
----------------------- ----- ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Total Wyndham Brand Hotels & Resorts..... 50 14 40 10 114
Grand Bay Hotels & Resorts............... 6 0 0 0 6
Summerfield Suites and Sierra Suites..... 5 25 17 1 48
ClubHouse Inns........................... 8 0 2 1 11
Malmaison Hotels......................... 4 0 0 0 4
Arcadian and Grand Heritage Hotels....... 11 0 7 0 18
--- --- --- --- ---
Proprietary Brand Hotels--Subtotal..... 84 39 66 12 201
Non-Proprietary Brand Hotels........... 94 82 95 0 271
--- --- --- --- ---
Total.................................... 178 121 161 12 472
=== === === === ===
</TABLE>
Operation of the Hotels
As of March 22, 1999, Patriot and Wyndham, either directly or through the
Operating Partnerships and other subsidiaries, own interests in 178 hotels
with an aggregate of over 43,800 rooms (excluding hotels under development).
In order for Patriot to qualify for favorable tax status as a real estate
investment trust ("REIT") under the Code, Patriot leases each of its hotels,
to Wyndham or a third party lessee. Currently, Patriot leases all of its
hotels to Wyndham except for one hotel (the WestCoast Long Beach Hotel and
Marina) which is currently leased to NorthCoast which is under contract to be
sold and those hotels which are separately owned through special purpose
entities. Currently, Wyndham leases 206 hotels from Patriot pursuant to
participating lease agreements. Wyndham manages 184 of these hotels through
certain of its hotel management subsidiaries and has entered into separate
management agreements with third-party operators to manage 22 of the hotels.
In addition, the Companies lease 121 hotels from third parties, manage 161
hotels for independent owners and franchise 12 hotels. All of the leased
hotels are managed with 39 franchised under proprietary brands of the
Companies.
Patriot leases each of the hotels, except those hotels which are separately
owned through special purpose entities to Wyndham pursuant to separate
participating leases. The Participating Leases with various expiration dates
through 2008, subject to earlier termination upon the occurrence of certain
contingencies described in the Participating Leases (including, particularly,
irreparable damage or destruction of the hotel, condemnation of the
18
<PAGE>
hotel property, failure to meet performance goals, or disposition of the
hotel). The variation of the lease terms is intended to provide Patriot
protection from the risk inherent in simultaneous lease expirations.
In general, each participating lease requires the lessee of each hotel to
pay the greater of (i) base rent in a fixed amount or (ii) participating rent
based on percentages of room revenue, food and beverage revenue and other
revenue at each hotel leased by it, plus certain additional charges. In
general, Patriot is responsible for paying (i) real estate and personal
property taxes on the hotels (except to the extent that personal property
associated with the hotels is owned by the Lessee), (ii) casualty insurance on
the hotels, (iii) business interruption insurance on the hotels and (iv)
ground rent with respect to certain of the hotels. Wyndham is required to pay
for all liability insurance on the hotels it leases, with extended coverage,
including comprehensive general public liability, workers' compensation and
other insurance appropriate and customary for properties similar to the
hotels, with Patriot as an additional named insured.
Franchise and Brand Affiliations
As of December 31, 1998, all but 5 of the Companies' hotels are operated
under franchise or brand affiliations with nationally recognized hotel
companies. Franchisors and brand operators provide a variety of benefits for
hotels which include national advertising, publicity and other marketing
programs designed to increase brand awareness, training of personnel,
continuous review of quality standards and centralized reservation systems.
Wyndham generally is the licensee under the franchise agreement related to
such hotel. Wyndham is responsible for making all payments under the franchise
agreements to the franchisors. Franchise royalties and fees generally range up
to approximately 10% of room revenue. The duration of the franchise agreements
are varied, but generally may be terminated upon prior notice and/or upon
payment of certain specified fees. However, Wyndham is not entitled to
terminate the franchise license for a hotel without prior written consent of
Patriot.
The franchisors have agreed that upon the occurrence of certain events of
default by a lessee under a franchise license, the franchisors will transfer
the franchise license for the hotel to Patriot (or its designee) or make other
arrangements to continue the hotel as part of the franchisor's system.
Wyndham's rights related to branded hotels are generally contained in the
management agreements related to such hotels. The lessees do not pay
additional franchise royalties or fees other than those specified in the
management agreements for use of the brands. Generally, the lessees' rights to
use the brands terminate upon any termination of the applicable management
agreement.
Management of the Hotels
Wyndham has entered into management agreements with affiliated entities and
other third parties to operate and manage each of the hotels leased from
Patriot. As of December 31, 1998, all but 23 of Patriot's hotels were managed
by operators affiliated with Wyndham. The management agreements provide for
management fees based upon a percentage of total revenue at each of the hotels
managed by them. The management fees generally range from 2% to 5% of total
revenues. Generally, in the event of the termination of any of the
Participating Leases with the hotel lessees, the related management agreement
also terminates. Generally, the management agreements also provide for the
subordination of certain management fee payments to Wyndham's obligations
pursuant to the Participating Leases.
Maintenance and Improvements
The Participating Leases obligate Patriot to establish annually a reserve
for capital improvements at the hotels leased to the Lessees (including the
periodic replacement and refurbishment of furniture, fixtures and equipment
("FF&E"). Patriot and Wyndham agree on the use of funds in these reserves, and
Patriot has the right to approve Wyndham's annual and long-term capital
expenditure budgets. The aggregate minimum amount of such reserves average
4.0% of total revenue for the hotels. Patriot, at its election, may choose to
expend more than 4.0% on any hotel. Any unexpended amounts will remain the
property of Patriot upon termination of the Participating Leases. Otherwise,
Wyndham is required, at their own expense, to make repairs (other than capital
repairs) which may be necessary and appropriate to keep their leased hotels in
good order and repair.
19
<PAGE>
Competition
The hotel industry is highly competitive and the Companies' hotels are
subject to competition from other hotels for guests. Many of the Companies'
competitors may have substantially greater marketing and financial resources
than the Companies. Each of the Companies' hotels compete for guests primarily
with other similar hotels in its immediate vicinity and secondarily with other
similar hotels in its geographic market. Management believes that brand
recognition, location, the quality of the hotel and services provided, and
price are the principal competitive factors affecting the Companies' hotels.
Patriot and Wyndham may compete for acquisition and development
opportunities with entities that have greater financial resources than the
Companies or which may accept more risk than the Companies. Competition may
generally reduce the number of suitable investment opportunities and increase
the bargaining power of property owners seeking to sell. Further, the
Companies' management believes that it will face competition for acquisition
opportunities from entities organized for purposes substantially similar to
the objectives of Patriot or Wyndham.
Seasonality
The hotel industry is seasonal in nature. Revenue at certain of the
Companies' hotels are greater in the first and second quarters of a calendar
year and at other hotels in the second and third quarters of a calendar year.
Seasonal variations in revenue at the hotels may cause quarterly fluctuations
in Patriot's lease revenues and in Wyndham's hotel-related revenues.
Employees
As of March 22, 1999, Patriot employs 14 persons, including Messrs.
Carreker, Evans and Jones, the executive officers of Patriot, and retains
appropriate support personnel to manage its operations in lieu of retaining an
advisor. Wyndham employs approximately 54,000 persons, including Messrs.
Carreker, Alibhai, Koonce, Bentley and Jones, the executive officers of
Wyndham, and retains appropriate support personnel to manage its operations,
including operation of the 206 hotels leased from Patriot.
Environmental Matters
Neither Patriot, Wyndham, the Patriot Partnership nor the Wyndham
Partnership has been identified by the United States Environmental Protection
Agency or any similar state agency as a responsible or potentially responsible
party for, nor have they been the subject of any involuntary governmental
proceedings with respect to, any hazardous waste contamination. Two of the
hotels owned by subsidiaries of the Patriot Partnership are participating in
the Texas voluntary clean-up program, the costs of which are to be absorbed by
others pursuant to certain indemnification agreements obtained at the time of
purchase. If Patriot, Wyndham or any of their respective subsidiaries were to
be identified as a responsible party, they would in most circumstances be
strictly liable, jointly and severally with other responsible parties, for
environmental investigation and clean-up costs incurred by the government and,
to a more limited extent, by private persons.
Phase I environmental site assessments have been performed on substantially
all Patriot hotels owned by the Companies. To date, these assessments have not
revealed any environmental liability or compliance concerns that management
believes would have a material adverse effect on the Companies' business,
assets, results of operations or liquidity. Based on the results of these
assessments, the Companies and their outside consultants believe that the
Companies' overall potential for environmental impairment is low.
Based upon the environmental reports described above, the Companies believe
that a substantial number of the hotels incorporate potentially asbestos-
containing materials. Under applicable current federal, state and local laws,
asbestos need not be removed from or encapsulated in a hotel unless and until
the hotel is renovated or remodeled. The Companies have asbestos operation and
maintenance plans for each property testing positive for asbestos.
20
<PAGE>
Based upon the above-described environmental reports and testing, future
remediation costs are not expected to have a material adverse effect on the
results of operations, financial position or cash flows of Patriot or Wyndham
and compliance with environmental laws has not had and is not expected to have
a material adverse effect on the capital expenditures, earnings or competitive
position of the Companies.
Tax Status
Cal Jockey has elected to be taxed as a REIT under Sections 856 through 860
of the Code since 1983. Patriot, as the successor to Cal Jockey in the Cal
Jockey Merger, has continued to be taxed as a REIT. As a REIT, Patriot
generally has not been subject to federal income tax on its taxable net income
that is distributed currently to its shareholders. On March 1, 1999, Patriot
announced that it had signed an agreement with an investor group, including
affiliates of Apollo Real Estate Management III, L.P., Apollo Management IV,
L.P., Thomas H. Lee Equity Fund IV, Beacon Capital Partners, L.P. and Rosen
Consulting Group, providing for an equity investment of up to $1 billion in
the Companies. In connection with this investment and the related
restructuring transactions Patriot would become a subsidiary of Wyndham and
convert from a REIT to a C corporation. The termination of REIT status would
have a retroactive date of January 1, 1999. The consummation of this
investment is subject to numerous conditions, including approval by Patriot
shareholders.
If the equity investment is consummated in 1999 as planned, or if Patriot
otherwise terminates its REIT status beginning in 1999, Patriot will be
subject to tax as a C corporation in 1999 and subsequent years. Therefore,
Patriot will be subject to federal income tax at regular corporate tax rates,
although the Companies will be eligible to file a consolidated federal income
tax return following the consummation of the proposed equity investment.
Distributions to shareholders will no longer be deductible or required, and
the amount of distributions is likely to be reduced. The termination of
Patriot's REIT status will also cause Patriot to permanently lose its special
status as a grandfathered paired share REIT under the rules described below.
If Patriot failed to qualify as a REIT for any year prior to 1999. Patriot
would also be taxed as a C corporation beginning in such year. Patriot would
therefore be subject to federal income tax and the loss of its status as a
grandfathered paired share REIT.
Legislation Affecting the Paired Share Structure
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Code.
Section 269B(a)(3) would ordinarily prevent a corporation from qualifying as a
REIT if its stock is paired with the stock of a corporation, such as Wyndham,
whose activities are inconsistent with REIT status. The "grandfathering" rules
governing Section 296B generally provide, however, that Section 296B(a)(3)
does not apply to a paired REIT if the REIT and the paired operating company
were paired on June 30, 1983. There are, however, no judicial or
administrative authorities interpreting this "grandfathering" rule in the
context of a merger or otherwise. Moreover, although Patriot's and Wyndham's
respective predecessors, Cal Jockey and Bay Meadows, were paired on June 30,
1983, if for any reason Cal Jockey failed to qualify as a REIT in 1983 the
benefit of the grandfathering rule would not be available to Patriot and
Patriot would not qualify as a REIT for any taxable year.
Patriot's ability to utilize the paired structure was limited as a result of
the Internal Revenue Service Restructuring and Reforming Act of 1998 (the "IRS
Reform Act of 1998"), which was signed into law by the President on July 22,
1998. Included in the IRS Reform Act of 1998 is a freeze on the grandfathered
status of paired share REITs such as Patriot. Under this legislation, the
anti-pairing rules generally apply to real property interests acquired after
March 26, 1998 by Patriot and Wyndham, or a subsidiary or partnership which a
10% or greater interest is owned by Patriot or Wyndham (collectively, the
"REIT Group"), unless (i) the real property interests are acquired pursuant to
a written agreement which is binding on March 26, 1998 and all times
thereafter or (ii) the acquisition of such real property interests were
described in a public announcement or in a filing with the Securities and
Exchange Commission on or before March 26, 1998. In addition, the
grandfathered status of any property under the foregoing rules would be lost
if the rent on a lease entered into or renewed after
21
<PAGE>
March 26, 1998, with respect to such property exceeds an arm's-length rate.
The IRS Reform Act of 1998 also provides that a property held by Patriot or
Wyndham that is not subject to anti-pairing rules would become subject to such
rules in the event of an improvement placed in service after December 31, 1999
that changes the use of the property and the cost of which is greater than 200
percent of (x) the undepreciated cost of the property (prior to the
improvement) or (y) in the case of property acquired where there is a
substituted basis, the fair market value of the property on the day it was
acquired by Patriot and Wyndham. There is an exception for improvements placed
in service before January 1, 2004 pursuant to a binding contract in effect as
of December 31, 1999 and at all times thereafter. The IRS Reform Act of 1998
also provides an exception that permits Patriot to acquire new assets through
taxable subsidiaries of Patriot, although in order to comply with the general
REIT rules, Wyndham or persons unrelated to Patriot must own the voting
securities of any such taxable subsidiaries. To the extent of Wyndham's
proportionate interest in such subsidiaries the Act requires Patriot to treat
gross revenues from the assets as nonqualifying REIT income for purposes of
the REIT income tests (which generally limit the total amount of such revenues
to 5% of Patriot's gross income determined for tax purposes). In addition,
Patriot must account for its stock in such subsidiaries and any unsecured
loans it makes to them as nonqualifying assets under the REIT asset tests
(which generally limit the total value of Patriot's non-real estate assets of
25% of its total assets).
Issues Regarding REIT Status
As noted above, if Patriot ceases or fails to qualify as a REIT in any year,
Patriot will be subject to federal income tax on its taxable income for the
entire year of disqualification, and for future taxable years, at regular
corporate rates. If the proposed equity investment is not consummated and if
Patriot decides to retain its status as a REIT, Patriot will not qualify as a
REIT for 1999 or subsequent years unless it operates in accordance with the
various REIT qualification requirements imposed by the Internal Revenue Code.
These requirements impose numerous restrictions on the Companies' activities
and could preclude the Companies from engaging in activities that might
otherwise be beneficial. Moreover, compliance with those requirements is more
difficult in the case of a paired REIT such as Patriot, is further complicated
by the additional requirements of the IRS Reform Act of 1998, and could be
impacted by future legislation.
Goodwin, Procter & Hoar LLP, special tax counsel to Patriot, has previously
rendered an opinion to Patriot dated April 30, 1998 to the effect that
commencing with the taxable year ending December, 13, 1983 to the date of such
opinion, Patriot had been organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code, and that
as of the date of such opinion Patriot's proposed method of operation would
enable it to continue to meet the requirements for qualification and taxation
as a REIT under the Code. Patriot has not received any similar REIT
qualification opinion subsequent to April 30, 1998. Stockholders should be
aware, however, that opinions of counsel are not binding upon the IRS or any
court. Goodwin, Procter & Hoar LLP's opinion was based on certain assumptions
and representations or about the date of such opinion as to factual matters,
including representations regarding the nature of Patriot's properties and the
future conduct of Patriot's business. Any inaccuracy in such assumptions and
representations (including as a result of Patriot's activities subsequent to
the date of the opinion) could adversely affect the opinion.
Pending Adoption of Authoritative Statements
Derivative Instruments and Hedging Activities
In June 1998, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. The Companies expect to adopt Statement 133 effective
January 1, 2000. Statement 133 will require the Companies to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a
22
<PAGE>
derivative's change in fair value will be immediately recognized in earnings.
Management has not yet determined what the effect of Statement 133 will be on
the earnings and financial position of the Companies.
ITEM 3. LEGAL PROCEEDINGS
Except as indicated below, the Patriot, Wyndham and their respective
subsidiaries are currently not subject to any material legal proceedings or
claims nor, to management's knowledge, are any material legal proceedings or
claims currently threatened.
On January 12, 1999, a purported class action lawsuit was filed on behalf of
the shareholders of Patriot and Wyndham in the Delaware Chancery Court. The
lawsuit, captioned Charles Fraschilla v. Paul A. Nussbaum, et al., No.
16895NC, names as defendants the directors of Patriot, as well as the
Investors. The lawsuit alleges that the Directors breached their fiduciary
duties to Patriot's shareholders with respect to the Companies financial
condition. The lawsuit also alleges that the Directors breached their
fiduciary duties to Patriots shareholders "effectively selling control" of
Patriot to the Investors for inadequate consideration and without having
adequately considered or explored all other alternatives to this sale or
having taken steps to maximize stockholder value. The lawsuit also alleges
that the Investors aided and abetted the Directors in their purported breaches
of fiduciary duty. The plaintiffs seek monetary damages from the Directors as
well as an injunction preventing the consummation of the deal with the
Investors. On January 19, 1999, three nearly identical purported class action
lawsuits were filed in the same court on behalf of different purported class
representatives: (1) Sybil R. Meisel and Steven Langsam, Trustees, No.
16905NC; (2) Crandon Capital Partners, No. 16906NC; and Robert A. Staub, No.
16907NC. The plaintiffs have proposed an order of consolidation for these four
purported class action suits, and the parties are currently negotiating the
terms of that order.
On February 3, 1999, McNeill Investment Company, Inc. filed a lawsuit
against the Patriot in the United States District Court for the Western
District of Pennsylvania. In the lawsuit, captioned McNeill Investment
Company, Inc. v. Patriot American Hospitality, Inc., No. 99-165, the plaintiff
alleges that the Patriot breached its obligations under a registration rights
agreement that Patriot became obligated under through its merger transaction
with Interstate Hotels Corporation. The plaintiff claims approximately $9.0
million in damages. Counsel is currently conducting a factual investigation of
the claims made in the complaint. Also, counsel is investigating the
possibility of settlement with the plaintiff, but if the matter is not
settled, it will have to be litigated. The Patriot's initial answer or
pleading in response to the complaint is due on or before March 26, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Patriot and Wyndham each convened special meetings of their stockholders on
March 30, 1998, which meetings were subsequently adjourned to April 2, 1998
(the "Special Stockholders Meetings"), to consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated December 2, 1997, by and among
Interstate Hotels Company, Patriot and Wyndham (the "Interstate Merger
Agreement"). On April 2, 1998, the votes of stockholders were submitted at the
Patriot and Wyndham Special Stockholders Meetings. For each of Patriot and
Wyndham, 63,483,644 shares were voted in favor of the Interstate Merger
Agreement; 112,606 shares were voted against the Interstate Merger Agreement;
and abstentions were recorded with respect to 269,293 shares.
Patriot held its annual meeting of stockholders on May 28, 1998, to elect
three directors to serve until 2001. Patriot's stockholders elected the
following individuals to serve as directors for additional terms:
<TABLE>
<CAPTION>
Name Votes FOR Withhold
---- ---------- --------
<S> <C> <C>
Paul A. Nussbaum....................................... 77,651,439 247,906
Harlan R. Crow......................................... 77,704,598 194,747
John C. Deterding...................................... 77,704,419 194,926
</TABLE>
Wyndham held its annual meeting of stockholders on May 28, 1998, to elect
three directors to serve until 2001. Wyndham's stockholders elected the
following individuals to serve as directors for additional terms:
<TABLE>
<CAPTION>
Name Votes FOR Withhold
---- ---------- --------
<S> <C> <C>
James D. Carreker...................................... 74,048,041 228,808
Russ Lyon, Jr. ........................................ 74,094,633 182,216
Sherwood M. Weiser..................................... 74,091,374 185,475
</TABLE>
23
<PAGE>
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
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 the quarterly high and
low sale prices per share as reported on the New York Stock Exchange ("NYSE")
of Old Patriot Common Stock (symbol "PAH") through July 1, 1997, and the
distributions paid by Old Patriot with respect to each such period. From and
after July 2, 1997, the following table sets forth the quarterly high and low
sale prices per share of the Paired shares as reported on the NYSE (symbol
"PAH"). The sale prices and distributions in the table through July 1, 1997
have been adjusted to reflect (i) Old Patriot's 2-for-1 stock split in March
1997, (ii) the conversion of each share of Old Patriot Common Stock into
0.51895 Paired shares issued in the Cal Jockey Merger, (iii) the Companies'
1.927-for-1 stock split in July 1997 and (iv) the stock dividend of $0.44
declared on December 22, 1998 and distributed to shareholders of record on
December 30, 1998.
<TABLE>
<CAPTION>
Per Share
High (1) Low (1) Dividend (1)
-------- ------- ------------
<S> <C> <C> <C>
1997:
First Quarter.................................. $26.38 $20.75 $0.2446
Second Quarter................................. $23.75 $18.50 $0.3005(2)
Third Quarter.................................. $32.13 $22.00 $0.2446
Fourth Quarter................................. $34.50 $26.88 $0.2981(3)
1998:
First Quarter.................................. $29.50 $24.00 $0.2981
Second Quarter................................. $28.25 $19.75 $0.2981
Third Quarter.................................. $24.50 $11.50 $ -- (4)
Fourth Quarter................................. $13.25 $5.313 $0.4400(5)
</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 common stock.
(2) Dividends paid for the second quarter of 1997 include a special dividend
of $0.0559 share paid 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.
(3) On December 23, 1997, Patriot declared a dividend of $0.2981 common share
to holders of record as of January 8, 1998. A portion of this dividend
will be used to reduce 1997 REIT taxable income of Patriot.
(4) On October 5, 1998, Patriot made a significant capital contribution to
Wyndham to facilitate an acquisition by Wyndham. This contribution
resulted in a "deemed distribution" for tax purposes to Patriot's
shareholders of common stock of $0.7081 share. No cash was actually
distributed to the shareholders. However, for tax purposes the
shareholders will treat the distribution as though cash was received and
then contributed to Wyndham. On November 20, the Company announced that it
would not declare a dividend with respect to the third quarter of 1998.
(5) On December 22, 1998, Patriot declared a stock dividend of $0.44 cents per
share of common stock for the fourth quarter of 1998. The dividend is
payable on January 25, 1999 to shareholders of record on December 30,
1998.
24
<PAGE>
Holders
As of March 22, 1999, there were approximately 3,808 record holders of the
Companies' paired shares, including shares held in "street name" by nominees
who are record holders, and over 26,000 shareholders.
Dividends
The Board of Directors, in its sole discretion, determines the actual
distribution rate based on a number of factors, including the amount of cash
available for distribution, Patriot's financial condition, capital expenditure
requirements for Patriot's properties, the annual distribution requirements
under the REIT provisions of the Internal Revenue Code of 1986, as amended
(the "Code") and such other factors as the Board of Directors deems relevant.
Patriot's actual cash available for distribution is affected by a number of
factors, including changes in occupancy or ADR at its hotels.
In order to maintain its qualification as a REIT, Patriot must make annual
distributions to its shareholders of at least 95% of its taxable income
(excluding net capital gains). Under certain circumstances, Patriot may be
required to make distributions in excess of cash available for distribution in
order to meet such distribution requirements. In such event, Patriot would
seek to borrow the amount of the deficiency or sell assets to obtain the cash
necessary to make distributions to retain its qualification as a REIT for
federal income tax purposes.
If Patriot's status as a REIT is terminated for any reason, including the
result of the proposed equity investment of up to $1 billion in the Companies,
the Companies will no longer be required to pay dividends to shareholders and
the amount of such dividends paid is likely to be reduced or eliminated.
Recent Sales of Unregistered Securities
None
ITEM 6. SELECTED FINANCIAL INFORMATION
The following tables set forth selected separate and combined historical
financial information for Patriot and Wyndham. 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
and Wyndham included elsewhere in this Annual Report on Form 10-K.
25
<PAGE>
PATRIOT AND WYNDHAM
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Period
October 2, 1995
Year Ended December 31, (Inception of
---------------------------------- Operations) through
1998 1997 1996 December 31, 1995
---------- ----------- --------- -------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Data:
Total revenue........... $2,056,341 $ 335,035 $ 76,493 $ 11,095
(Loss) income before
income tax provision,
minority interest and
extraordinary item..... (112,508) 4,142 44,813 7,064
(Loss) income before
extraordinary item..... (126,406) 362 37,991 6,096
Net (loss) income....... $ (158,223) $ (2,172) $ 37,991 $ 5,359
Per Share Data (1):
Basic earnings per
share:
Income before
extraordinary item... $ (1.13) $ 0.01 $ 0.84 $ 0.16
Extraordinary item,
net of minority
interest............. (0.23) (0.04) -- (0.02)
---------- ----------- --------- ---------
Net (loss) income per
paired share......... $ (1.36) $ (0.03) $ 0.84 $ 0.14
========== =========== ========= =========
Diluted (loss) earnings
per share (2).......... $ (2.57) $ (0.03) $ 0.83 $ 0.14
========== =========== ========= =========
Dividends per paired
share (3).............. $ 2.0425 $ 1.0878 $ 0.9154 $ 0.2236
========== =========== ========= =========
Cash Flow Data:
Cash provided by
operating activities... $ 244,493 $ 108,110 $ 61,196 $ 7,618
Cash used in investing
activities............. 2,076,359 (1,202,124) (419,685) (306,948)
Cash provided by
financing activities... 1,943,384 1,134,846 360,324 304,099
<CAPTION>
As of December 31,
-------------------------------------------------------
1998 1997 1996 1995
---------- ----------- --------- -------------------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Investment in real
estate and related
improvements and land
held for development,
at cost, net........... $5,585,616 $ 2,044,649 $ 641,825 $ 265,759
Total assets............ 7,415,670 2,507,853 760,931 324,224
Total debt.............. 3,857,521 1,112,709 214,339 9,500
Minority interest in
Operating
Partnerships........... 253,970 220,177 68,562 41,522
Minority interest in
consolidated
subsidiaries........... 229,537 49,694 11,711 --
Stockholders' equity.... 2,603,037 989,892 437,039 261,778
<CAPTION>
Period
October 2, 1995
Year Ended December 31, (Inception of
---------------------------------- Operations) through
1998 1997 1996 December 31, 1995
---------- ----------- --------- -------------------
(in thousands)
<S> <C> <C> <C> <C>
Other Data:
Funds from operations
(4).................... $ 263,595 $ 111,542 $ 64,463 $ 9,798
Cash available for
distribution (5)....... 218,215 94,396 55,132 8,603
Weighted average number
of common shares and OP
units outstanding (6).. 163,532 76,040 52,259 44,060
</TABLE>
26
<PAGE>
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period
October 2, 1995
Year Ended December 31, (Inception of
--------------------------- Operations) through
1998 1997 1996 December 31, 1995
-------- -------- ------- -------------------
<S> <C> <C> <C> <C>
Operating Data:
Total revenue.................. $595,410 $185,554 $76,493 $11,095
(Loss) income before income
tax, minority interests and
extraordinary item............ (3,404) 3,769 44,813 7,064
(Loss) income before
extraordinary item............ (14,328) 382 37,991 6,096
Net (loss) income.............. $(44,888) $ (2,152) $37,991 $ 5,359
Per Share Data (1):
Basic earnings per share:
Income (loss) before
extraordinary item.......... $ (0.30) $ 0.01 $ 0.84 $ 0.16
Extraordinary item, net of
minority interests.......... (0.22) (0.04) -- (0.02)
-------- -------- ------- -------
Net income (loss) per common
share....................... $ (0.52) $ (0.03) $ 0.84 $ 0.14
======== ======== ======= =======
Diluted (loss) earnings per
share (2)..................... $ (1.73) $ (0.03) $ 0.83 $ 0.14
======== ======== ======= =======
Dividends per common share
(3)........................... $ 2.0425 $ 1.0878 $0.9154 $0.2236
======== ======== ======= =======
</TABLE>
WYNHDAM INTERNATIONAL
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Operating Data:
Total Revenue....................................... $2,002,227 $204,134
(Loss) income before income tax provision, minority
interests and extraordinary item................... (77,826) 373
(Loss) before extraordinary item.................... (111,162) (20)
Net loss............................................ $ (112,419) $ (20)
Per Share Data (1):
Basic loss per share:
(Loss) before extraordinary item.................... $ (0.83) $ --
Extraordinary item, net of minority interest........ (0.01) --
---------- --------
Loss income per paired share........................ $ (0.84) $ --
========== ========
Diluted loss per share (2).......................... $ (0.84) $ --
========== ========
Dividend per common share........................... $ -- $ --
========== ========
</TABLE>
See accompanying notes on following page.
27
<PAGE>
Notes to Patriot and Wyndham Selected Financial Information
(1) On January 30, 1997, the Old Patriot Board of Directors declared a 2-
for-1 stock split effected in the form of a stock dividend 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 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 shareholders of record on July
15, 1997. All references herein to the number of shares, per share amounts and
market prices of the paired shares and options to purchase paired shares have
been restated to reflect the impact of the Cal Jockey Merger and the above-
described stock splits, as applicable.
In addition, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("Statement 128"). Statement 128 specifies the computation,
presentation and disclosure requirements for basic earnings per share and
diluted earnings per share. The earnings per share amounts presented herein
have been restated to reflect the impact of Statement 128.
On December 21, 1998, Patriot declared a stock dividend of $0.44 cents per
share of common stock for the fourth quarter ended December 31, 1998 (the
"Dividend"). The Dividend was payable on January 25, 1999 to shareholders of
record on December 30, 1998. Each shareholder received the option to receive
the Dividend in the form of additional paired shares or shares of Series B
Cumulative Perpetual Preferred Stock, par value $0.01 per share of Patriot.
Earnings per common share, weighted average shares outstanding and all stock
option activity have been restated to reflect the stock dividend.
(2) For 1998 the dilutive effect of unvested stock grants of 880,000 the
option to purchase common stock of 753,000 and shares issued in connection
with forward equity contracts of 2,507,000 and 6,613,000 preferred shares were
not included in the computation of diluted earnings per share for the year
ended December 31, 1998 because they are anti-dilutive. For 1997, the dilutive
effect of unvested stock grants of 804 and the option to purchase common stock
of 1,017,000 were excluded in the computation of diluted earnings per share
for the year ended December 31, 1997 because they are anti-dilutive.
(3) Dividends paid for the year ended December 31, 1997 include a special
dividend of $0.06 per share paid 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 shareholders 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 for the six months ended December 31,
1997.
(4) 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 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 of 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 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 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 to make capital
expenditures. See detailed FFO calculation on page 55.
(5) Cash available for distributions represents FFO, as adjusted for certain
non-cash items (e.g., non-real estate related depreciation and amortization),
less reserves for capital expenditures.
(6) The number of limited partnership units of the Operating Partnerships
("OP units") used in the calculation is based on the equivalent number of
paired shares issuable upon redemption (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).
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements with respect to future events, including, without
limitation, statements regarding availability of equity or debt financing, the
Companies' ability to successfully refinance or extend the maturity of
existing indebtedness, and the Companies' ability to successfully negotiate a
settlement to the forward equity contracts in this form 10-K constitute
"forward-looking statements" as that term is defined under (S)21E of the
Securities Exchange Act of 1934, as amended and the Private Securities
Litigation Reform Act of 1995. The words "believe", "expect", "anticipate",
"intend", estimate", and other expressions which are predictions of or
indicate future events and trends and which do not relate to historical
matters identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements and to note that
speak only as of the date hereof. Although forward-looking statements reflect
management's good faith beliefs, reliance should not be placed on forward-
looking statements because they involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or
achievement of the Companies to differ materially from anticipated future
results, performance or achievements expressed or implied by such forward-
looking statements. The Companies undertake no obligation to publicly update
or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Certain factors that might cause a
difference include, but are not limited to, risks associated with the
availability of equity or debt financing at terms and conditions favorable to
the Companies, the willingness of the Companies' existing lenders to
refinance, extend or amend the terms of existing indebtedness, the willingness
of the counterparties to the Companies' forward equity contracts to enter into
settlements regarding those agreements; the Companies' ability to effect sales
of assets on favorable terms and conditions; risks associated with the hotel
industry and real estate markets in general; and risks associated with debt
financing.
BACKGROUND
Organization
Patriot American Hospitality, Inc. ("Old Patriot") was formed April 17, 1995
as a self-administered real estate investment trust ("REIT"). The Virginia
corporation was formed for the purpose of acquiring equity interests in hotel
properties. On October 2, 1995, Patriot completed an initial public offering
of shares of common stock and commenced operations.
On July 1, 1997, Patriot merged with and into California Jockey Club, with
Cal Jockey being the surviving legal entity, hereinafter referred to as the
"Cal Jockey merger". Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company
("Bay Meadows") as a single unit pursuant to a stock pairing agreement. In
connection with the Cal Jockey merger, Cal Jockey changed its name to "Patriot
American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to
"Patriot American Hospitality Operating Company". Subsequent to year end, as a
result of the merger of Wyndham Hotel Corporation with and into Patriot as
discussed below, Patriot Operating Company changed its name to Wyndham
International, Inc. and is referred to herein, collectively with its
subsidiaries, as "Wyndham". The term "Companies" as used herein includes
Patriot, Wyndham and their respective subsidiaries.
The Cal Jockey merger has been accounted for as a reverse acquisition
whereby Cal Jockey is considered to be the acquired company for accounting
purposes. Consequently, the historical financial information of Old Patriot
became the historical financial information for Patriot. For accounting
purposes, Wyndham commenced its operations concurrent with the closing of the
Cal Jockey merger on July 1, 1997. The financial statements have been adjusted
for the purchase method of accounting whereby the Bay Meadows Racecourse
("Racecourse") facilities and related leasehold improvements owned by Cal
Jockey and Bay Meadows have been adjusted to estimated fair market value. The
excess purchase consideration over the estimated fair market value of the
assets acquired and the liabilities assumed was recorded as goodwill.
In connection with the Cal Jockey merger, Bay Meadows formed an operating
partnership, Patriot American Hospitality Operating Company Partnership, L.P.,
which subsequently changed its name to Wyndham Operating
29
<PAGE>
Partnership (the "Wyndham Partnership") into which Bay Meadows contributed its
assets in exchange for units of limited partnership interest ("OP units") of
the Wyndham Partnership, and Cal Jockey contributed certain of its assets to
Patriot American Hospitality Partnership, L.P. (the "Patriot Partnership") in
exchange for OP units of the Patriot Partnership (collectively, the Wyndham
Partnership and the Patriot Partnership are referred to herein as the
"Operating Partnerships"). Subsequent to completion of the Cal Jockey merger
and the transactions contemplated by the Cal Jockey Merger Agreement,
substantially all of the operations of Patriot and Wyndham have been conducted
through the Operating Partnerships and their subsidiaries.
In connection with the Cal Jockey merger, Patriot and Wyndham increased the
total number of shares authorized. The amounts of authorized shares of Patriot
and Wyndham are as follows: (i) 100 million shares of preferred stock, (ii)
650 million shares of common stock, and (iii) 750 million shares of excess
stock (as defined in the amended and restated charters of Patriot and
Wyndham).
Generally, Patriot owns and leases hotels to Wyndham, which is responsible
for managing a majority of the hotels. In order for Patriot to qualify as a
REIT under the Internal Revenue Code of 1986, Patriot leases a substantial
majority of its hotels to Wyndham or to other third party leasees who are
responsible for operating the hotels. The paired share structure facilitated
the Companies' strategy to become a fully-integrated, multi-brand, multi-
product, multi-tiered hotel operating company. Following the merger with and
into California Jockey Club and the creation of Patriot paired shares, the
Companies acquired major hotel operating companies and brands. Patriot's
ability to utilize the paired share structure was limited as a result of tax
legislation adopted in July 1998.
The Companies
As of December 31, 1998, Patriot and Wyndham, either directly or through the
Operating Partnerships and other subsidiaries, own interests in 178 hotels
with an aggregate of over 43,800 rooms (excluding hotels under development).
The Companies' portfolio consists of proprietary brand hotels including;
WyndhamSM, Wyndham Hotels & Resorts, Wyndham Garden Hotels(R), Wyndham Grand
Heritage(R), Grand Bay Hotels & Resorts, Summerfield Suites, Sierra Suites,
Malmaison and Clubhouse. These hotels are diversified by brand affiliation,
service level, price point and location and most serve primarily major U.S.
business centers, including Atlanta, Boston, Chicago, Cleveland, Dallas,
Denver, Houston, Los Angeles, Miami, Minneapolis, San Diego, San Francisco and
Seattle as well as the United Kingdom. Additionally, the Companies offer
luxury and upscale resort accommodations through its luxury Grand Bay brand
and its upscale Wyndham Resort product, situated in major tourist and
destination locations. As of December 31, 1999, the Companies proprietary
brand portfolio of owned hotels include 50 Wyndhams (including Wyndham
Resorts, Wyndham Grand Heritage and Wyndham Gardens Hotels), 6 Grand Bay, 5
Summerfield Suites, 4 Malmaison Hotels and 8 ClubHouse Inns.
Additionally, the Companies have 94 non-proprietary branded hotels which
consists of 87 full service hotels, and 3 resort hotels, 4 limited service
hotels. All but 5 of these hotels are operated under franchise or brand
affiliations with nationally recognized hotel companies, including
Marriott(R), Crowne Plaza(R), Hilton(R), Hyatt(R), Radisson(R), Holiday
Inn(R), Doubletree(R), Embassy Suites(R), Ramada(R), Four Points by
Sheraton(R), WestCoast(R), Hampton Inn(R), and Courtyard by Marriott(R).
The Companies also leases 121 hotels from third parties, manages 161 hotels
for independent owners and franchises 12 hotels. Additionally, the Companies
have 10 hotels under development which are expected to open in mid to late
1999. All of the leased hotels are managed by Wyndham or its subsidiaries with
39 franchised under proprietary brands of the Companies.
Patriot leases each of its hotels, except those hotels which are separately
owned through special purpose entities, to Wyndham or to third party lessees
who are responsible for operating the hotels. As of December 31, 1998, 203
owned and leased hotels were leased to Wyndham and its affiliates and 5 hotels
were leased to third party lessees. Certain hotel acquisitions were structured
without lessees and are managed directly by Wyndham
30
<PAGE>
or other third party operators. Wyndham manages 185 of its hotels through
certain of its hotel management subsidiaries and has entered into separate
management agreements with third party hotel operators to manage 18 of its
hotels.
Investments in Properties
During 1998, Patriot, through the Patriot Partnership and its subsidiaries,
invested approximately $234.1 million in the acquisition of four hotels with
over 1,700 guest rooms and the Golden Door Spa. These acquisitions were
financed primarily with funds drawn on the Companies' revolving credit
facility, the issuance of 53,989 OP units valued at approximately $1.5
million, the issuance of 390,335 paired shares valued at approximately $10.0
million, the assumption of approximately $80.1 million in mortgage debt.
Additionally, Patriot acquired an office building for approximately $33.9
million which is being converted into a hotel.
Businesses Acquired
During 1998, Patriot and Wyndham, either directly or through the operating
partnerships and their subsidiaries, invested over $4.5 billion in the
acquisition of hotels, management and other related businesses. These
acquisitions were financed primarily with funds drawn on the Companies' Credit
Facility as well as issuance of paired shares and OP units.
Wyndham Hotel Corporation
On January 5, 1998, Wyndham Hotel Corporation merged with and into Patriot,
with Patriot being the surviving corporation ("Wyndham merger").
Patriot, as a result of the Wyndham merger, acquired ownership of ten
Wyndham hotels and 14 ClubHouse hotels and leased such hotels to Wyndham.
Thirteen of the 14 hotel leases assumed by Patriot were sub-leased to Wyndham.
Wyndham's remaining 52 management and franchise contracts (excluding 16
Patriot hotels that Wyndham managed prior to the merger), the Wyndham and
ClubHouse proprietary brand names, and the Wyndham hotel management company
were transferred to certain non-controlled subsidiaries. The total purchase
consideration for the Wyndham merger was approximately $982.0 million. The
consideration consisted of: 21,594,137 paired shares; 4,860,876 shares of
Series A Convertible Preferred Stock of Patriot (which are convertible on a
one-for-one basis into paired shares); cash of approximately $339.0 million to
repay debt and pay Old Wyndham shareholders who elected to receive cash (which
was financed with funds drawn on Patriot's revolving credit facility); and the
assumption of approximately $59.1 million in debt.
In 1998, the Companies issued an aggregate 261,224 paired shares valued at
approximately $5.8 million in settlement of certain purchase price adjustment
arrangements related to Wyndham's acquisition of ClubHouse Hotels, Inc. prior
to the merger with Patriot.
WHG Casinos & Resorts, Inc. and related transactions
On January 16, 1998, a subsidiary of Wyndham merged with and into WHG
Casinos & Resorts Inc., with WHG being the surviving corporation, ("WHG
merger"). As a result of the WHG merger, Wyndham acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the partnership that owns the 389-room
El San Juan Hotel & Casino and a 23.3% interest in the partnership that owns
the 751-room El Conquistador Resort & Country Club, all of which are located
in Puerto Rico. In addition, Wyndham acquired a 62% interest in Williams
Hospitality Group, Inc., the management company for the three hotels and the
Las Casitas Village at the El Conquistador. A total of 5,004,690 paired shares
were issued in connection with the WHG merger and approximately $21.3 million
of debt was assumed, resulting in total purchase consideration of
approximately $159.4 million.
Effective March 1, 1998, Patriot acquired from unaffiliated third parties a
40% interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity
interest in the El Conquistador and a 38% interest in Williams
31
<PAGE>
Hospitality Group, Inc. for approximately $31.0 million in cash and issuance
of 1,818,182 paired shares valued at approximately $49.2 million and the
assumption of $169.6 million of debt.
On July 13, 1998, Patriot acquired the remaining minority interests held by
a third party in entities that own the El Conquistador and the El San Juan
Hotel & Casino for a total purchase price of approximately $3.9 million.
Wyndham owns the controlling general partner interest in the partnerships that
own the El San Juan Hotel & Casino and the El Conquistador. Wyndham also holds
voting control of Williams Hospitality Group, Inc. Therefore, the operating
results of these entities have been consolidated with those of Wyndham for
financial reporting purposes. During 1998, the El San Juan and El Conquistador
were converted to Wyndham Resorts.
Arcadian International Limited
In April 1998, Patriot announced the completion of its acquisition of all of
the issued and to-be-issued shares of Arcadian International Limited for 60
pence per share. Including the exercise of all outstanding options to purchase
shares, the assumption of debt and the acquisition of the remaining shares in
the Malmaison Group, the total transaction cost was approximately
(Pounds)185.9 million (approximately $308.7 million U.S. based on exchange
rates at the time of closing). As a result of the transaction, Patriot
acquired ten owned hotels located throughout England; one owned hotel in
Jersey; five owned and managed Malmaison Hotels; two resorts under development
in Tuscany, Italy and Paris, France; and the proprietary Malmaison brand name.
Patriot also acquired Arcadian's 50% partnership interest in the redevelopment
of the luxury Great Eastern Hotel in London, to be branded as a flagship
Wyndham Hotel and operated by Wyndham once the development has been completed.
The Arcadian Acquisition was financed through a short-term financing agreement
with PaineWebber Real Estate Services, Inc. for $160.0 million, at a rate
equal to the borrowing rate on Patriot's revolving credit facility. In
addition, Patriot assumed approximately $112.6 million of debt in connection
with the Arcadian Acquisition.
Interstate Hotels Company
On June 2, 1998, pursuant to an Agreement and Plan of Merger dated as of
December 2, 1997, as thereafter amended, between Patriot, Wyndham and
Interstate Hotels Company, Interstate merged with and into Patriot with
Patriot being the surviving company ("Interstate merger"). Pursuant to the
Interstate merger agreement, stockholders of Interstate could elect to convert
each of their shares of Interstate common stock into the right to receive
either (i) $37.50 in cash, subject to proration in certain circumstances, or
(ii) a number of paired shares of Patriot and Wyndham common stock based on an
exchange ratio of 1.341 paired shares for each share of Interstate common
stock not exchanged for cash.
As a result of the Interstate merger, Patriot acquired controlling interest
in, or ownership of, 42 hotels representing over 12,000 rooms; leases for 84
hotels representing over 10,100 rooms and management or service agreements for
82 hotels representing over 20,400 rooms located throughout the United States
and in Canada, the Caribbean and Russia. During 1998, the Companies converted
two hotels acquired in the Interstate merger to Wyndham Hotels.
The total purchase consideration for the Interstate merger of approximately
$2.1 billion consisted of 28,825,875 paired shares, cash of approximately
$525.4 million to pay Interstate shareholders who elected to receive cash,
approximately $787.1 million in debt assumed or refinanced by Patriot and
approximately $73.4 million to pay other transaction-related costs. In
addition, Interstate shareholders received rights to receive a cash
distribution of $0.3997 on each share of Interstate common stock that was
converted into paired shares, aggregating approximately $9.1 million.
SF Hotel Company, L.P.
On June 5, 1998, Patriot, through the Patriot Partnership, acquired all of
the partnership interests in SF Hotel Company, L.P. for approximately $298.9
million ("Summerfield acquisition"). The total purchase consideration for the
Summerfield acquisition consisted of approximately 3,223,795 OP units,
1,397,281 paired shares, cash of approximately $165.5 million and assumption
of debt in the amount of approximately $17.1 million. In addition,
32
<PAGE>
the purchase price is subject to future adjustment based on (i) the market
price of the paired shares through the end of 1998 (the "1998 Summerfield
adjustment") and (ii) achievement of certain performance criteria through 2000
for 24 managed hotels which were not open for business (or had recently
opened) as of the date of acquisitiion, and (iii) fulfillment of the
Companies' obligation to develop seven hotels. As a result of the Summerfield
acquisition, Patriot acquired four Summerfield Suites(R) hotels, leasehold and
management interests in 24 Summerfield Suites(R), Sierra Suites(R) and Sunrise
Suites hotels and management contracts and franchise interests for 12
additional Summerfield Suites(R) and Sierra Suites(R) hotels. Patriot has
leased or sub-leased 21 of these hotels to Wyndham. In addition, Patriot
acquired the development contracts for several additional hotels.
Effective January 15, 1999, an additional 1,311,709 OP units valued at
approximately $9.0 million were issued in connection with the Summerfield
acquisition as additional consideration pursuant to the purchase agreement in
satisfaction of the 1998 Summerfield adjustment.
CHC International Merger
On June 30, 1998, pursuant to an Agreement and Plan of Merger dated as of
September 30, 1997 between Patriot, Wyndham and CHCI ("CHCI merger"), the
hospitality-related business of CHCI merged with and into Wyndham with Wyndham
being the surviving company. CHCI's gaming operations were transferred to a
new legal entity prior to the CHCI merger and such operations were not a part
of the transaction. As a result of the CHCI merger, Wyndham, through its
subsidiaries, acquired the remaining 50% investment interest in GAH-II, L.P.,
the remaining 17 leases and 16 of the associated management contracts related
to the Patriot hotels leased by CHC Lease Partners, 8 third-party management
contracts, two third-party asset management contracts, the Grand Bay
proprietary brand name and certain other hospitality management assets. The
aggregate purchase price of the 17 leasehold interests was approximately $52.7
million, which is reflected as a cost of acquiring leaseholds in the
accompanying statements of operations of Wyndham for the year ended December
31, 1998.
By operation of the CHCI merger, all the issued and outstanding shares of
common stock, par value $0.005 per share, of CHCI and certain stock option
rights were exchanged for an aggregate of 1,781,173 shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham
and 1,781,181 shares of Series B Redeemable Convertible Preferred Stock, par
value $0.01 per share, of Wyndham. In addition, Wyndham assumed CHCI's
outstanding debt in the amount of approximately $16.6 million. During 1998,
the Companies converted 4 hotels acquired in the CHCI merger to proprietary
brand names.
In addition, on September 30, 2000 and September 30, 2002, Wyndham may be
obligated to pay the CHCI stockholders and a subsidiary of Wyndham may be
obligated to pay a Gencom-related entity additional consideration, in each
case based upon the performance of certain specific assets.
Other
In July 1998, Wyndham acquired an approximate 49% limited partnership
interest in a partnership with affiliates of Don Shula's Steakhouse, Inc., for
$1.5 million in cash and 156,272 of Preferred OP units of the Wyndham
Partnership which were valued at approximately $3.5 million.
During 1998, Patriot also re-acquired the leasehold interests for nine of
its hotels from the lessees and purchased certain license agreements for an
aggregate purchase price of approximately $11.7 million, which is reflected as
a cost of acquiring leaseholds in the accompanying statements of operations of
Patriot. The Companies issued 118,812 paired shares valued at $3.0 million and
paid cash of $8.7 million. Patriot has leased the hotels to Wyndham.
Asset Dispositions
During 1998, Patriot sold its interest in four hotel assets: Courtyard by
Marriott Hotel in Orange, Connecticut, Courtyard by Marriott Hotel in St.
Louis, Missouri, Residence Inn in Pittsburgh, Pennsylvania and the Courtyard
by Marriott in Westborough, Massachusetts, collectively hereinafter referred
to as the Fine Transaction, for a net purchase price of approximately $32.5
million. Patriot recognized no gain on sale or loss on sale of asset as a
result of the transaction. The assets were sold to an affiliate of an
independent member of the Board of Directors of Wyndham.
33
<PAGE>
Additionally in December 1998, Patriot sold its interest in three hotel
assets previously leased to NorthCoast Hotels LLC (an third party lessee of
Patriot); the WestCoast Roosevelt Hotel, and the WestCoast Gateway Hotel
located in Seattle, Washington and the WestCoast Wenatchee Hotel located in
Wenatchee, Washington to an affiliate of NorthCoast. Patriot received net cash
proceeds of approximately $23.7 million plus a mortgage note receivable in the
amount of $2.0 million. Patriot has also contracted with an affiliate of
NorthCoast to sell a fourth hotel; the WestCoast Long Beach Hotel and Marina
located in Long Beach, California for a total purchase price of approximately
$7.0 million. Patriot recognized a loss on sale of approximately $9.5 million
as a result of the sale of these assets. Upon completion of the sale, the
Companies will no longer have leases on owned hotels with third-party Lessees.
Stock Split and Stock Dividend
On January 30, 1997, the Board of Directors of Old Patriot declared a 2-for-
1 stock split on its shares of common stock effected in the form of a stock
dividend distributed on March 18, 1997 to shareholders of record on March 7,
1997.
On July 10, 1997, the respective Boards of Directors of Patriot and Wyndham
declared a 1.927-for-1 stock split on its shares of common stock effected in
the form of a stock dividend distributed on July 25, 1997 to shareholders of
record on July 15, 1997.
Unless otherwise indicated, all references herein to the number of shares,
per share amounts, and market prices of the common stock and options to
purchase common stock 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 to reflect the impact of the 1.927-
for-1 stock split. In addition, all references herein to the number of shares,
per share amounts, and market prices of the common stock and options to
purchase common stock related to periods prior to Old Patriot's 2-for-1 stock
split distributed in March 1997 have been restated to reflect the impact of
such stock split.
As a result of Old Patriot's 2-for-1 stock split in March 1997, the Cal
Jockey Merger and the 1.927-for-1 stock split in July 1997, the number of OP
Units outstanding and the OP Unit conversion factor has been adjusted to re-
establish a 1-for-1 exchange ratio of OP Units to common shares.
On December 22, 1998, Patriot declared a stock dividend of $0.44 cents per
share of common stock for the fourth quarter ended December 31, 1998 (the
"Dividend"). The Dividend was payable on January 25, 1999 to shareholders of
record on December 30, 1998. Each stockholder received the option to receive
the Dividend in the form of additional paired shares or shares of Series B
Cumulative Perpetual Preferred Stock, par value $0.01 per share of Patriot.
Earnings per common share, weighted average shares outstanding and all stock
option activity have been restated to reflect the stock dividend.
PATRIOT AMERICAN HOSPITALITY, INC.
Results of Operations: Year Ended December 31, 1998
Compared with Year Ended December 31, 1997
Patriot does not report segment disclosure under SFAS No. 131 since
Patriot's business is derived from leasing its hotels to its lessees and
receives only lease income. Patriot's management does not make distinctions in
income when reviewing Patriot's operating results.
Patriot's Participating Lease revenue from the Lessees (including Wyndham)
for the year ended December 31, 1997 increased 220% from $180,451,000 in 1997
to $578,029,000 in 1998. This increase is primarily due to the acquisition of
208 owned and leased hotel properties during 1998. Patriot owns and leases 208
hotel properties as of December 31, 1998 excluding 91 hotels that are
separately owned through special purpose entities. Interest and other income
increased from $5,103,000 in 1997 to $17,381,000 in 1998 which is primarily
attributable to the acquisition of hotel management and related businesses and
interest and dividend income earned on cash investments. Additionally for the
year ended December 31, 1998 and 1997, Patriot reported $5,594,000 and
$2,792,000, respectively of income related to the lease of the Racecourse
facility and land to Wyndham which has been reflected in participating lease
revenue.
34
<PAGE>
For the year ended December 31, 1998 as compared to the same period for
1997, Patriot experienced similar increases in expenses as a result of the
acquisition of hotels discussed above.
General and administrative expenses were $29,784,000 for the year ended
December 31, 1998, compared to $11,157,000 for 1997. General and
administrative expenses include the amortization of unearned stock
compensation of $7,622,000 for 1998 and $4,686,000 for 1997. Additionally,
Patriot incurred expenses of $2,455,000 in 1998 and $1,068,000 in 1997
associated with evaluating properties and companies to be acquired which were
ultimately not purchased.
Ground lease expense increased from $4,117,000 to $44,972,000 for the year
ended December 31, 1997 compared to the same period in 1998. The increase in
ground rent is attributed to the acquisition of third party lease agreements.
Real estate and personal property taxes and casualty insurance were
$55,352,000 for the year ended December 31, 1998, compared to $17,958,000 for
the year ended December 31, 1997.
Interest expense for the year ended December 31, 1998 was $245,205,000
compared to $51,000,000 in 1997. Patriot's outstanding debt obligations as of
December 31, 1998 and 1997 were approximately $3,612,076,000 and
$1,112,709,000, respectively. The primary components of interest expense for
the year ended December 31, 1998 are $162,667,000 of interest related to the
Revolving Credit Facility and Term Loans, $46,136,000 of interest on mortgage
notes, $24,900,000 of amortization of deferred financing costs and $23,614,000
of other interest related to other miscellaneous notes and commitments
payable. The primary components of interest expense for the year ended
December 31, 1997 are $36,312,000 of interest related to the Revolving Credit
Facility and Term Loan, $12,585,000 of interest on mortgage notes and the
other line of credit, $2,581,000 of amortization of deferred financing costs
and $2,084,000 of other interest related to other miscellaneous notes and
commitments payable. Additionally, Patriot capitalized interest totaling
$12,112,000 and $2,562,000 for the year ended December 31, 1998 and 1997,
respectively, associated with major renovations of certain hotel properties.
In connection with Patriot's acquisition of 9 leasehold interests and
certain license agreements in 1998 for hotels that Patriot owns, Patriot
recognized expense of $11,686,000 related to the cost of acquiring these
leasehold interests. In connection with Patriot's acquisition of eight
leasehold interests in 1997 for hotels that Patriot owns and leased to CHC
Lease Partners, Patriot recognized expense of $54,499,000 related to the cost
of acquiring these leasehold interests.
In connection with three treasury interest rate lock agreements to protect
the Companies against the possibility of rising interest rates. Under the rate
lock agreements, Patriot received or made payments based on the difference
between specified interest rates, 6.06%, 6.07% and 5.62%, and the actual 10-
year U.S. Treasury interest rate on a principal amount of $525,000,000.
Patriot settled the entire $525,000,000 in treasury interest rate locks
resulting in a $49,334,000 one-time charge to earnings in 1998.
In connection with the sale of three assets in 1998, Patriot recognized loss
on sale of assets of $9,453,000 based on the excess book value over cash
proceeds received in the sale.
In connection with SFAS No. 121, when management identifies an asset held
for sale a fair value is estimated. If the fair value of the asset is less
than the carrying amount, a reserve for impairment is established. For year
ended December 31, 1998, Patriot recognized approximately $27,897,000 of
impairment losses related to assets held for sale.
Depreciation and amortization expense was $161,857,000 for the year ended
December 31, 1998, compared to $49,069,000 for the same period in 1997.
35
<PAGE>
Patriot's share of income from unconsolidated subsidiaries was $36,726,000
for the year ended December 31, 1998, compared to $6,015,000 in 1997. For the
year ended December 31, 1998 as compared to the same period for 1997, Patriot
experienced similar increases in income from unconsolidated subsidiaries as a
result of the acquisition of hotels discussed above.
Minority interest share of income in the Patriot Partnership was $98,000 and
$1,713,000 for the year ended December 31, 1998 and 1997, respectively.
Minority's interest share of income in Patriot's other consolidated
subsidiaries was $8,084,000 in 1998 and $1,674,000 in 1997.
In connection with the Wyndham merger, the Interstate merger and Summerfield
acquisition, Patriot repaid certain debt obligations of Old Wyndham,
Interstate and Summerfield. As a result, Patriot incurred prepayment penalties
and wrote-off the remaining balance of unamortized deferred financing costs
associated with such debt in the amount of $30,560,000, net of minority
interest share of the net loss, has been reported as an extraordinary item.
Concurrent with the repayment of the old credit facility, Patriot wrote off
the remaining balance of unamortized deferred financing costs associated with
the Old Line of Credit in the amount of $2,534,000. This amount, net of
minority interest share of the net loss, has been reported as an extraordinary
item.
As a result, net loss was $44,888,000 for the year ended December 31, 1998,
compared to net loss of $2,152,000 for the year ended December 31, 1997.
Results of Operations: Year Ended December 31, 1997
Compared with Year Ended December 31, 1996
Patriot's Participating Lease revenue from the Lessees (including Wyndham)
for the year ended December 31, 1997 increased 137.7% from $75,893,000 in 1996
to $180,451,000 in 1997. This increase is primarily due to the acquisition of
45 hotel properties during 1997. Patriot owns 91 hotel properties as of
December 31, 1997 including two hotels that are separately owned through
special purpose entities. Interest and other income increased from $600,000 in
1996 to $5,103,000 in 1997 which is primarily attributable to additional
investments in mortgage notes receivable and interest and dividend income
earned on cash investments. Additionally for the year ended December 31, 1997,
Patriot reported $2,792,000 of income related to the lease of the Racecourse
facility and land to Wyndham.
For the year ended December 31, 1997 as compared to the same period for
1996, Patriot experienced similar increases in expenses as a result of the
acquisition of hotels discussed above.
General and administrative expenses were $11,157,000 for the year ended
December 31, 1997, compared to $4,500,000 for 1996. General and administrative
expenses include the amortization of unearned stock compensation of $4,686,000
for 1997 and $1,068,000 for 1996. Additionally, Patriot incurred expenses of
$1,068,000 in 1997 and $173,000 in 1996 associated with evaluating properties
and companies to be acquired which were ultimately not purchased.
Ground lease expense increased from $1,075,000 to $4,117,000 for the year
ended December 31, 1996 compared to the same period in 1997.
Real estate and personal property taxes and casualty insurance were
$17,958,000 for the year ended December 31, 1997, compared to $7,150,000 for
the year ended December 31, 1996.
Interest expense for the year ended December 31, 1997 was $51,000,000
compared to $7,380,000 in 1996. Patriot's outstanding debt obligations as of
December 31, 1997 and 1996 were approximately $1,112,709,000 and $214,339,000,
respectively. The primary components of interest expense for the year ended
December 31, 1997 are $36,312,000 of interest related to the Credit Facility
and Term Loan, $12,585,000 of interest on mortgage notes and the Old Line of
Credit, $2,581,000 of amortization of deferred financing costs and $2,084,000
of other interest related to other miscellaneous notes and commitments
payable. Interest expense for
36
<PAGE>
the year ended December 31, 1996 consists primarily of $6,846,000 of interest
on the Old Line of Credit, $431,000 of amortization of deferred financing
costs and $194,000 of other interest related to other miscellaneous notes and
commitments payable. Additionally, Patriot capitalized interest totaling
$2,562,000 and $91,000 for the year ended December 31, 1997 and 1996,
respectively, associated with major renovations of certain hotel properties.
In connection with Patriot's acquisition of eight leasehold interests in
1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot
recognized expense of $54,499,000 related to the cost of acquiring these
leasehold interests.
Depreciation and amortization expense was $49,069,000 for the year ended
December 31, 1997, compared to $17,420,000 for the same period in 1996.
Patriot's share of income from unconsolidated subsidiaries was $6,015,000
for the year ended December 31, 1997, compared to $5,845,000 in 1996.
Minority interest share of income in the REIT Partnership was $1,713,000 and
$6,767,000 for the year ended December 31, 1997 and 1996, respectively.
Minority's interest share of income in Patriot's other consolidated
subsidiaries was $1,674,000 in 1997 and $55,000 in 1996.
Concurrent with the repayment of the Old Line of Credit, Patriot wrote off
the remaining balance of unamortized deferred financing costs associated with
the Old Line of Credit in the amount of $2,534,000. This amount, net of
minority interest share of the net loss, has been reported as an extraordinary
item.
As a result, net loss was $2,152,000 for the year ended December 31, 1997,
compared to net income of $37,991,000 for the year ended December 31, 1996.
Results of Operations: Year Ended December 31, 1996
Compared with the Period October 2, 1995 (inception of operations) through
December 31, 1995
Old Patriot completed its initial public offering of common stock on October
2, 1995 and commenced operations with the acquisition of 20 hotels. Because
1995 was a short fiscal year for Patriot, the operating results for the year
ended December 31, 1996 are not directly comparable to 1995. For the year
ended December 31, 1996, Patriot's Participating Lease revenue from the
Lessees was $75,893,000, compared $10,582,000 in 1995. Interest and other
income was $600,000 for the year ended December 31, 1996, compared to $513,000
in 1995. In 1995, interest and other income consisted primarily of interest
earned on invested cash balances resulting from the net proceeds of the
initial public offering.
For the year ended December 31, 1996 as compared to the period October 2,
1995 (inception of operations) through December 31, 1995, Patriot experienced
similar increases in expenses as a result of the short fiscal year for Patriot
in 1995, as discussed above.
General and administrative expenses were $4,500,000 for the year ended
December 31, 1996, compared to $607,000 for 1995. General and administrative
expenses include the amortization of unearned stock compensation of $1,068,000
for 1996 and $71,000 for 1995.
Ground lease expense totaled $1,075,000 in 1996 (none in 1995). Real estate
and personal property taxes and insurance was $7,150,000 for 1996, compared to
$901,000 for 1995
Patriot reported $7,380,000 of interest expense for the year ended December
31, 1996, compared to $89,000 in 1995. Patriot's outstanding debt obligations
as of December 31, 1996 and 1995 were approximately $214,339,000 and
$9,500,000, respectively. Interest expense in 1996 consisted primarily of
$6,755,000 of interest incurred on the Revolving Credit Facility, the Old Line
of Credit and mortgage note balances outstanding and
37
<PAGE>
$431,000 of amortization of deferred financing costs. Interest expense in 1995
consisted of $62,000 of interest incurred on the Old Line of Credit balance
and $27,000 of amortization of deferred financing costs.
Depreciation and amortization expense was $17,420,000 for 1996, compared to
$2,590,000 for 1995.
Patriot's share of income from unconsolidated subsidiaries was $5,845,000 in
1996, compared to $156,000 in 1995.
Minority interest's share of income of the REIT Partnership was $6,767,000
for the year ended December 31, 1996, compared to $968,000 in 1995. Minority
interest's share of income of other consolidated Patriot subsidiaries was
$55,000 for 1996 (none in 1995).
Patriot reported extraordinary losses in 1995 totaling $737,000 (net of the
minority interest share of the loss) related to the pay-off of assumed
mortgage debt on hotel properties acquired.
As a result, net income was $37,991,000 for the year ended December 31,
1996, compared to net income of $5,359,000 for the period October 2, 1995
(inception of operations) through December 31, 1995.
WYNDHAM INTERNATIONAL, INC.
Results of Operations: Six Months Ended June 30, 1998
Concurrent with the closing of the Cal Jockey Merger, Wyndham began leasing
four hotels from the REIT Partnership and commenced its hotel management
operations on July 1, 1997. During the remainder of the period Wyndham
acquired the leases for 51 additional Patriot hotels. In addition, Wyndham
acquired the hotel management operations of Grand Heritage Hotels, Inc. and an
approximate 50% controlling ownership interest in GAH.
For the six months ended June, 1998, Wyndham had room revenues of
$439,157,000 from the hotels it leased and through special purpose entities
during the period. The room revenue is based on leased hotels as of June 30,
1998. Food and beverage and telephone and other revenues was $273,496,000 in
1998. In addition, Wyndham reported management fee and service fee income of
$37,249,000 for the six months ended June 30, 1998. Interest and other income
for the six months ended June 30, 1998 was $7,337,000.
General and administrative expenses for the six months ended June 30, 1998
were $27,806,000.
Participating lease payments and hotel operating expenses were $216,262,000
and $454,483,000 in 1998.
Interest expense for the six months ended June 30, 1998 was $13,798,000.
Depreciation and amortization expense was $25,236,000 for the six months
ended December 31, 1998.
Total revenues from the Racecourse facility operations (including interest
and other income) were $24,991,000 for the six months ended June 30, 1998.
Total costs and expenses associated with the Racecourse operations (including
marketing costs, general and administrative expenses and depreciation and
amortization expenses) were $20,857,000 in 1998.
Equity in earnings of unconsolidated subsidiaries was $2,014,000 for the six
months ended December 31, 1998. Minority interest's share of loss in the
Wyndham Partnership was $6,715,000 for the six months ended June 30, 1998.
Minority interest's share of income in Wyndham's other consolidated
subsidiaries was $16,361,000 in 1998.
Wyndham acquired 17 leaseholds of hotels owned by Patriot during the six
months ended June 30, 1998 resulting in cost of acquiring leaseholds of
approximately $52,721,000.
As a result, the net loss was $40,651,000 for the six months ended June 30,
1998.
38
<PAGE>
Results of Operations: Six Months Ended December 31, 1998
Compared with Six Ended December 31, 1997
As of December 31, 1998, Wyndham leases 203 hotels from Patriot, managing
185 of those hotels, and manages 163 hotels for third parties.
For the six months ended December 31, 1998 and 1997, Wyndham had room
revenues of $736,113,000 and $95,095,000, respectively, from the hotels it
leased during the period. The increase in room revenue is a result of leasing
203 hotel in 1998 compared to 55 hotels in 1997. Food and beverage and
telephone and other revenues increased from $72,632,000 in 1997 to
$393,916,000 in 1998, as a result of the increase in leased hotels. In
addition, Wyndham reported management fee and service fee income of
$52,734,000 and $7,088,000 for the six months ended December 31, 1998 and
1997, respectively. Interest and other income for the increased from
$2,975,000 for the six months ended December 31, 1997 to $10,966,000 for the
same period in 1998. Interest and other income includes $5,172,000 and
$1,103,000 of interest income related to the Subscription Notes for the six
months ended December 31, 1998 and 1997, respectively.
In connection with the CHCI merger, Wyndham acquired 17 leasehold interest
for hotels that Patriot owns. As a result, Wyndham recognized expense of
$52,721,000 related to the cost of acquiring the leaseholds.
In connection with SFAS No. 121, when management identifies an asset held
for sale, a fair value is estimated. If the fair value of the asset is less
than the carrying amount, a reserve for impairment is established. For the
year ended December 31, 1998, Wyndham recognized approximately $23,184,000 of
impairment losses related to assets held for sale.
Participating Lease payments and hotel operating expenses were $303,327,000
and $797,065,000, respectively for 1998 compared to participating lease
payments and hotel operating expenses of $50,626,000 and $118,317,000, in
1997, respectively.
Total revenues from the Racecourse facility operations (including interest
and other income) were $26,268,000 for the six months ended December 31, 1998
and $26,344,000 for the six months ended December 31, 1997. Total costs and
expenses associated with the Racecourse operations (including marketing costs,
general and administrative expenses and depreciation and amortization
expenses) were $22,341,000 in 1998 and $24,245,000 for the same period in
1997.
Wyndham's share of income from unconsolidated subsidiaries was $3,134,000
resulting from the acquisition of hotels discussed above.
Minority interest's share of loss in the Wyndham Partnership was $6,035,000
and $29,000 for the six months ended December 31, 1998 and 1997, respectively.
Minority interest's share of income (loss) in Wyndham's other consolidated
subsidiaries was $15,344,000 and $(59,000) in 1998 and 1997, respectively.
In connection with the refinancing of debt obligations for certain
transactions, Wyndham recognized $1,257 as an extraordinary item for the write
off of unamortized deferred financing costs.
As a result, the net loss was $71,768,000 for the six months ended December
31, 1998 and $20,000 for the six months ended December 31, 1997.
Results of Reporting Segments: For the year ended December 31, 1998
Compared with the year ended December 31, 1997
Patriot and Wyndham manage the business in six reportable segments. Those
segments include Wyndham hotels, resort properties, all suite properties,
other proprietary branded properties, non-proprietary branded properties and
other.
39
<PAGE>
Wyndham hotels represent approximately 29.7% and 3.2% of total revenue for
1998 and 1997, respectively. Total revenue was $610,523,000 for the year ended
December 31, 1998 compared to $10,711,000 in 1997. The increase is primarily
due to the additional lease agreements entered into with Patriot as a result
of the acquisition of hotels and mergers in 1998. Operating income for the
Wyndham hotels was $153,723,000 for the year ended December 31, 1998 compared
to $2,388,000 for 1997. Resort properties including Grand Bay and Wyndham,
represent approximately 15.4% and 9.1% of total revenue for 1998 and 1997,
respectively. Total revenue was $315,674,000 for the year ended December 31,
1998 compared to $30,334,000 in 1997. The increase is primarily due to the
additional lease agreements entered into with Patriot as a result of the
acquisition of hotels and mergers in 1998. Operating income for the resort
properties was $76,349,000 for the year ended December 31, 1998 compared to
$6,628,000 for 1997. All suite properties including Summerfield and Sierra,
represent approximately 3.6% of total revenue for 1998. Patriot acquired these
properties in 1998 and leased them to Wyndham. Total revenue was $74,333,000
for the year ended December 31, 1998 and operating income was $14,690,000 in
1998. Other proprietary branded properties including Malmaison, Grand Heritage
Clubhouse and hotels acquired in the Arcadian acquisition, represent
approximately 3.9% and 2.9% of total revenue for 1998 and 1997, respectively.
Total revenue was $80,998,000 for the year ended December 31, 1998 compared to
$9,595,000 in 1997. The increase is primarily due to the additional lease
agreements entered into with Patriot as a result of the acquisition of hotels
and mergers in 1998. Operating income for these properties was $26,492,000 for
the year ended December 31, 1998 compared to $1,436,000 for 1997. Non-
proprietary branded properties including Hampton, Hilton, Holiday Inn,
Marriott, Ramada, Radisson and other major hotel franchises, represent
approximately 37.0% and 34.4% of total revenue for 1998 and 1997,
respectively. Total revenue was $761,154,000 for the year ended December 31,
1998 compared to $115,223,000 in 1997. The increase is primarily due to the
additional lease agreements entered into with Patriot as a result of the
acquisition of hotels and mergers in 1998. Operating income for these
properties was $183,703,000 for the year ended December 31, 1998 compared to
$29,947,000 for 1997. Other represents revenue from various operating
businesses including Bay Meadows racetrack, management and other service
companies as well as participating lease revenue for those hotels lease to
third parties. Total revenue for the other segment was $213,659,000 and
$169,172,000 for the years ended December 31, 1998 and 1997, respectively. The
increase in total revenue is as a result of a full year of operations
reflected in 1998 compared to six months of operations in 1997. Operating loss
of the other segment was $576,963,000 for the year ended December 31, 1998
compared to $42,272,000. The increase in operating loss is as a result of
certain usual items related to a treasury lock settlement of $49,334,000 and
the cost of reacquiring lease holds of $52,721,000. Additionally, the
operating loss has increased due to an increase in interest expense as a
result of increased borrowings due to acquisitions and mergers in 1998.
Depreciation and amortization have also increased as a result of the 1998
acquisitions and mergers.
40
<PAGE>
Statistical Information
During 1998, Patriot's and Wyndham's portfolio of 178 owned hotels
experienced strong growth in both average daily rate ("ADR") and revenue per
available room ("REVPAR") of approximately 6.2% and 6.3%, respectively, while
occupancy remained relatively stable. Management attributes this growth to
continued marketing efforts throughout the portfolio on hotels that have been
newly renovated, and repositioned in certain cases, as well as to the current
strength of market conditions in the U.S. lodging industry. The following
table sets forth certain statistical information for the Companies' 178 owned
hotels as of December 31, 1998 and 1997 as if the hotels were owned at the
beginning of the periods presented.
<TABLE>
<CAPTION>
Occupancy ADR REVPAR
------------ --------------- ---------------
1998 1997 1998 1997 1998 1997
----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Wyndham Branded Hotels.......... 70.50% 70.80% $119.57 $112.32 $ 84.35 $ 79.54
Grand Bay Hotels & Resorts...... 67.00 70.50 287.30 266.64 192.52 187.86
Summerfield Suites.............. 79.70 74.20 129.42 123.01 103.17 91.27
Malmaison....................... 83.50 75.40 125.65 117.27 104.89 88.44
Clubhouse....................... 66.40 71.50 68.07 65.75 45.23 47.01
Arcadian........................ 68.80 63.80 142.67 128.43 98.10 81.92
Non Proprietary -- Limited
Service........................ 67.80 74.10 74.57 65.87 50.54 48.83
Non Proprietary Brands.......... 71.70 71.20 99.59 94.29 71.39 67.16
----- ----- ------- ------- ------- -------
Weighted average............... 71.10% 71.00% $109.94 $103.53 $ 78.15 $ 73.55
</TABLE>
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided by Operating Activities
The Companies' principal source of cash to fund operating expenses and
distributions to its shareholders is cash flow provided by operating
activities. Patriot's principal source of revenue is rent payments from the
Lessees and Wyndham under the Participating Leases. Wyndham's principal source
of cash flow is from the operation of the hotels it leases and manages.
Wyndham's ability to make the rent payments to Patriot is dependent upon their
ability to efficiently manage the hotels and generate sufficient cash flow
from operation of the hotels.
Combined cash and cash equivalents as of December 31, 1998 were $158.9
million, including restricted cash of $35.9 million. Combined cash flows from
operating activities of the Companies were $244.5 million for the year ended
December 31, 1998, which represent a combination of the collection of rents
under participating leases with third party Lessees and cash flows generated
by the hotels operated by Wyndham.
Cash and cash equivalents as of December 31, 1997 were $47.4 million,
including capital improvement reserves of $5.0 million. Cash flows from
operating activities were $108.1 million for the year ended December 31, 1997,
which primarily represent the collection of rents under participating leases.
Cash and cash equivalents as of December 31, 1996 were $6.6 million,
including capital improvement reserves of $2.5 million. Cash flows from
operating activities were $61.2 million for the year ended December 31, 1996,
which primarily represent the collection of rents under participating leases.
Cash Flows from Investing and Financing Activities
During 1998, the Companies continued to experience rapid growth through the
merger and acquisition of hotel properties and management companies. These
transactions were funded with a combination of issuance and or assumption of
debt as well as sale of registered and unregistered securities.
Combined cash flows used in investing activities of the Companies were $2.1
billion for the year ended December 31, 1998, resulting primarily from the
merger and acquisition of hotel properties and management
41
<PAGE>
companies and the renovation expenditures at certain hotels. Combined cash
flows from financing activities of $1.9 billion for the year ended December
31, 1998 were primarily related to borrowings on the Credit Facility, the term
loans and mortgage notes and net proceeds from public and private placement of
equity securities, net of payments of dividends and distributions.
Combined cash flows used in investing activities of the Companies were $1.2
billion for the year ended December 31, 1997, resulting primarily from the
merger and acquisition of hotel properties and management companies and the
renovation expenditures at certain hotels. Combined cash flows from financing
activities of $1.1 billion for the year ended December 31, 1997 were primarily
related to borrowings on the Credit Facility, the Term Loan and mortgage notes
and net proceeds from public and private placement of equity securities, net
of payments of dividends and distributions.
Patriot's cash flows used in investing activities were $419.7 million for
the year ended December 31, 1996, resulting primarily from the acquisition of
hotel properties. Cash flows from Patriot's financing activities of $360.3
million for the year ended December 31, 1996 were primarily related to
borrowings on the Old Line of Credit and net proceeds from public and private
placement of equity securities, net of payments of dividends and
distributions.
In June 1998 in connection with the Interstate merger, the Companies closed
on the commitment from The Chase Manhattan Bank and Chase Securities, Inc. and
Paine Webber Real Estate Securities, Inc. to increase Patriot's existing
credit facilities to an aggregate of $2.7 billion (an increase of $1.5 billion
from the prior $1.25 billion credit package). The increased credit facilities
include the $900 million revolving credit facility ("Credit Facility") and a
series of term loans in the aggregate amount of up to $1.8 billion (the "Term
Loans"). Proceeds from the increased credit facilities were used to fund the
cash portion of the Interstate merger consideration, as well as to refinance
certain outstanding indebtedness of the Patriot Companies. Interest rates will
be based on the Companies' leverage ratio and may vary from 1.5% to 2.5% over
LIBOR. As of December 31, 1998 the effective rate of interest was 7.314% for
all borrowings under the credit facility except for Tranche B which was
7.564%. Patriot incurred approximately $27.4 million in loan fees and other
expenses associated with this financing arrangement.
As of December 31, 1998, the Companies had no additional availability under
the Credit Facility. The weighted average interest rate in effect for the
Credit Facility for the period ended December 31, 1998 was 7.90% per annum. As
of December 31, 1998, there was $875.6 million outstanding under the Credit
Facility. Additionally, Patriot had outstanding letters of credit totaling
$24.4 million as of December 31, 1998.
The Credit Facility matures July 2000. The Term Loans had maturities of
January 31, 1999 ($350 million); March 31, 1999 ($400 million); March 31, 2000
($450 million); and March 31, 2003 ($599 million).
Agreements Relating to Existing Credit Facility
Patriot and Wyndham's existing credit facility with The Chase Manhattan
Bank, Chase Securities, Inc. and PaineWebber Real Estate consists of a $900
million revolving credit facility and a series of term loans in the aggregate
amount of $1.8 billion. Interest rates on the existing Credit Facility are
based on Patriot's and Wyndham's leverage ratio and vary from 1.5% to 2.5%
over LIBOR. Under the original terms of the Credit Facility, two of the Term
Loans matured on January 31, 1999 $350 million and March 31, 1999 $400
million, respectively. All of the lenders under the Credit Facility have
agreed to extend maturity of these two terms loans to June 30, 1999, subject
to Patriot and Wyndham consummating the Investment by that date. If we do not
consummate the Investment by June 30, 1999, or the agreement with the Investor
Group otherwise terminates, the maturity on these two term loans will be
extended to March 31, 2000 and the Companies will be required to secure the
Credit Facility with mortgages and other security interest. Fees of $11.7
million have been paid to the lenders under the Credit Facility in connection
with their agreement to extend the maturities of the term loans to June 30,
1999.
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<PAGE>
As of March 22, 1999, the Companies have entered into four interest rate
swap arrangements to swap floating rate LIBOR-based interest rates for fixed
rate interest amounts as a hedge against $822 million of the outstanding
balance on the Credit Facility. The interest rate swaps cover borrowings under
the Credit Facility and related Term Loans and fixes the LIBOR portion of the
Credit Facility and Term Loans interest rate at 5.80%, 6.255% (as amended),
5.84%, and 5.56% respectively. The interest rate swap arrangements expire
December 2000 ($72 million), November 2002 ($375 million), November 2002 ($125
million) and June 2003 ($250 million). If the actual LIBOR rate is less than
the specified fixed interest rate, Patriot is obligated to pay the
differential interest amount, such amount being recorded as incremental
interest expense. If the LIBOR is greater than the specified fixed interest
rate, the differential interest amount is refunded to Patriot.
The Companies have entered into two additional interest rate swap
arrangements to swap floating rate LIBOR-based interest rates for a fixed rate
interest amount as a hedge against $51 million of the outstanding balance on
specific property related debt. The interest rate swap fixes the LIBOR portion
of the debt interest rate at 5.31% per annum through January 2000 ($20
million) and 5.42% per annum through March 2001 ($31 million). If the actual
LIBOR rate is less than the specified fixed interest rate, Patriot is
obligated to pay the differential interest amount, such amount being recorded
as incremental interest expense. If the LIBOR is greater than the specified
fixed interest rate, the differential interest amount is refunded to Patriot.
As of March 22, 1999, Patriot has six interest rate cap arrangements as
follows: an interest rate cap that limits LIBOR to 6% on up to $105 million of
indebtedness through June 1999; an interest rate cap that limits LIBOR to 7%
on up to $208.8 million of indebtedness through October 1999; an interest rate
cap that limits LIBOR to 7% on up to $1.5 billion of indebtedness through
April 2000; an interest rate cap that limits LIBOR to 8.5% on up to $29.1
million of indebtedness through August 2004; an interest rate cap that limits
LIBOR to 7.83% on up to $38 million of indebtedness through October 2001; and
an interest rate cap that limits LIBOR to 6.75% on up to $19.5 million of
indebtedness through March 2001.
Securities Purchase Agreement
Investment
As of February 18, 1999, Patriot, Wyndham, Patriot Partnership, Wyndham
Partnership and affiliates of each of Apollo Real Estate Management III, L.P.,
Apollo Management IV, L.P., Thomas H. Lee Equity Fund IV, L.P., Beacon Capital
Partners, L.P. and Rosen Consulting Group, entered into a purchase agreement
under which the investors will purchase $1 billion of a new series B preferred
stock of Wyndham. Patriot and Wyndham currently plan to use the proceeds from
the investment to settle their forward equity contracts, as described above,
to repay indebtedness, and for working capital and growth purposes.
Wyndham will pay dividends on its series B preferred stock quarterly, on a
cumulative basis, at a rate of 9.75% per year. For the first six years,
dividends will be payable partly in cash and partly in additional shares of
preferred stock, with the cash component initially equal to 30% for the first
dividend payment and declining over the period to approximately 19.8% for the
final dividend payment. Each share of series B preferred stock may be
converted, at the option of its holder, into that number of shares of Wyndham
common stock equal to $100.00 divided by the conversion price of the series B
preferred stock. Initially the conversion price will be $8.59, but is subject
to adjustment under certain circumstances.
Restructuring
Under the terms of the purchase agreement, relating to the $1 billion equity
investment, Patriot and Wyndham are required to complete a restructuring of
their existing paired share REIT structure prior to the investment. Under the
terms of the restructuring, the following events will occur:
. A reverse stock split of the common stock of Wyndham and Patriot.
. A wholly-owned subsidiary of Wyndham will merge with and into Patriot
with Patriot surviving.
. The pairing agreement between Patriot and Wyndham will terminate.
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. Patriot will terminate its status as a real estate investment trust
effective January 1, 1999.
. The non-voting stock of specified corporate subsidiaries held by the
Patriot Partnership will be transferred, and subsequently will be
owned directly by Patriot and/or Wyndham, rather than through the
Patriot Partnership.
. The third party partners in both the Patriot Partnership and the
Wyndham Partnership will be offered an opportunity to exchange their
limited partner interests for Wyndham common stock.
. The preferred stockholders of Wyndham will be offered an opportunity
to exchange their preferred stock for Wyndham common stock.
Reverse Stock Split
Prior to the merger of a subsidiary of Wyndham into Patriot, both Wyndham
and Patriot will implement a one-for-twenty reverse stock split of their
common stock.
Redemption Option
For a period of 170 days following the completion of the $1 billion equity
investment, Wyndham may redeem up to $300 million of the series B preferred
stock at a redemption price of $102.00 per share (102% of the stated amount
$100.00) plus all accrued dividends. Wyndham currently plans to fund this
redemption through the issuance of $300 million of series A preferred stock to
its stockholders. The series A preferred stock has the same economic terms as
the series B preferred stock.
Liquidity
As a condition of the $1 billion equity investment, the Companies are
required to restructure their existing organization. As discussed above, the
pairing agreement between Wyndham and Patriot will terminate, Patriot's status
as a REIT will terminate effective January 1, 1999 and Patriot will become a
taxable corporation at that date. As a result of that transaction, the Company
will be required to record a charge for deferred income taxes for the
difference between the income tax basis and the recorded carrying value of
assets and liabilities. The Company is continuing its analysis of the expected
effects of this non-cash charge. Currently the estimate is in the range of
$700 million, however; this amount could vary when the analysis is completed.
In addition, the Company will charge off the value of an intangible asset
associated with the paired share structure of approximately $84.2 million.
In the event that the equity and related debt transaction referred to above
are not completed, management has determined that additional capital would
have to be raised from other sources or the Companies would have to sell
significant amounts of assets to produce proceeds sufficient to meet its
existing current debt maturity obligations. These asset sales could include
resort properties or Wyndham-managed properties in major cities and could
negatively impact operations. Management believes these alternatives, if
necessary, represent a viable plan to address Company's liquidity needs.
New Debt Financing
New Credit Facility. Patriot has recently signed a commitment letter with
Chase Securities Inc. and The Chase Manhattan Bank for senior credit
facilities for Wyndham in the amount of $1.8 billion, comprised of a term loan
facility and a revolving loan facility. Definitive agreements relating to the
new credit facility are expected to be finalized at the same time that the
$1 billion equity investment is consummated. The Chase Manhattan Bank will act
as the administrative agent and Chase Securities Inc. will act as the lead
arranger for a syndicate of lenders which will provide Wyndham with $1 billion
in term loans and up to $800 million under the revolving loan facility, of
which a maximum of $560 million may be drawn at the closing of the investment.
The term loan facility and the revolving facility carry terms of 7 years and 5
years, respectively. Interest rates for the new credit facility are based upon
LIBOR spreads varying from 1.25% to 3.00% per annum (for the revolving loan
facility) and 2.75% to 3.75% per annum (for the term loan facility), based
both on Wyndham's leverage ratio and on whether any increasing rate loans
(described below) are outstanding. However, at
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Wyndham's election or under other specified circumstances, the term loans and
revolving loans may instead bear interest at an alternative base rate plus the
applicable spread. The alternative base rate is equal to the greater of The
Chase Manhattan Bank's prime rate or federal funds rate plus 0.5%, and the
alternative spread is 1.0% below the applicable LIBOR spread. Subject to
limited agreed-upon exceptions, the New Credit Facility will be guaranteed by
the domestic subsidiaries of Wyndham, and will be secured by pledges of equity
interests held by Wyndham and its subsidiaries. The proceeds from the term loan
facility will be used to finance the restructuring of Wyndham and Patriot. The
proceeds from the revolving loan facility will be used for working capital and
general corporate purposes.
Increasing Rate Loans. Wyndham and Patriot have signed a commitment letter
with The Chase Manhattan Bank, Chase Securities Inc., Bear, Stearns & Co. Inc.,
and The Bear Stearns Companies Inc. providing that The Chase Manhattan Bank,
The Bear, Stearns Companies Inc. and a possible syndicate of other lenders will
provide an increasing rate loan facility in the amount of up to $650 million.
The IRL carries a term of 5 years. Interest rates for the IRL are based on
LIBOR spreads and are initially set at 0.25% below the initial LIBOR spread on
the term loan facility, but increase by 0.50% every three months, with a cap of
LIBOR plus 4.75%. However, under other specified circumstances, interest
accrues at an alternate rate equal to the rate borne by three-month treasury
securities plus 1.0%, plus the applicable spread. The lenders under the IRL
receive the benefit of the same guarantees and pledges of security provided
under the New Credit Facility. The proceeds from the IRL will be used to
finance the restructuring of Wyndham and Patriot.
After the six month anniversary of the closing of the investment, lenders
transferring IRLs may exchange the IRLs for exchange notes carrying identical
terms to the IRLs. To the extent any IRLs or exchange notes are outstanding 180
days after the closing of the investment, Wyndham must by such date file and
maintain a shelf registration statement with the Securities and Exchange
Commission allowing the resale of any exchange notes outstanding thereafter.
Wyndham may also offer registered substitute notes in exchange for all
outstanding IRLs and exchange notes.
Wyndham's ability to borrow under its revolving facility is subject to
Wyndham's compliance with a number of customary financial and other covenants,
including total leverage and interest coverage ratios, limitations on
additional indebtedness, and limitations on investments and stockholder
dividends.
Wyndham and Patriot have agreed to pay to the agents and the lenders
customary fees for a facility of this nature.
On February 26, 1998, the Companies sold 4.9 million unregistered paired
shares to Nations, for a purchase price per paired share of $24.8625, or
aggregate consideration of approximately $121.8 million.
On April 6, 1998, the Companies sold 5.15 million unregistered paired shares
to PaineWebber for a purchase price per paired share of $27.01125, or aggregate
consideration of approximately $139.1 million.
Current Business Challenges
Forward Equity Contracts. Patriot is a party to forward equity contracts with
three counterparties involving the sale of an aggregate of 13.3 million paired
shares, with related price adjustment mechanisms. Patriot's aggregate
obligation under the forward equity transactions was approximately $319.7
million at March 18, 1999. As of such date, Patriot has delivered an aggregate
of 79 million shares to the counterparties as collateral in addition to
approximately 12.5 million paired shares currently owned by the counterparties
or their affiliates.
Patriot currently intends to settle in full all of the forward transactions
with the proceeds of the $1 billion equity investment. If the forward
transactions are settled in cash, the counterparties must deliver to us the
Companies paired shares then owned or held by them as collateral under the
respective forward agreements.
On February 28, 1999, all three counterparties agreed, subject to specified
conditions, not to require settlement under their respective forward agreements
or to sell paired shares in connection with the forward
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agreements until the earlier of (a) the closing of the investment and (b) June
30, 1999. The agreements provide that the standstill obligations terminate if:
(i) the agreement is terminated or the parties publicly announce that they do
not intend to close the investment and Patriot has not entered into another
agreement that provides for a complete settlement of the forward transactions
on or before June 30, 1999; (ii) the default on certain of our covenants under
the forward agreements or under our credit facility: (iii) any of the
counterparties sells or agrees to sell paired shares; or (iv) the price of the
paired shares falls to a specified threshold, as described below. Any
counterparty whose standstill agreement terminates will have the right to
require an immediate settlement of its forward equity transaction.
The standstill agreement with PaineWebber Financial Products, Inc. provides
that the PaineWebber standstill obligation will terminate if the closing price
of the paired shares on any trading day is less than or equal to $4.50. On
March 22, 1999, the closing price of the paired shares was $4.50. As a result,
PaineWebber's standstill obligation has terminated and PaineWebber is entitled
to require settlement under its forward contract. As of March 25, 1999,
PaineWebber has not indicated that it intends to sell paired shares or require
settlement of its forward transaction.
The standstill agreement with NationsBanc Mortgage Capital Corporation
provides that the NationsBanc standstill obligation will terminate if the
weighted average trading price of the paired shares (excluding the last 30
minutes of trading) on any trading day is less than or equal to $4.50. The
paired share price, as so calculated, has not fallen below this threshold.
The standstill agreement with UBS AG, London Branch provides that the UBS
standstill obligation will terminate if the paired share price (calculated as
provided in the UBS forward contract) falls below $4.50. The closing price of
the paired shares has not been less than $4.50.
Nations has asserted that its standstill obligation has terminated by virtue
of the termination of PaineWebber's standstill obligation, based upon a "most
favored counterparty" clause in the Nations forward contract. UBS has asserted
that its standstill obligation has terminated based upon its interpretation of
the measure of the paired share price. The Companies have disputed both the
Nations and UBS assertions. As of March 25, 1999, neither Nations nor UBS has
indicated that it intends to sell paired shares or require settlement of its
forward transaction.
The Companies may settle the forward transactions by delivering either cash
or paired shares (if such shares are covered by an effective registration
statement). Sources of cash are not currently available for the Companies to
make the payments that would be required to settle one or more of the forward
transactions in cash. Moreover, the Companies cannot assure you that our bank
lenders would consent to any cash settlements prior to the closing of the
transaction. In addition, given the current market price of the paired shares,
any settlement in paired shares would have severely dilutive effects on the
Companies capital stock. The dilutive effects increase as the market price of
the paired shares decreases below the applicable forward prices. If any of the
counterparties sells paired shares, the conversion price of the preferred
stock to be issued to the investors will be adjusted downward to the extent
that the price recognized by us on the sale is less than $8.75 per share.
Generally, the Companies may settle by delivering paired shares only if a
registration statement covering such paired shares is effective. There are
currently effective registration statements covering the sale by the three
forward counterparties of up to 40 million paired shares and the sale by UBS
of an additional 4 million paired shares in connection with the forward equity
transactions. The Companies cannot assure you that these registration
statements will remain effective or that the Companies will not be required to
register more paired shares in connection with the forward equity
transactions. Two of the counterparties have requested that the Companies
register the balance of the paired shares delivered as collateral to all three
counterparties. The Companies intend to seek to register all such shares.
Agreements Relating to Existing Credit Facility.
Patriot and Wyndham's existing credit facility with The Chase Manhattan
Bank, Chase Securities, Inc. and PaineWebber Real Estate consists of a $900
million revolving credit facility and a series of term loans in the
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aggregate amount of $1.8 billion. Interest rates on the existing Credit
Facility are based on Patriot's and Wyndham's leverage ratio and vary from
1.5% to 2.5% over LIBOR. Under the original terms of the Credit Facility, two
of the term loans matured on January 31, 1999 $350 million and March 31, 1999
$400 million, respectively. All of the requisite lenders under the Credit
Facility have agreed to extend the maturity of these two terms loans to June
30, 1999. If the Companies do not consummate the Investment by June 30, 1999,
or our agreement with the Investor Group otherwise terminates, the maturity on
these two term loans will be extended to March 31, 2000 and the Companies will
be required to secure the Credit Facility with mortgages and other security
interests by June 30, 1999. The Companies have paid fees of approximately
$11.7 million to the lenders under the Credit Facility in connection with
their agreement to extend the maturities of the term loans to June 30, 1999.
Interstate's Third-Party Hotel Management Business
In May, 1998, Patriot along, with Interstate Hotels Company ("Interstate")
entered into a settlement agreement (as amended, the "Settlement Agreement")
with Marriott International, Inc. ("Marriott") which addressed certain claims
asserted by Marriott in connection with Patriot's then proposed merger with
Interstate. The Settlement Agreement provided for the dismissal of litigation
brought by Marriott, and allowed Patriot's merger with Interstate to close.
. In addition to dismissal of the Marriott litigation, the Settlement
Agreement provides for three principal transactions: (1) the
Companies re-branding of ten Marriott hotels under the Wyndham name,
(2) Marriott's assumption of the management (the "Assumed Management
Contracts") of ten Marriott hotels formerly managed by Interstate for
the remaining term of the Marriott franchise agreement, and (3) our
divestiture, either through a sale or a spin-off of assets, of the
third-party management business which was operated by Interstate (the
"Divestiture").
. For Patriot to sell the third-party management business which was
operated by Interstate to a third party (a "Sale Transaction"),
Patriot must (1) sign a non-binding letter of intent (the "Letter of
Intent") for the Sale Transaction on or before March 31, 1999, (2)
sign a final binding contract (the "Final Binding Contract") for the
Sale Transaction no later than midnight on April 14, 1999, and
(3) consummate the Sale Transaction no later than June 14, 1999. If
Patriot does not complete a Sale Transaction, it must consummate the
spin-off of the third-party management business which was operated by
Interstate (the "Spin-off") no later than the earliest of (1) June
14, 1999, (2) April 30, 1999 (if Patriot does not enter into a Letter
of Intent by March 31, 1999, (3) thirty days after the date Marriott
disapproves the Letter of Intent, (4) May 14, 1999 (if Patriot does
not enter into a Final Binding Contract by April 14, 1999), or (5)
thirty days after the date of Marriott disapproves of the Final
Binding Contract. The last date on which either the Sale Transaction
or the Spin-off may be complete pursuant to the Settlement Agreement
is the "Final Divestiture Date."
If the Companies do not complete the Spin-off or the Sale Transaction by the
Final Divestiture Date, Marriott will be entitled to receive 110% of the fees
otherwise due under the Assumed Management Contracts. We will also be subject
to additional penalties including Marriott's right to purchase, subject to
third-party consents, the hotels to be submanaged by Marriott and six
additional Marriott hotels owned by Patriot at their then appraised values.
Moreover, subject to any defenses the Companies may have, we would owe
Marriott liquidated damages with respect to the hotels converted to the
Wyndham brand, those to be submanaged by Marriott, and the six additional
Marriott hotels Marriott would have the option to purchase. The Companies also
anticipate that Marriott would require third-party owners of Marriott-branded
hotels that Wyndham manages to replace Wyndham as manager of their hotels. As
a result, each respective hotel would either: (1) lose the Marriott brand, at
which time the Companies would have to compensate Marriott for any lost
franchise fees or (2) terminate the management contract with us and enter into
a contract with another manager. The Companies would owe liquidated damages on
any third-party Marriott-franchised hotel which chooses to convert its brand.
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As of March 22, 1999, the Companies had approximately $875.6 million
outstanding under the Credit Facility and $1.8 billion outstanding on the Term
Loans. Additionally, the Companies had outstanding letters of credit totaling
$24.4 million. As of March 22, 1999, Patriot also had over $993 million of
mortgage debt outstanding that encumbered 49 hotels and 3 hotels under
development and approximately $241 million in other debt, resulting in total
indebtedness of approximately $3.9 billion. As of March 22, 1999, the
Companies had no additional availability under the Credit Facility.
Renovations and Capital Improvements
During 1998, the Companies completed approximately $175 million in total
capital improvements and renovations on various hotel properties, including
(i) costs related to converting hotels to one of the Companies' proprietary
brands; (ii) costs related to recurring maintenance capital expenditures (iii)
costs related to enhancing the revenue-producing capabilities of its hotels.
Approximately $76 million of the total capital costs related to 33 hotels that
were converted to proprietary brands in 1998. These major renovations included
upgrading the quality of the furniture and fixtures in guest rooms, public
meeting space and lobby areas as well as adding additional rooms to certain of
the hotels. Patriot completed over $82.2 million of capital improvements and
renovations during 1997. During 1997, approximately $56.9 million of total
capital improvement expenditures were related to significant renovations at
certain of the hotel properties.
Pursuant to the Participating Leases, Patriot is obligated to establish a
reserve for each hotel for capital improvements, including the periodic
replacement or refurbishment of furniture, fixtures and equipment ("F F&E").
Management reserves an average of 4.0% of total hotel revenues and believes
such amounts are sufficient to fund recurring capital expenditures for the
hotels. Capital expenditures, exclusive of renovations, may exceed 4.0% of
total revenues in a single year.
The Companies attempt to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruption to
the hotel's operations. Therefore, management does not believe such
renovations and capital improvements will have a material effect on the
results of operations of the hotels. Capital expenditures will be financed
through the capital expenditure reserves, the Credit Facility, other financing
sources, or with working capital.
Legislation Affecting the Paired Share Structure
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"). Section 269B(a)(3) 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. The "grandfathering" rules governing
Section 296B generally provide, however, that Section 296B(a)(3) does not
apply to a paired REIT if the REIT and 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
into a grandfathered REIT or otherwise. Moreover, although Patriot's and
Wyndham's respective predecessors, Cal Jockey and Bay Meadows, were paired on
June 30, 1983, if for any reason Cal Jockey failed to qualify as a REIT in
1983 the benefit of the grand fathering rule would not be available to Patriot
and Patriot would not qualify as a REIT for any taxable year.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a
result of future legislation. In this regard, legislation to freeze the
grandfathered status of paired share REITS such as Patriot was included in the
Internal Revenue Service Restructuring and Reform Act of 1998 (the "IRS Reform
Act of 1998"), which was signed into law by the President on July 22, 1998.
Under the IRS Reform Act of 1998, the anti-pairing rules generally apply to
real property interests acquired after March 26, 1998 by Patriot and Wyndham,
or a subsidiary or partnership in which a 10% or greater interest is owned by
Patriot or Wyndham (collectively, the "REIT Group"), unless (i) the real
property interests are
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acquired pursuant to a written agreement which is binding on March 26, 1998 and
all times thereafter or (ii) the acquisition of such real property interests
were described in a public announcement or in a filing with the Securities and
Exchange Commission on or before March 26, 1998. In addition, the grandfathered
status of any property under the foregoing rules will be lost if the rent on a
lease entered into or renewed after March 26, 1998, with respect to such
property exceeds an arm's-length rate. The IRS Reform Act of 1998 also provides
that a property held by Patriot or Wyndham that is not subject to the anti-
pairing rules would become subject to such rules in the event of an improvement
placed in service after December 31, 1999 that changes the use of the property
and the cost of which is greater than 200 percent of (x) the undepreciated cost
of the property (prior to the improvement) or (y) in the case of property
acquired where there is a substituted basis, the fair market value of the
property on the day it was acquired by Patriot and Wyndham. There is an
exception for improvements placed in service before January 1, 2004 pursuant to
a binding contract in effect as of December 31, 1999 and at all times
thereafter.
The IRS Reform Act of 1998 generally permits Patriot to continue its current
method of operations with respect to its existing assets, including the assets
acquired in the Interstate merger, the Arcadian acquisition, the Summerfield
acquisition and the CHCI merger. However, the legislation would require Patriot
to modify its method of operations with respect to newly acquired assets.
YEAR 2000 COMPLIANCE
Many computer systems were not designed to interpret any dates beyond 1999,
which could lead to business disruptions in the United States and
internationally (the "Year 2000 issue"). The Companies recognize the importance
of minimizing the number and seriousness of any disruptions that may occur as a
result of Year 2000 and have adopted an extensive compliance program. The
Companies' compliance program involves three major program areas:
. corporate information technology infrastructure and reservation systems
. other electronic assets (such as, but not limited to, automated time
clocks, point-of-sale systems, non-information technology systems,
including embedded technologies that operate fire-life safety systems,
phone systems, energy management systems and other similar systems)
. third parties with whom the Companies conduct business
The Companies are applying a three phase approach to each program area:
. Inventory Phase (identify systems and third parties that may be affected
by Year 2000 issues)
. Assessment Phase (prioritize the inventoried systems and third parties,
assess their Year 2000 readiness, plan corrective actions)
. Remediation Phase (implement corrective actions, verify implementation,
formulate contingency plans)
The Companies engaged a consulting firm to conduct the inventory and
assessment phases of the compliance program. The Companies have completed
inventory and assessment phases with respect to their corporate information
technology infrastructure and reservation systems. The Companies have also
completed the inventory and assessment phases with respect to the information
technology and other electronic assets that are located in the Companies'
Hotels, other than some of the Hotels which are either managed by Wyndham but
not owned by Patriot or owned by Patriot but not leased or operated by Wyndham
(the "Third Party Compliance Hotels"). Based on those assessments, the
Companies, working with their consultants, determined which systems were not
Year 2000 compliant and developed appropriate remediation plans.
The Companies have begun the necessary work to remediate those systems at
their owned and leased Hotels, and have completed 10 percent of that work. The
Companies previously engaged a consulting firm to provide the support and
additional skills to effect the necessary remediation in sufficient time for
testing and any necessary modifications.
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Of the 93 Third Party Compliance Hotels that were not acquired in the merger
with Interstate Hotels (the "Interstate merger"), 66 Third Party Compliance
Hotels have been assessed as part of the Companies' compliance program and the
Companies have begun to implement remediation plans at 21 of those hotels. The
owners of the other 45 Third Party Compliance Hotels that were assessed have
to date neither taken any action to effect the necessary remediation
identified in the assessment nor authorized the Companies to effect the
remediation on behalf of the owners. While none of the remaining 27 Third
Party Compliance Hotels have been assessed by the Companies, 4 of the owners
have informed the Companies that the owners completed their own assessments.
The Companies are continuing to monitor the status of the Third Party
Compliance Hotels and have reminded the owners of the importance of making the
Third Party Compliance Hotels Year 2000 compliant in sufficient time to permit
adequate testing. The Companies have begun surveying the Year 2000 compliance
of the owners of the hotels that are franchised under the Wyndham brand but
not managed by Wyndham, and have informed those owners of the appropriate
standards to make the equipment operating Wyndham's systems Year 2000
compliant. However, as the systems at the Third Party Compliance Hotels and
franchised hotels are not under the Companies' control, the Companies will be
required to rely on the information provided by those owners or
managers/operators and will not be able to test the assessment or remediation
effected by third parties at the Third Party Compliance Hotels or the
franchised hotels.
The Companies presently expect to expend approximately $34 million in
connection with Year 2000 issues. To date, the Companies have incurred $1.75
million in connection with the inventory and assessment phases of their
compliance program and $4.6 million to remediate their systems. However, the
Companies' anticipated expenditures may increase as the Companies effect the
remediation plans.
As part of the settlement of litigation arising out of the Interstate
merger, the Companies agreed to contribute to a new company management of the
Third Party Compliance Hotels acquired in that merger, and then dispose of
substantially all of that new company's stock by means of a spin-off to the
Companies' shareholders or otherwise. As the hotels acquired in the Interstate
merger whose management will be contributed to the new company are owned by
third parties, the Companies expect those owners to bear all costs related to
the inventory, assessment and remediation of those hotels.
The Companies have identified the vendors and service providers that are
critical to the Companies' businesses and have requested those parties to
provide information concerning their Year 2000 compliance and remediation
efforts. The Companies are now seeking additional information from those
parties that did not respond or did not provide sufficient information, but
cannot guarantee that all vendors or service providers will comply with the
Companies' requests. More importantly, the Companies must rely on the
information provided by the third parties and will not be able to test the
third parties' compliance. As a result, the Companies may not be able to
accurately determine the Year 2000 compliance of those vendors or service
providers. Based on preliminary responses, the Companies believe that their
most critical vendors and service providers will not cause the Companies'
operations to be materially disrupted as a result of Year 2000 issues. During
1999, the Companies intend to determine the extent to which they will be able
to replace vendors and service providers that are expected to be non-
compliant. Due to the lack of an alternative source, there may be instances in
which the Companies will have no alternative but to remain with non-compliant
vendors or service providers. As the Companies identify the non-compliant
vendors and service providers, they will then determine appropriate
contingency plans.
The Companies believe that their current compliance program will allow them
sufficient time to identify which of their systems and other electronic assets
are not Year 2000 compliant and to effect the necessary remediation to avoid
substantial problems arising from Year 2000 induced failures. The Companies
believe that their reprogramming, upgrading and systems replacements will be
implemented by the end of the third quarter of 1999. The Companies believe
that this should provide adequate time to further correct any problems that
did not surface during the implementation and testing for those systems.
Notwithstanding that, the Companies do recognize that some vendors and the
owners and managers/operators of the Third Party Compliance Hotels may not
comply with their present schedules and could affect the Companies' timing and
remediation efforts generally. If the Companies are not successful in
implementing their Year 2000 compliance plan, the Companies may suffer a
material adverse impact on their consolidated results of operations and
financial condition.
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In addition to those systems within the Companies' control and the control of
its vendors and suppliers, there are other systems that could have an impact on
the Companies' businesses and which may not be Year 2000 compliant by January
1, 2000. These systems could affect the operations of the air traffic control
system and airlines or other segments of the lodging and travel industries, or
the economy and travel generally. In addition, these systems could affect the
Third Party Compliance Hotels or the Hotels franchised under the Companies'
brands whose owners and managers/operators are implementing their own
compliance programs. These systems are outside of the Companies' control or
influence and their compliance may not be verified by the Companies. However,
these systems could adversely affect the Companies' financial condition or
results of operation.
During the second quarter of 1999, the Companies intend to develop
contingency plans to address potential Year 2000 induced failures. Because the
Companies have no control over third party assessment and remediation efforts,
the Companies expect to focus most of their contingency planning on externally
caused disruptions. In addition, the Companies will develop their plans on
their belief that the consequences of Year 2000 induced failures will be local
in nature. These plans will be based on existing contingency plans for
operations during storms and other natural disasters. While each Hotel will
develop a contingency plan, any disruption in utilities or other key local
services could have the effect of disrupting operations of several Hotels
located in the affected geographic area. As part of the Companies' contingency
planning, they also expect to evaluate their continued management of the Third
Party Compliance Hotels that do not become Year 2000 compliant.
INFLATION
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit Wyndham's and the Lessees'
ability to raise room rates in the face of inflation.
SEASONALITY
The hotel industry is seasonal in nature. Revenues for certain of Patriot's
hotels are greater in the first and second quarters of a calendar year and at
other hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at the hotels may cause quarterly fluctuations in the
Patriot Companies' revenues.
HOTEL INDUSTRY RISKS
Operating Risks
The Companies primary business is buying, selling, leasing and managing
hotels. Patriot leases its hotels to Wyndham and to third-party lessees (the
"Lessees") pursuant to separate participating leases (the "Participating
Leases"). Consequently, Patriot is dependent on the ability of Wyndham, the
Lessees and the hotel management entities that manage the hotels (the
"Operators") to manage the operations of the hotels that are leased to or
operated by them. The Companies business is subject to operating risks common
to the hotel industry. These risks include, among other things, (1) competition
for guests from other hotels, a number of which may have greater marketing and
financial resources and experience than the Companies do, (2) 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, (3) dependence on business and commercial travelers and
tourism, which business may fluctuate and be seasonal, (4) increases in energy
costs and other expenses of travel, which may deter travelers and (5) adverse
effects of general and local economic conditions. These factors could adversely
affect the ability of Wyndham and the Lessees to generate revenues. The
Companies are also subject to the risk that in connection with the acquisition
of hotels and hotel operating companies it may not be possible to transfer
certain operating licenses, such as food and beverage licenses, to the Lessees,
the Operators or Wyndham, 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 obtains new licenses or that new
licenses will be obtained. The failure to have alcoholic beverages licenses or
other operating licenses could adversely affect the ability of the affected
Lessees, and Operators or Wyndham to generate revenues.
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Operating Costs and Capital Expenditures; Hotel Renovation
Hotels, in general, have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
or refurbishment of furniture, fixtures and equipment ("F F& E"). Under the
terms of the Participating Leases, Patriot is obligated to establish a reserve
to pay the cost of certain capital expenditures at its hotel and pay for
periodic replacement or refurbishment of F F& E. If capital expenditures exceed
Patriot's expectations, the additional cost could have an adverse effect on
Patriot's financial condition and results of operations. 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 Companies may be competing for investment opportunities with entities
that have substantially greater financial resources. These entities may be able
to accept more risk than we 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 us and increase the bargaining power of property
owners seeking to sell.
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 our hotels may cause quarterly fluctuations in our revenues.
REAL ESTATE INVESTMENT RISKS
General Risks
The Companies investments will be subject to varying degrees of risk
generally incidental to the ownership of real property. The underlying value of
Patriot's real estate investments and its income will be dependent upon the
ability of the Lessees, the Operators and Wyndham 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 and other natural disasters (which
may result in uninsured losses), acts of war and other factors which are beyond
our control.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The Companies ability to
vary our portfolio in response to changes in economic and other conditions is
limited. If the Companies must sell an investment, there can be no assurance
that the Companies will be able to dispose of it in the time period desired or
that the sales price of any investment will equal or exceed the amount of our
investment.
Property Taxes
The Companies hotels are subject to real property taxes. The real property
taxes on the Companies hotel properties may increase or decrease as property
tax rates change and as the value of the properties are assessed or reassessed
by taxing authorities. If property taxes increase, the Companies financial
condition and results of operations could be adversely affected.
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Consents of Ground Lessor Required for Sale of Certain Hotels
Certain of the Companies hotels are subject to ground leases with third party
lessors. In addition, the Companies may acquire hotels in the future that are
subject to ground leases. Any proposed sale by the Companies of a property that
is subject to a ground lease or any proposed assignment of the Companies
leasehold interest in the ground lease may require the consent of third party
lessors. As a result, the Companies may not be able to sell, assign, transfer
or convey the Companies interest in any such property in the future absent the
consent of such third parties.
Environmental Matters
The Companies operating costs 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 our
hotels, we 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 our
results of operations and financial condition. Phase I environmental site
assessments ("ESAs") have been conducted at substantially all of our hotels by
qualified independent environmental engineers. The purpose of Phase I ESAs is
to identify potential sources of contamination for which any of our hotels may
be responsible and to assess the status of environmental regulatory compliance.
The ESAs have not revealed any environmental liability or compliance concerns
that we believe would have a material adverse effect on our business, assets,
results of operations or liquidity, nor are we 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 we are currently unaware. We
have not been notified by any governmental authority, and have no other
knowledge of, any material noncompliance, liability or claim relating to
hazardous or toxic substances or other environmental substances in connection
with any of the hotels.
Uninsured and Underinsured Losses
Each of the Participating Leases specifies comprehensive insurance to be
maintained on each of the applicable leased hotels, including liability, fire
and extended coverage. The Companies believe 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 Companies will use discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on the Companies investments 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 our lost investment. 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.
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Under such circumstances, the insurance proceeds received by us might not be
adequate to restore the Companies economic position with respect to such
property.
Acquisition and Development Risks
The Companies currently intend to pursue acquisitions of additional hotels
and, under appropriate circumstances, may pursue development opportunities.
Acquisitions entail risks that such acquired hotels 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 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.
Dependence on Management Contracts
Management contracts are acquired, terminated, renegotiated or converted to
franchise agreements in the ordinary course of our business. 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 our upscale hotel management contracts include a
hotel owner's election to close a hotel and, in the case of the Wyndham
Anatole, Dallas, Texas, if James Carreker ceases to be Chairman and Chief
Executive Officer of Patriot and Wyndham.
The Companies can make no assurances that the Companies will be able to
replace terminated management contracts, or that the terms of renegotiated or
converted contracts will be as favorable as the terms that existed before such
renegotiation or conversion. The Companies are also subject to the risk of
deterioration in the financial condition of a hotel owner and such owner's
ability to pay management fees to the Companies. In addition, in certain
circumstances, the Companies may be required to make loans to or capital
investments or advances in hotel properties in connection with management
contracts. A material deterioration in the operating results of one or more of
these hotel properties and/or a loss of the related management contracts could
adversely affect the value of our investment in such hotel properties.
RISKS RELATING TO GAMING OPERATIONS
Regulation of Gaming Operations
We own and operate several casino gaming facilities at certain of our
hotels, including El San Juan, El Conquistador, Condado Plaza and Old San Juan
in Puerto Rico. Each of these gaming operations is subject to extensive
licensing, permitting and regulatory requirements administered by various
governmental entities.
Typically, gaming regulatory authorities have broad powers with respect to
the licensing of gaming operations. They may revoke, suspend, condition or
limit our gaming approvals and licenses, impose substantial fines and take
other actions, any of which could have a material adverse effect on our
business and the value of our hotel/casinos. Our directors, officers and some
key employees, are subject to licensing or suitability determinations by
various gaming authorities. If any of those gaming authorities were to find
someone unsuitable, we would have to sever our relationship with that person.
Risks Associated with High-End Gaming
The high-end gaming business is more volatile than other forms of gaming.
Variability in high-end gaming could have a positive or negative impact on
cash flow, earnings and other financial measures in any given quarter. In
addition, a portion of our table gaming is attributable to the play of a
relatively small number of international
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customers. The loss of, or a reduction in play of, the most significant of
such customers could have an effect on our future operating results.
FUNDS FROM OPERATIONS
Combined Funds from Operations of the Companies (as defined and computed
below) was $41.7 million for the three months ended December 31, 1998 and
$33.4 million for the three months ended December 31, 1997. Combined Funds
from Operations of the Companies was $263.6 million for the year ended
December 31, 1998 and $111.5 million for the year ended December 31, 1997.
Management considers Funds from Operations to be a key measure of REIT
performance. Funds from Operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation of
real property, amortization of goodwill and amortization of management
contracts and trade names, and after adjustments for unconsolidated
partnerships, joint ventures and corporations. Adjustments for Patriot's
unconsolidated subsidiaries are calculated to reflect Funds from Operations on
the same basis. The Companies have also made certain adjustments to Funds from
Operations for real estate related amortization and the write off of certain
lease costs. Funds from Operations should not be considered as an alternative
to net income or other measurements under generally accepted accounting
principles as an indicator of operating performance or to cash flows from
operating, investing or financing activities as a measure of liquidity. Funds
from Operations does not reflect working capital changes, cash expenditures
for capital improvements or principal payments on indebtedness.
The following reconciliation of net (loss) income to Funds from Operations
illustrates the difference between the two measures of operating performance
for the three months ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months
Ended
December 31,
-----------------
1998 1997
-------- -------
(in thousands)
<S> <C> <C>
Net income.............................................. $(90,968) $ 1,666
Add:
Minority interest in the Operating Partnerships....... (6,483) 375
Minority interest in consolidated subsidiaries........ (2,303) --
Depreciation of buildings and improvements and
furniture, fixtures and equipment.................... 56,714 17,155
Amortization of goodwill.............................. 9,925 1,135
Amortization of management contracts franchise and
trade names.......................................... 8,800 1,249
Amortization of capitalized lease costs .............. -- --
Cost of acquiring leaseholds.......................... 3,407 10,679
Settlement on Treasury lock and other non-recurring
charges.............................................. 685 --
Loss on sale of assets................................ 9,453 --
Impairment loss on assets held for sale............... 51,081 --
Adjustment for Funds from Operations :
Equity in earnings of unconsolidated subsidiaries..... (2,124) (1,527)
Funds from Operations of unconsolidated subsidiaries.. 3,481 2,698
-------- -------
Funds from Operations................................... $ 41,668 $33,430
======== =======
Weighted average shares and OP units outstanding:
Basic................................................. 171,051 92,089
======== =======
Diluted............................................... 193,314 94,659
======== =======
</TABLE>
55
<PAGE>
The following reconciliation of net (loss) income to Funds from Operations
illustrates the difference between the two measures of operating performance
for the year ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
1998 1997
--------- --------
(in thousands)
<S> <C> <C>
Net (loss) income..................................... $(158,223) $ (2,172)
Add:
Extraordinary loss from early extinguishment of
debt............................................... 31,817 2,534
Minority interest in the Operating Partnerships..... (12,651) 1,684
Minority interest in consolidated subsidiaries...... (8,185) --
Depreciation of buildings and improvements and
furniture, fixtures and equipment.................. 176,059 47,694
Amortization of goodwill............................ 28,702 1,851
Amortization of management contracts and trade
names.............................................. 24,323 1,886
Settlement on Treasury lock and other non-recurring
charges............................................ 52,292 --
Loss on sale of assets.............................. 9,453 --
Impairment loss on assets held for sale............. 51,081 --
Cost of acquiring leaseholds........................ 64,407 54,499
Adjustment for Funds from Operations of unconsolidated
subsidiaries:
Equity in earnings of unconsolidated subsidiaries... (9,498) (6,015)
Funds from Operations of unconsolidated
subsidiaries....................................... 14,018 9,581
--------- --------
Funds from Operations................................. $ 263,595 $111,542
========= ========
Weighted average shares and OP units outstanding:
Basic............................................... 152,778 74,219
========= ========
Diluted............................................. 163,532 76,040
========= ========
</TABLE>
ITEM 7a. QUALITATIVE AND QUANTATIVE DISCLOSURES ABOUT MARKET RISKS
See Item 7 regarding Combined Liquidity and Capital Resources -- see pages
41-43.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditors' reports, financial statements and financial
statement schedules listed in the accompanying index are filed as part of this
report. See Index to Financial Statements and Financial Statement Schedules on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are the principal executive officers of Patriot
and Wyndham:
James D. Carreker has served as the Chairman of the Board of Directors and
Chief Executive Officer of Wyndham as well as a director of Patriot since
January 1998. In February 1999, Mr. Carreker was also named Chief Executive
Officer of Patriot. Prior to joining Wyndham in January 1998, Mr. Carreker had
served as President and Chief Executive Officer of Wyndham Hotel Corporation
from May 1988 to January 1998 and as a director of Wyndham Hotel Corporation
from February 1996 to January 1998. 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 also
serves as a director of Trammell Crow Company and of Carreker-Antinori, Inc.,
a computer service company that completed its initial public offering in May
1998. Mr. Carreker holds a B.S. and a Master of Business Administration from
Oklahoma State University. Mr. Carreker is 51 years old.
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William W. Evans III currently serves as the President and Chief Operating
Officer and a director of Patriot. He also serves as an Executive Vice
President of Wyndham. Mr. Evans has been an executive officer of the companies
since March 1997, and a director since July 1997. Prior to joining the
companies, Mr. Evans was a Managing Director in PaineWebber's Real Estate
Group. 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. Mr. Evans is a graduate
of the University of Virginia. Mr. Evans is 48 years old.
Karim Alibhai serves as the President and Chief Operating Officer and a
director of Wyndham. Prior to joining Wyndham in October 1997, Mr. Alibhai was
the President and Chief Executive Officer of the Gencom Group, an affiliated
group of companies that acquired, developed, renovated, leased and managed
hotel properties in the United States and Canada through Gencom American
Hospitality. He holds a B.A. from Rice University. Mr. Alibhai is 34 years
old.
Paul Novak was named Executive Vice President--Acquisitions and Development
of Patriot in January 1998. From June 1997 through January 1998, Mr. Novak
served as Executive Vice President--Acquisitions and Development of Wyndham.
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 holds a B.A. from Michigan State University.
Mr. Novak is 52 years old.
Lawrence S. Jones was named Executive Vice President and Treasurer of
Patriot and Wyndham in March 1998. Mr. Jones joined Coopers & Lybrand in 1972
and continued there as a partner until March 1998 where he served as Chairman
of the firm's REIT industry practice. Mr. Jones holds a B.S. from the
University of Berkeley and an M.S. from UCLA. Mr. Jones is a certified public
accountant. Mr. Jones is 52 years old.
Thomas W. Lattin became an Executive Vice President of Wyndham Hotel
Corporation in October 1997. He became President and Chief Operating Officer
of Patriot American Hospitality, Inc., a Virginia corporation, in April 1995
and continued in such capacity for Patriot American Hospitality Operating
Company from July 1997. From 1987 through 1994, he served as the National
Partner of the hospitality industry consulting practice of Laventhol &
Horwarth 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. Mr. Lattin is 54 years
old.
Leslie V. Bentley became an Executive Vice President of Wyndham in January
1998. He was employed by Wyndham Hotel Corporation since March 1985, served as
Executive Vice President and President of the Wyndham Garden Division since
May 1990 and was elected a director of Wyndham Hotel Corporation in January
1997. From January 1987 to June 1988, Mr. Bentley served as Regional Vice
President of Wyndham Hotel Corporation. From June 1988 to December 1988, Mr.
Bentley served as Vice President of Operations of Wyndham Hotel Corporation
and from December 1988 to May 1990, he served as Senior Vice President of
Operations of Wyndham Hotel Corporation. Prior to joining Wyndham Hotel
Corporation, 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. Mr. Bentley is 47 years old.
Stanley M. Koonce, Jr. became Executive Vice President--Marketing and
Strategic Planning of Wyndham in January 1998. He served as Executive Vice
President--Marketing, Planning and Technical Services of Wyndham Hotel
Corporation since October 1994, was elected a director of Wyndham Hotel
Corporation in
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January 1997 and served as Senior Vice President of Sales and Marketing of
Wyndham Hotel Corporation 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. Mr.
Koonce is 50 years old.
Directors of Patriot
The following is a biographical summary of the experience of the directors
of Patriot:
James D. Carreker has served as a director of Patriot since January 1998.
For biographical information on Mr. Carreker, see "--Principal Executive
Officers of Patriot and Wyndham."
John H. Daniels has served as a director of Patriot and its predecessor
since September 1995. He has served as President of The Daniels Group Inc., a
real estate development and management company, since 1984. 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 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. Mr. Daniels is 73 years old.
John C. Deterding has served as a director of Patriot and its predecessor
since September 1995. 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. 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. He holds B.S. from the
University of Illinois. Mr. Deterding is 67 years old.
Gregory R. Dillon has served as a director of Patriot and its predecessor
since September 1995. He has been Vice Chairman Emeritus of Hilton Hotels
Corporation 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 Estate Financing Advisory
Council and the National Association of Corporate Real Estate Executives. In
addition to his undergraduate degree, Mr. Dillon holds an LL.B. from DePaul
University. Mr. Dillon is 76 years old.
William W. Evans III has served as a director of Patriot since July 1997.
For biographical information on Mr. Evans, see "--Principal Executive Officers
of Patriot and Wyndham."
Milton Fine became a director of Patriot in June 1998. Mr. Fine co-founded
Interstate Hotels Company in 1961 and was Chairman of the Board of Interstate
prior to Wyndham's acquisition of Interstate in June 1998. 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 Warhal Museum in Pittsburgh, Pennsylvania. Mr. Fine completed his
undergraduate studies magna cum laude, and also holds a J.D., from the
University of Pittsburgh. Mr. Fine is 72 years old.
Arch K. Jacobson has served as a director of Patriot and its predecessor
since September 1995. 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
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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. Mr.
Jacobson is 71 years old.
Paul A. Nussbaum founded Patriot in 1991 and served as its Chief Executive
Officer and Chairman of its Board until February 1999. Currently, he serves as
Chairman Emeritus of the Board of Directors of Patriot and Wyndham. Prior to
his association with Patriot, Mr. Nussbaum practiced real estate and corporate
law in New York for 20 years, the last 12 years of which, he was chairman of
the real estate department of Schulte Roth & Zabel. Mr. Nussbaum serves as a
member of the Board of Directors 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. Mr. Nussbaum is 51 years old.
Philip J. Ward has served as a director of Patriot since January 1998. Prior
to such time, he had served as a director of Wyndham Hotel Corporation 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. Mr. Ward is also a director of
the Simon DeBartolo Group, Inc., and a director of the Connecticut Housing
Investment Fund. Mr. Ward holds a Bachelor of Arts from Amherst College. Mr.
Ward is 50 years old.
Directors of Wyndham
The following is a biographical summary of the experience of the directors
of Wyndham:
Karim Alibhai has served as the President and Chief Operating Officer and a
director of Wyndham since October 1997. For biographical information on Mr.
Alibhai, see "--Principal Executive Officers of Patriot and Wyndham."
Leonard Boxer has served as a director of Wyndham since July 1997. He had
served as a director of Patriot and its predecessor from September 1995 to
July 1997. 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. Mr. Boxer is 60 years old.
James D. Carreker has served as Chairman of the Board of Directors of
Wyndham since January 1998. For biographical information on Mr. Carreker, see
"--Principal Executive Officers of Patriot and Wyndham."
Burton C. Einspruch, M.D. has served as a director of Wyndham since July
1997. Dr. Einspruch is a physician and corporate medical consultant and has
practiced medicine since 1960. He holds a B.A. and Sc.B. from Southern
Methodist University and an M.D. from Southwestern Medical School of the
University of Texas. Dr. Einspruch is the Medical Director of First Southwest
Company, a national brokerage firm, and also currently serves as a director of
Dallas National Bank. He has served as a board member and advisor to numerous
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<PAGE>
corporations and philanthropies and is currently Chairman of the Holocaust
Studies Program Advisory Board at the University of Texas at Dallas, as well
as the Executive Board of the Libraries of Southern Methodist University. Dr.
Einspruch has attained the academic rank of Clinical Professor of Psychiatry
of Southwestern Medical School and Clinical Associate Professor of Psychiatry
at New York University Medical Center. Dr. Einspruch is 64 years old.
Susan T. Groenteman has served as a director of Wyndham since January 1998.
Ms. Groenteman had served as a director of Wyndham Hotel Corporation from
April 1996 to January 1998. Ms. Groenteman is a 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. 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. Ms. Groenteman is 44 years old.
Arch K. Jacobson has served as a director of Wyndham since July 1997. For
biographical information on Mr. Jacobson, see "--Directors of Patriot."
James C. Leslie has served as a director of Wyndham since January 1998. He
had served as a director of Wyndham Hotel Corporation from June 1996 to
January 1998. 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
board 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 accountant. Mr.
Leslie holds a B.S. from the University of Nebraska and an M.B.A. from the
University of Michigan. Mr. Leslie is 43 years old.
Paul A. Nussbaum has served as a director of Wyndham since January 1998. For
biographical information on Mr. Nussbaum, see "--Directors of Patriot"
Rolf E. Ruhfus became a director of Wyndham in June 1998. Mr. Ruhfus served
as Chairman of the Board of Directors and Chief Executive Officer of
Summerfield Hotel Corporation from 1987 through June 1998 when Summerfield was
acquired by Wyndham. Prior to founding Summerfield, Mr. Ruhfus served as
President of Residence Inn Corporation from 1983 until the franchise and
management system assets were sold to Marriott Corporation. Mr. Ruhfus holds a
B.A. from Western Michigan University, an M.B.A. from the Wharton School of
Business and a Ph.D. in Marketing from the University of Munster, Germany. Mr.
Ruhfus is 54 years old.
Sherwood M. Weiser has served as a director of Wyndham since October 1997.
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 Continental Companies. Carnival Hotels & Casinos was a
successor to The Continental Companies. In June 1998, Wyndham acquired the
hospitality-related businesses of CHCI, the parent corporation of Carnival
Hotels & Casino. 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. Mr. Weiser is 68 years old.
Information Regarding the Board of Directors of Patriot and Its Committees
Meetings. The Board of Directors of Patriot held 20 meetings during 1998. No
director of Patriot attended less than 75% of the aggregate number of meetings
held during 1998 of the Board of Directors and any Board Committee of which he
was a member.
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<PAGE>
Audit Committee. Currently, the audit committee consists of two independent
directors: Messrs. Deterding and Dillon. An "independent director" is a
director who is not an officer or employee of Patriot, any affiliate of an
officer or employee or any affiliate of (1) any advisor to Patriot under an
advisory agreement, (2) any lessee of any property of Patriot, (3) any
subsidiary of Patriot or (4) any partnership which is an affiliate of Patriot.
The audit committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of Patriot's internal
accounting controls. The audit committee held 4 meetings during 1998.
Compensation Committee. The compensation committee consists of three
independent directors: Messrs. Deterding, Dillon and Jacobson. The
compensation committee determines compensation of Patriot's executive
officers, and administers the Patriot American Hospitality, Inc. 1995
Incentive Plan and the Patriot American Hospitality, Inc. 1997 Incentive Plan.
The compensation committee held more than 20 meetings during 1998.
Coordinating Committee. The coordinating committee consists of three
independent directors: Messrs. Deterding, Fine and Ward. The coordinating
committee reviews and evaluates various proposals received from potential
investors. The coordinating committee held more than 50 meetings during 1998.
Information Regarding the Board of Directors of Wyndham and Its Committees
Meetings. The Board of Directors of Wyndham held 20 meetings during 1998. No
director attended less than 75% of the aggregate number of meetings held
during 1998 of the Board of Directors and any Board Committee of which he was
a member.
Audit Committee. The audit committee consists of two independent directors:
Messrs. Boxer and Einspruch. An "independent director" is a director who is
not an officer or employee of Wyndham, any affiliate of an officer or employee
or any affiliate of (1) any advisor to Wyndham under an advisory agreement,
(2) any lessee of any property of Wyndham, (3) any subsidiary of Wyndham or
(4) any partnership which is an affiliate of Wyndham. The audit committee
makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees and reviews the adequacy of Wyndham's internal accounting controls. The
audit committee held 4 meetings during 1998.
Compensation Committee. The compensation committee consists of two
independent directors: Messrs. Leslie and Jacobson. The compensation committee
determines compensation of Wyndham's executive officers and administers the
Patriot American Hospitality Operating Company 1995 Incentive Plan and the
Patriot American Hospitality Operating Company 1997 Incentive Plan. The
compensation committee held more than 20 meetings during 1998.
Coordinating Committee. The coordinating committee consists of three
independent directors: Messrs. Boxer and Weiser and Ms. Groentenman. The
coordinating committee reviews and evaluates various proposals received from
potential investors. The coordinating committee held more than 50 meetings
during 1998.
Director Compensation for Wyndham
Currently, any director who is not an employee of Wyndham is paid an annual
fee of $25,000, paid in quarterly installments of $6,250. In addition, each of
those directors is paid $1,250 for attendance at each meeting of Wyndham's
Board of Directors, $1,000 for participating in a telephonic board meeting and
$750 for attendance, whether in person or telephonic, at each meeting of a
committee of Wyndham's Board of which such director is a member. The annual
retainer fee and meeting fees are paid in cash, but the directors may elect in
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<PAGE>
advance to defer the receipt of all or part of the fees and to receive such
deferred fees at a later date in the form of shares of paired shares.
Directors who are employees of Wyndham do not receive any fees for their
service on the Board of Directors or a committee thereof. In addition, Wyndham
reimburses directors for their out-of-pocket expenses incurred in connection
with their service on the Board of Directors.
Under the Wyndham 1997 Incentive Plan, on the date of each annual meeting of
Wyndham's stockholders, each non-employee director then in office will receive
a grant of non-qualified options to purchase an additional 10,000 paired
shares at the then current market price. All options granted to non-employee
directors vest immediately upon the date of grant. At the 1998 Annual Meeting
of Stockholders, Messrs. Jacobson, Boxer, Leslie, Lyon and Weiser, Dr.
Einspruch and Ms. Groenteman each were granted a non-qualified option to
acquire 10,000 paired shares at an exercise price of $24.125.
Director Compensation for Patriot
Currently, any director who is not an employee of Patriot is paid an annual
retainer fee of $25,000 in quarterly installments of $6,250. In addition, each
of those directors is currently paid $1,250 for attendance at each meeting of
Patriot's Board of Directors, $1,000 for participating in a telephonic Board
meeting and $750 for attendance, whether in person or telephonic, at each
meeting of a committee of Patriot's Board of which such director is a member.
The annual retainer fee and meeting fees are paid in cash, but the directors
may elect in advance to defer the receipt of all or part of the fees and to
receive such deferred fees at a later date in the form of paired shares.
Directors who are employees of Patriot do not receive any fees for their
service on the Board of Directors or a committee thereof. In addition, Patriot
reimburses directors for their out-of-pocket expenses incurred in connection
with their service on the Board of Directors.
Under the Patriot 1997 Incentive Plan, on the date of each annual meeting of
Patriot's stockholders, each non-employee director then in office will receive
a grant of non-qualified options to purchase an additional 10,000 shares of
Paired Common Stock at the then current market price. All options granted to
non-employee directors vest immediately upon the date of grant. At the 1998
Annual Meeting of Stockholders, Messrs. Crow Daniels, Deterding, Dillon,
Jacobson and Ward each were each granted a non-qualified option under the
Patriot 1997 Incentive Plan to acquire 10,000 paired shares at an exercise
price of $24.125.
Special Directors' Compensation
In connection with consideration of strategic alternatives for the
companies, including the negotiations with the investors and the Identified
Party and the approval of the investment, the Patriot/Wyndham Boards of
Directors held numerous Board meetings. A special coordinating committee was
established and also met numerous times during the last two months of 1998 and
the first two months of 1999. The compensation committee also met several
times to discuss special compensation issues. One director, Ms. Groenteman,
who served as co-point person of the coordinating committee, worked full-time
on these matters. In light of their extraordinary effort, in lieu of the
normal meeting fees, each director not serving on either the compensation
committee or the coordinating committee received $20,000 in fees; members of
the compensation committees (other than Mr. Deterding) received $40,000 in
fees; members of the coordinating committee (other than Mr. Deterding and Ms.
Groenteman) received $65,000 in fees; Mr. Deterding, who served on both the
coordinating committee and the compensation committee, received $85,000 in
fees; and Ms. Groenteman received $200,000 in fees. These fees were payable in
either cash or deferred paired shares, at the election of each director.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION FOR PATRIOT
The following table sets forth the base compensation that Patriot paid in
1998 and 1997 to its Chairman and Chief Executive Officer and to five
executive officers other than the Chief Executive Officer of Patriot
(collectively, the "Patriot Named Executive Officers") whose base salary and
bonus exceeded $100,000 during the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation(a) Compensation Awards
----------------------------- -----------------------
Securities
Name and Restricted Underlying
Principal Stock Options All Other
Position Year Salary($) Bonus($)(b) Awards (#) (#)(c) Compensation($)
- --------- ---- --------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul A.
Nussbaum (r).... 1998 $555,425 -- -- -- $ 1,630(d)
Chief Executive
Officer 1997 $407,500 $529,478 280,005(e) 2,790,703(f) $45,869(g)
and Chairman of
the Board
William W. Evans
III............. 1998 $374,461 -- 166,666(v) -- $ 289(g)
President and
Chief 1997 $275,440(h) $303,373 200,003(i) 601,074(j) $ 148(g)
Operating Officer
Anne L.
Raymond (u)..... 1998 $286,992 $ 50,000 -- 10,733(k)(m) $ 252(o)
Chief Financial
Officer 88,925(l)(m)
and Treasurer 16,303(n)
1,967(n)
1997 $208,300 $168,000 -- -- --
Paul Novak (s)... 1998 $280,416 -- -- 25,641(n)(x) $ 155(g)
Executive Vice
President 1997 $131,252 $179,573 60,000(p) 107,335(w) $ 92(g)
Lawrence S.
Jones........... 1998 (q) (q) (q) (q) (q)
Executive Vice
President
and Treasurer
Rex E.
Stewart (t)..... 1998 $206,556 -- -- -- --
Chief Financial
Officer 1997 $105,000 $ 97,961 -- -- $ 201(g)
and Treasurer
</TABLE>
- --------
(a) No Patriot Named Executive Officer received personal benefits or
perquisites in excess of the lesser of $50,000 or 10% of their aggregate
salary and bonus.
(b) In accordance with the Patriot 1997 Incentive Plan, executive officers of
Patriot were allowed to elect to receive all or a portion of their bonus
either in cash or in paired shares. For 1997, if an executive officer
chose to receive their bonus all or in part in paired shares, they
received a 15% discount off of the fair market value of the paired shares
as of January 6, 1998. For 1997, Mr. Nussbaum elected to receive his
entire bonus in paired shares; Mr. Evans elected to receive $81,000 in
cash and $222,373 in the form of paired shares; Mr. Novak elected to
receive $82,500 in cash and $97,073 in the form of paired shares;
Mr. Stewart elected to receive $45,000 in cash and $52,961 in the form of
paired shares.
(c) Share amounts reflect the stock dividend distributed on January 25, 1999
to stockholders of record on December 30, 1998.
(d) Such amount includes $360 of term life insurance premiums paid by Patriot
for the benefit of Mr. Nussbaum and $1,270 contributed by Patriot to Mr.
Nussbaum's 401(k) account.
(e) On March 18, 1997, Patriot awarded the equivalent of 280,005 paired shares
to Mr. Nussbaum. Taking into account the various stock splits which
occurred in 1997, the equivalent to the market value of the paired shares
on the date of grant was $24.75 and the market value of such paired shares
on December 31, 1998 was $6.00. The restrictions on these shares lapsed
with respect to one-third of the shares on March 18, 1998. The
restrictions with respect to the balance of the shares lapsed on
February 26, 1999 in connection with Mr. Nussbaum's resignation.
(f) On April 1, 1997, Patriot granted non-qualified options to purchase the
equivalent of 2,790,703 paired shares to Mr. Nussbaum. These options were
intended to vest five years from the date of grant, on April 1, 2002, but
became fully vested and exercisable on February 26, 1999 in connection
with Mr. Nussbaum's resignation.
(g) Such amount represents term life insurance premiums paid by Patriot for
the benefit of the named executive officer.
(h) Such amount includes $940 paid to Mr. Evans to cover commuting expenses.
(i) On February 14, 1997, Patriot awarded the equivalent of 200,003 paired
shares to Mr. Evans. Taking into account the various stock splits which
occurred in 1997, the equivalent to the market value of the paired shares
on the date of grant was $22.625 and the market
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<PAGE>
value of such paired shares on December 31, 1998 was $6.00. The restrictions
lapsed with respect to 25% of the shares on March 1, 1998 and with respect
to the balance of the shares on December 31, 1998 .
(j) On February 14, 1997, Patriot granted non-qualified options to purchase
the equivalent of 601,074 paired shares to Mr. Evans. These options were
to vest in 12 equal quarterly installments beginning on April 1, 1997, but
became fully vested and exercisable on November 27, 1999.
(k) On February 2, 1998, Patriot granted non-qualified options to purchase the
equivalent of 10,733 paired shares to Ms. Raymond. These options vest on
the anniversary of February 2, 1998 at the following rates: year 1: 30%;
year 2: 30% and year 3: 40%.
(l) On February 2, 1998, Patriot granted non-qualified options to purchase the
equivalent of 88,925 paired shares to Ms. Raymond. These options vest on
the anniversary of February 2, 1998 at the following rates: year 1: 20%;
year 2: 20%; year 3: 30% and year 4: 30%.
(m) Such options were exchanged and canceled pursuant to an option exchange
program and are therefore no longer outstanding. See "Patriot Option
Exchange Program."
(n) Such options were granted pursuant to an option exchange program. See
"Patriot Option Exchange Program."
(o) Such amount includes $90 of term life insurance premiums paid by Patriot
for the benefit of Ms. Raymond and $162 contributed by Patriot to Ms.
Raymond's 401(k) account.
(p) On June 24,1997, Patriot awarded the equivalent of 60,000 restricted
paired shares to Mr. Novak. The equivalent to the market price of the
paired shares on the date of grant was $21.4375. The restrictions on the
shares were to lapse in five equal annual installments beginning on
June 24, 1998 and ending on June 24, 2002, but in connection with Mr.
Novak's termination, all restrictions will lapse on the effective date of
his termination.
(q) Mr. Jones was paid by Wyndham for his services as an officer of both
Patriot and Wyndham. See the "Wyndham Summary Compensation Table."
(r) Mr. Nussbaum resigned as an officer of Patriot on February 26, 1999.
(s) Mr. Novak's employment with Patriot will terminate in April, 1999.
(t) Mr. Stewart resigned as an officer of Patriot on March 31, 1998.
(u) Ms. Raymond is currently on a leave of absence.
(v) On December 31, 1998, Patriot awarded the equivalent of 166,666 restricted
paired shares to Mr. Evans. The equivalent to the market value of the
paired shares on the date of grant was $6.00. One-third of the award will
become payable upon the closing of the Investment and the related
transactions and one-third on each of the first and second anniversary
thereof.
(w) On June 24, 1997, Patriot granted non-qualified options to purchase the
equivalent of 107,335 paired shares to Mr. Novak. These options vest in
seven equal annual installments on the anniversary of June 24, 1997.
(x) On June 24, 1997, Patriot granted non-qualified options to purchase the
equivalent of 25,641 paired shares to Mr. Novak. These options vest in
seven equal annual installments on the anniversary of June 24, 1997.
Option Grants in Fiscal Year 1998 for Patriot
The following table sets forth the options granted with respect to the
fiscal year ended December 31, 1998 to the Patriot Named Executive Officers.
All amounts reported in the following table have been adjusted to reflect the
stock dividend declared in the fourth quarter of 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Share Price
Appreciation For
Individual Grants Option Term
--------------------------------------------------------------- ------------------------
Number of Percent of Total
Shares Underlying Options Granted
Options to Employees Exercise or Base Expiration
Name Granted(#) in Fiscal Year Price($/SH) Date 5%($) 10%($)
- ---- ----------------- ---------------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Anne L. Raymond......... 88,925(a)(d) 24.4% $24.22 2/2/2008 $ 0(d) $ 0(d)
10,733(b)(d) 2.6% $24.22 2/2/2008 $ 0(d) $ 0(d)
16,303(a)(e) 26.5% $7.547 2/2/2008 $ 77,378 $ 196,092
1,967(b)(e) 3.2% $7.547 2/2/2008 $ 9,336 $ 23,659
Paul Novak.............. 25,641(c)(e) 41.6% $7.547 6/24/2007 $ 121,699 $ 308,409
</TABLE>
- --------
(a) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 20%; year 2: 20%; year 3: 30% and year
4: 30%.
(b) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 30%; year 2: 30% and year 3: 40%.
(c) Such non-qualified options vest in seven equal annual installments on the
anniversary of June 24, 1997.
(d) Such non-qualified options were exchanged and canceled pursuant to the
stock option exchange program and are therefore no longer outstanding. See
"Patriot Stock Option Exchange Program."
(e) Such non-qualified options were granted pursuant to the stock option
exchange program. See "Patriot Stock Option Exchange Program."
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<PAGE>
Option Exercises and Year-End Holdings for Patriot
The following table sets forth the number of paired shares acquired upon the
exercise of options during 1998 and the value of options held at the end of
1998 by the Patriot Named Executive Officers:
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Value Unexercised In-The-Money Options at
Acquired on Realized Options at December 31, 1998 (#) December 31, 1998 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ---------- -------------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul A. Nussbaum........ 449,818 $5,036,234 37,271/2,968,304 (a)
William W. Evans........ -- -- 601,074/0 (a)
Anne L. Raymond......... 109,796 $ 904,258 0/18,270 (a)
Paul Novak.............. -- -- 3,663/21,978 (a)
Rex E. Stewart.......... -- -- 225,403/0 (a)
</TABLE>
- --------
(a) None of the unexercised options are in-the-money.
Patriot Stock Option Exchange Program
As reported in the Compensation Committee Report, Patriot commenced an
option exchange program for certain optionees holding stock options with an
exercise price per share in excess of $7.547 on November 13, 1998. The new
exercise price was based on the average stock price for the five-day period
beginning November 9, 1998 and ending November 13, 1998.
The following table sets forth information with respect to the executive
officers of Patriot relating to the "like-value exchange" of certain options
previously awarded to employees during fiscal years 1997 and 1998. All
optionees, other than the directors and the top two executive officers, were
given the opportunity to exchange certain options for new options which have a
Black-Scholes value equal to the old options, but were for fewer shares, at an
exercise price of $7.547 per share. The new options retain the original
vesting and expiration dates of the old options. The options set forth below
were the only options repriced for the executive officers in the last ten
years. The numbers of securities, stock prices and exercise prices reported in
the following table have been adjusted to reflect the stock dividend declared
for the fourth quarter of 1998.
<TABLE>
<CAPTION>
Number of Market Number of Length of
Securities Price of Securities Original
Underlying Stock at New Underlying Option Term
Date of Options Time of Exercise Price at Exercise Options Remaining at
Name Exchange Exchanged Exchange Time of Exchange Price After Exchange Date of Exchange
---- -------- ---------- -------- ----------------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anne L. Raymond......... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President and Chief
Financial Officer
Paul Novak.............. 11/13/98 107,335 $7.279 $21.079 $7.547 25,641 8 years 8 months
Executive Vice
President
John P. Bohlmann........ 11/13/98 32,220 $7.279 $24.224 $7.547 5,903 8 years 8 months
Senior Vice President 11/13/98 6,977 $7.279 $24.224 $7.547 1,279 9 years 3 months
and General Counsel
</TABLE>
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<PAGE>
Executive Compensation for Wyndham
The following table sets forth the base compensation that Wyndham paid to
its Chief Executive Officer and President and to five executive officers other
than the Chief Executive Officer of Wyndham (collectively, the "Wyndham Named
Executive Officers") whose base salary of bonus exceeded $100,000 during the
fiscal year ending December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation(a) Compensation Awards
----------------------- -----------------------
Securities
Restricted Underlying All Other
Name and Principal Stock Options Compensation
Position Year Salary($) Bonus($) Awards (#) (c) ($)
- ------------------ ---- --------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
James D. Carreker (b)... 1998 $571,036 -- -- -- $ 648 (d)
Chief Executive Officer
and Chairman of the
Board
Karim Alibhai........... 1998 $353,886 $140,000 -- 300,532 (f) $1,466 (d)
President and Chief 1997 $ 72,916 -- -- 300,532 (g) --
Operating Officer
Leslie V. Bentley....... 1998 $320,192 $120,000 -- 10,733 (h)(k) $2,308 (d)
Executive Vice
President 88,925 (i)(k)
1,967 (j)
16,303 (j)
Stanley M. Koonce, Jr... 1998 $310,920 $120,000 -- 10,733 (h)(k) $ 791 (d)
Executive Vice
President -- 88,925 (i)(k)
1,967 (j)
16,303 (j)
Richard A. Holtzman..... 1998 $348,070 $200,000 40,000 (e) 13,953 (l)(k)
Executive Vice
President 2,558 (j)
Lawrence S. Jones....... 1998 $242,308 $150,000 30,000(m) 85,866 (n)(k) $ 120 (d)
Executive Vice
President 10,733 (o)(k)
and Treasurer 17,173 (j)
2,147 (j)
</TABLE>
- --------
(a) No Wyndham Named Executive Officer received personal benefits or
perquisites in excess of the lesser of $50,000 or 10% of his aggregate
salary and bonus.
(b) Mr. Carreker became Chief Executive Officer of Wyndham in January 1998.
(c) Share amounts reflect the stock dividend distributed on January 25, 1999
to stockholders of record on December 30, 1998.
(d) For Mr. Carreker, such amount includes $360 of term life insurance
premiums paid by Wyndham for the benefit of Mr. Carreker and $288
contributed by Wyndham to Mr. Carreker's 401(k) account. For Mr. Alibhai,
such amount includes $113 of term life insurance premiums paid by Wyndham
for the benefit of Mr. Alibhai and $1,353 contributed by Wyndham to Mr.
Alibhai's 401(k) account. For Mr. Bentley, such amount includes $139 of
term life insurance premiums paid by Wyndham for the benefit of Mr.
Bentley and $2,169 contributed by Wyndham to Mr. Bentley's 401(k) account.
For Mr. Koonce, such amount includes $146 of term life insurance premiums
paid by Wyndham for the benefit of Mr. Koonce and $646 contributed by
Wyndham to Mr. Koonce's 401(k) account. For Mr. Jones, such amount
represents term life insurance premiums paid by Wyndham for the benefit of
Mr. Jones.
(e) On June 19, 1998, Wyndham awarded the equivalent of 40,000 restricted
paired shares to Mr. Holtzman. The equivalent to the market price of the
paired shares on the date of grant was $23.25. The restrictions on the
award will lapse on the anniversary of the date of grant at the following
rates: year 1: 20%; year 2: 20%; year 3: 30% and year 4: 30%. Mr. Holtzman
is entitled to receive dividends on the award during the vesting period.
(f) On June 12, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 300,532 paired shares to Mr. Alibhai. These options vest in
12 equal installments at the beginning of each calendar quarter starting
on January 1, 1998 and ending on December 31, 2000.
66
<PAGE>
(g) On October 1, 1997, Wyndham granted non-qualified options to purchase the
equivalent of 300,532 paired shares to Mr. Alibhai. These options vest in
12 equal installments at the beginning of each calendar quarter starting
on January 1, 1997 and ending on December 31, 2000.
(h) On February 2, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 10,733 paired shares to the named executive. These options
vest on the anniversary of February 2, 1998 at the following rates: year
1: 30%; year 2: 30% and year 3: 40%.
(i) On February 2, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 88,925 paired shares to the named executive. These options
vest on the anniversary of February 2, 1998 at the following rates: year
1: 20%; year 2: 20%; year 3: 30% and year 4: 30%.
(j) Such options were granted pursuant to an option exchange program. See
"Wyndham Stock Option Exchange Program."
(k) Such options were exchanged and canceled pursuant to an option exchange
program and are therefore no longer outstanding. See "Wyndham Stock Option
Exchange Program."
(l) On February 2, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 13,953 paired shares to Mr. Holtzman. These options vest on
the anniversary of February 2, 1998 at the following rates : year 1: 30%;
year 2: 30% and year 3: 40%.
(m) On March 9, 1998, Patriot awarded the equivalent of 30,000 restricted
paired shares to Mr. Jones. The equivalent to the market price of the
paired shares on the date of grant was $24.75. The restrictions on the
award will lapse on the anniversary of the date of grant at the following
rates: year 1: 25%; year 2: 50%; year 3: 75% and year 4: 100%. Mr. Jones
is entitled to receive dividends on the total award during the vesting
period.
(n) Such options vest in 12 equal quarterly installments beginning on April 1,
1998.
(o) Such options vest on the anniversary of March 9, 1998 at the following
rates: year 1: 30%; year 2: 30% and year 3: 40%.
Option Grants in Fiscal Year 1998 for Wyndham
The following table sets forth the options granted with respect to the
fiscal year ended December 31, 1998 to the Wyndham Named Executive Officers.
All amounts reported in the following table have been adjusted to reflect the
stock dividend declared in the fourth quarter of 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Share Price
Appreciation For
Individual Grants Option Term
---------------------------------------------------------- ------------------------
Number of Percent of Total
Shares Underlying Options Granted Exercise
Options to Employees or Base Expiration
Name Granted(#) in Fiscal Year Price($/SH) Date 5%($) 10%($)
- ---- ----------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Karim Alibhai........... 300,532(a) 11.5% $20.875 6/12/2008 $3,945,437 $9,998,511
Leslie V. Bentley....... 10,733(b)(d) 0.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
88,925(c)(d) 3.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
1,967(e) 0.6% $ 7.547 2/2/2008 $ 9,336 $ 23,659
16,303(e) 4.9% $ 7.547 2/2/2008 $ 77,378 $ 196,092
Stanley M. Koonce,
Jr. ................... 10,733(b)(d) 0.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
88,925(c)(d) 3.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
1,967(e) 0.6% $ 7.547 2/2/2008 $ 9,336 $ 23,659
16,303(e) 4.9% $ 7.547 2/2/2008 $ 77,378 $ 196,092
Richard A. Holtzman..... 13,953(b)(d) 0.5% $24.224 2/2/2008 $ 0(d) $ 0(d)
2,558(e) 0.8% $ 7.547 2/2/2008 $12,141 $ 30,768
Lawrence S. Jones....... 85,866(f)(d) 3.3% $23.06 3/9/2008 $ 0(d) $ 0(d)
10,733(g)(d) 0.4% $23.06 3/9/2008 $ 0(d) $ 0(d)
17,173(e) 5.2% $ 7.547 3/9/2008 $ 81,508 $ 206,556
2,147(e) 0.6% $ 7.547 3/9/2008 $ 10,190 $ 25,824
</TABLE>
- --------
(a) Such non-qualified options vest in 12 equal installments at the beginning
of each calendar quarter starting on January 1, 1998 and ending on
December 31, 2000.
(b) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 30%; year 2: 30% and year 3: 40%.
67
<PAGE>
(c) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 20%; year 2: 20%; year 3: 30% and year 4:
30%.
(d) Such non-qualified options were exchanged and canceled pursuant to the
stock option exchange program and are therefore no longer outstanding. See
"Wyndham Stock Option Exchange Program."
(e) Such non-qualified options were granted pursuant to the stock option
exchange program. See "Wyndham Stock Option Exchange Program."
(f) Such options vest in 12 quarterly installments beginning on April 1, 1998.
(g) Such options vest on the anniversary of March 9, 1998 at the following
rates: year 1: 30%; year 2: 30% and year 3: 40%.
Option Exercises and Year-End Holdings for Wyndham
The following table sets forth the number of paired shares acquired upon the
exercise of options during 1998 and the value of options held at the end of
1998 by the Wyndham Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Value Unexercised In-The-Money Options at
Acquired on Realized Options at December 31, 1998 (#) December 31, 1998 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ---------- -------------------------------- -------------------------
<S> <C> <C> <C> <C>
James D. Carreker....... 178,360 $2,200,606 78,048/0 (a)
Leslie V. Bentley....... 82,320 $1,082,549 29,452/18,720 (a)
Stanley M. Koonce, Jr... 82,320 1,118,564 29,452/18,720 (a)
Lawrence S. Jones....... -- -- 3,220/16,100 (a)
</TABLE>
- --------
(a) None of the unexercised options are in-the-money.
Wyndham Stock Option Exchange Program
The following table sets forth information with respect to the executive
officers of Wyndham relating to a "like-value exchange" of certain options
previously awarded to employees during fiscal years 1997 and 1998. All
optionees, other than the directors and the top two executive officers, were
given the opportunity to exchange certain options for new options which have a
Black-Scholes value equal to the old options, but were for fewer shares, at
the then current stock price and with the same term as the remaining term of
the old options. The options set forth below were the only options repriced
for the executive officers in the last ten years.
<TABLE>
<CAPTION>
Number of
Number of Market Securities Length of
Securities Price of Exercise Underlying Original Option
Underlying Stock at Price at New Options Term Remaining
Date of Options Time of Time of Exercise After at Date of
Exchange Exchanged Exchange Exchange Price Exchange Exchange
Name -------- ---------- -------- -------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lesley V. Bentley ...... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Stanley M. Koonce, Jr... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Lawrence S. Jones....... 11/13/98 85,866 $7.279 $23.059 $7.547 17,173 9 years 4 months
Executive Vice 11/13/98 10,733 $7.279 $23.059 $7.547 2,147 9 years 4 months
President and Treasurer
Richard A. Holtzman..... 11/13/98 13,953 $7.279 $24.224 $7.547 2,558 [?]
Executive Vice
President
Thomas W. Lattin........ 11/13/98 33,625 $7.279 $24.224 $7.547 6,617 9 years 3 months
Executive Vice
President
Michael A. Grossman..... 11/13/98 41,806 $7.279 $24.224 $7.547 7,665 9 years 3 months
Senior Vice President 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
Carla Moreland.......... 11/13/98 32,200 $7.279 $24.224 $7.547 5,903 9 years 3 months
Senior Vice President 11/13/98 6,977 $7.279 $24.224 $7.547 1,279 9 years 3 months
and General Counsel
</TABLE>
68
<PAGE>
Compensation Committee Interlocks and Insider Participation for Patriot and
Wyndham
None, except that with respect to Wyndham, during 1998 Mr. Carreker served
on the compensation committee of Crow Family Holdings and Ms. Groenteman is a
director of Wyndham and the chief operating officer of Crow Family Holdings.
Wyndham and Patriot Employment Agreements
Patriot entered into an employment agreement as of April 14, 1997 with Mr.
Nussbaum, pursuant to which Mr. Nussbaum serves as Chief Executive Officer and
Chairman of the Board of Patriot from July 1, 1997 until January 5, 2003, the
fifth anniversary of the effective date of the Wyndham Merger (the "Nussbaum
Agreement"). The Nussbaum Agreement is automatically extended for an
additional two-year term unless either party elects to terminate the Nussbaum
Agreement by notice in writing at least 90 days prior to the second
anniversary or even-numbered anniversary date thereafter. Mr. Nussbaum's
annual base compensation is subject to any increase in base compensation
approved by the Compensation Committee. Additionally, Mr. Nussbaum is eligible
to receive incentive compensation to be determined by the Compensation
Committee of an amount up to 100% of his base compensation.
Patriot entered into an employment agreement as of April 14, 1997 with Mr.
Carreker, pursuant to which Mr. Carreker serves as Chief Executive Officer and
as Chairman of the Board of Wyndham for a term of five years beginning on
January 5, 1998 (the "Carreker Agreement"). The Carreker Agreement is
automatically extended for an additional two-year term unless either party
elects to terminate by notice in writing at least 90 days prior to the second
anniversary of the Carreker Agreement or even-numbered anniversary date
thereafter. Mr. Carreker is eligible to receive incentive compensation to be
determined by the Compensation Committee of an amount up to 100% of his base
compensation.
Wyndham entered into an employment agreement as of October 1, 1997 with Mr.
Alibhai, pursuant to which Mr. Alibhai serves as President and Chief Operating
Officer of Wyndham for a term of three years beginning on September 30, 1997
(the "Alibhai Agreement"). The Alibhai Agreement is automatically extended for
an additional two-year term unless either party elects to terminate the
Alibhai Agreement by notice in writing at least 45 days prior the second
anniversary of the Alibhai Agreement or even-numbered anniversary date
thereof, to expiration of the Agreement. Additionally, Mr. Alibhai is eligible
to receive incentive compensation to be determined by the Compensation
Committee of an amount up to 80% of his annual base compensation, but in no
event less than $75,000.
Upon termination of employment due to the death or disability of Messrs.
Nussbaum, Alibhai or Carreker, (each respectively, an "Executive"), all
unexercisable stock options and non-vested stock-based grants will immediately
vest and will be exercisable for one year. Additionally, Patriot or Wyndham,
as applicable, will pay health insurance premiums for one year.
If an Executive's employment is terminated by such Executive for "good
reason," or if Patriot or Wyndham, as applicable, terminates his employment
without "cause," Patriot or Wyndham, as applicable, will pay such Executive a
severance payment in accordance with Patriot's or Wyndham's, as applicable,
then current severance policies. At a minimum, Messrs. Nussbaum and Carreker
would be entitled to a severance payment equal to three times the sum of his
average base compensation (determined in accordance with the Nussbaum
Agreement or the Carreker Agreement, respectively) and average incentive
compensation (determined in accordance with the Nussbaum Agreement or the
Carreker Agreement, respectively). Mr. Alibhai would be entitled to a minimum
severance payment equal to the sum of his average base compensation and
average incentive compensation for the remaining term of his Agreement or 24
months, whichever is higher, subject to certain offsets. Additionally, for a
period of three years, Patriot or Wyndham, as applicable, will provide Messrs.
Nussbaum and Carreker with an office and related facilities and an assistant
at a location of their respective choosing. For a period of one year, Patriot
or Wyndham, as applicable, would pay for Messrs. Nussbaum and Carreker the
cost of executive placement services. Certain stock options and stock-based
grants held by the Executive will become exercisable or nonforfeitable.
69
<PAGE>
If a "Change in Control" (as defined in the Agreements) occurs and the
Executive's employment is terminated for any reason other than death,
disability or voluntary resignation within 18 months of such Change in
Control, Patriot or Wyndham, as applicable, must pay the Executives a lump sum
amount equal to the Severance Payment and all stock options and other stock-
based awards will become immediately exercisable or non-forfeitable. In
addition, Patriot will provide the Executives with a tax gross-up payment to
cover any excise tax due.
Mr. Nussbaum's employment with Patriot terminated as of February 26, 1999.
Pursuant to the terms of his Separation Agreement (the "Nussbaum Separation
Agreement"), which was based in part on the provisions of the Nussbaum
Agreement, Patriot has agreed to pay Mr. Nussbaum severance in the amount of
$3.2 million, to provide for certain benefits for two years and an office and
secretarial support for three years. In addition, all of Mr. Nussbaum's
outstanding stock options vested and became exercisable and all of
Mr. Nussbaum's restricted stock became fully vested and nonforfeitable. In
accordance with the Nussbaum Separation Agreement, the stock options will
remain outstanding for their remaining terms and at Mr. Nussbaum's election,
which must be made between June 1, 1999 and December 31, 1999. Mr. Nussbaum's
existing stock options will be exchanged on a Black-Scholes neutral basis for
new options with an exercise price equal to the fair market value of the
common stock at the time of the exchange. Pursuant to the Separation
Agreement, Patriot also agrees to guarantee the repayment of Mr. Nussbaum's
outstanding indebtedness to NationsBank (the "NationsBank Loan"), and upon the
earlier of the closing of the investment and related transactions or
December 31, 1999, Patriot will assume the NationsBank Loan in exchange for a
personal recourse note of Mr. Nussbaum which will become payable at the end of
six years and will carry an interest rate of 5.5% per annum. Further,
Mr. Nussbaum received a new grant of 250,000 shares of restricted stock,
payable in three installments over two years. Finally, Mr. Nussbaum agrees to
provide consulting services to Patriot for two years, for which he will
receive a fee of $75,000 per month for the first 12 months and $50,000 per
month for the next 12 months.
In June 1997, Patriot entered into an employment agreement with Mr. Novak,
pursuant to which Mr. Novak serves as Executive Vice President--Acquisitions
and Development for a three-year term beginning June 1997. Mr. Novak is
eligible to receive incentive compensation to be determined by the
Compensation Committee of an amount up to 80% of his base compensation. The
other terms of Mr. Novak's agreement are substantially similar to those of
Messrs. Nussbaum and Carreker, except that if Mr. Novak's employment is
terminated by Mr. Novak for good reason, or if Patriot terminates his
employment without cause, Patriot will pay Mr. Novak a severance payment in
accordance with Patriot's then current severance policies, provided that, at a
minimum, Mr. Novak will receive a severance payment equal to the sum of the
average base and incentive compensation payable for the remaining length of
the original three-year term of the Agreement, or 24 months, whichever is
greater. Additionally, for a period of six months, Patriot would pay for the
cost of executive out placement services and for two years would pay health
insurance premiums. Certain stock options and restricted stock held by Mr.
Novak will immediately become exercisable and nonforfeitable. Mr. Novak is
entitled to the same benefits as Mr. Alibhai in the event of a "Change in
Control."
Mr. Novak's employment with Patriot will terminate in April. Pursuant to the
terms of Mr. Novak's employment agreement, he is entitled to receive severance
in the amount of $693,000 plus health insurance for two years. In addition,
certain of Mr. Novak's outstanding stock options will vest and become
exercisable and certain of Mr. Novak's restricted stock will vest and become
nonforfeitable. Mr. Novak will also be reimbursed for executive outplacement.
In February 1997, Patriot entered into an employment agreement with William
W. Evans III for a three- year term beginning March 1, 1997. Pursuant to the
Agreement, Mr. Evans initially served in the Office of the Chairman of
Patriot. In the event Mr. Evans' employment is terminated due to death or
disability: (i) Mr. Evans' beneficiaries will receive the proceeds under
applicable insurance policies, (ii) all stock options and other stock-based
awards will become immediately exercisable or nonforfeitable and (iii) for a
period of one year, Mr. Evans' spouse and dependents will receive medical and
related health benefits under Patriot's existing plans.
70
<PAGE>
In the event Mr. Evans' employment is terminated for cause or Mr. Evans
voluntarily terminates his employment, he will be entitled to receive any
accrued but unpaid cash compensation and benefits through the date of
termination and all vested options will continue to be exercisable for their
exercise term, as if his employment had not been terminated. If Patriot
terminates Mr. Evans without cause or if Mr. Evans terminates his employment
due to a "Constructive Termination" (as defined in the Agreement): (i) all
stock option and other stock-based awards will become immediately exercisable
or nonforfeitable, (ii) for the longer of one year or the remaining length of
the term of the Agreement, Mr. Evans and his spouse and dependents will
receive medical and related health benefits under Patriot's existing plans and
(iii) Patriot will pay Mr. Evans within 30 days after the date of termination,
a lump sum equal to his average base salary and average incentive compensation
for the remaining length of the term of the Agreement, or 12 months, whichever
is greater. Mr. Evans is entitled to the same benefits as Messrs. Nussbaum and
Carreker in the event of a "Change in Control."
Mr. Evans' employment agreement was amended in late 1998 to increase his
base salary to $450,000, effective November, 1998, and provide for an
incentive performance bonus payable upon successful completion of certain
goals established by the compensation committee. Further, the employment
agreement was amended to provide for a grant of 166,666 restricted paired
shares, payable in three installments over two years, contingent upon the
closing of the investment and the related transactions. In addition,
Mr. Evans' outstanding stock options all became vested and excusable and all
his restricted stock grants became fully vested and non-forfeitable. Finally,
Patriot provided Mr. Evans with a loan pursuant to his amended employment
agreement to assist him with the payment of income taxes on paired shares that
vested in February 1998.
As of April 14, 1997, Patriot entered into an employment agreement with
Ms. Raymond and Wyndham entered into employment agreements with
Messrs. Bentley and Koonce. These employment agreements became effective on
January 5, 1998. These employment agreements have a term of three years and
have substantially similar provisions as Mr. Novak's employment agreement
except that the severance payment is equal to the sum of the average base and
incentive compensation payable for the remaining length of the three-year
term, or 18 months, whichever is greater. Ms. Raymond's position is that of
Executive Vice President and Chief Financial Officer of Patriot. Mr. Bentley's
position is that of Executive Vice President of Wyndham, and Mr. Koonce's
position is that of Executive Vice President, Marketing and Strategic Planning
of Wyndham.
On March 9, 1998, Mr. Jones entered into employment agreements with both
Patriot and Wyndham for a three-year term. Mr. Jones's position is that of
Executive Vice President and Treasurer of both Patriot and Wyndham.
Mr. Jones's employment agreements have provisions that are substantially
similar to the employment agreements for Messrs. Bentley and Koonce, except
that Mr. Jones's employment agreements provide for a minimum guarantee of
incentive compensation equal to 50% of his base salary. Mr. Jones is also
entitled to borrow up to $750,000 from Patriot and Wyndham. Upon Mr. Jones's
termination of employment, if his total compensation earned while employed at
Patriot and Wyndham, including stock-based compensation, is less than
$3,000,000, a portion of the loan will be forgiven.
On June 19, 1998, Wyndham entered into an employment agreement with
Mr. Holtzman for a three-year term. Mr. Holtzman's position is that of
Executive Vice President of Wyndham and President of Grand Bay Hotels and
Resorts. Under Mr. Holtzman's employment agreement, he is entitled to receive
a guaranteed bonus of $200,000 in his initial year of employment. If
Mr. Holtzman's employment is terminated by Wyndham without "cause" or
Mr. Holtzman resigns for a "good reason," he will be entitled to a severance
payment equal to the sum of 50% of his average base pay and bonus and the
amount payable under the Company's then current severance policy. Certain
stock options and stock-based grants held by Mr. Holtzman will become
exercisable or nonforfeitable. For a period of six months, Wyndham would pay
Mr. Holtzman the cost of executive placement services. Upon a "change in
control," all of Mr. Holtzman's stock options and stock-based grants will
become exercisable and nonforfeitable.
On March 31, 1998, Mr. Stewart's employment with Patriot terminated.
Pursuant to the terms of Mr. Stewart's separation agreement, Mr. Stewart
continued to receive his base salary through October 2, 1998. In addition, all
of Mr. Stewart's outstanding stock options vested and became exercisable on
October 2, 1998
71
<PAGE>
and will remain outstanding until October 2, 2000. Mr. Stewart's restricted
stock will continue to vest in accordance to its original vesting schedule and
will not be forfeited as a result of Mr. Stewart's termination. In
consideration for the foregoing severance arrangements, Mr. Stewart provided
consulting services to Patriot for 60 days.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise noted, the following table sets forth certain information
as of March 22, 1999 as to the security ownership of those persons owning of
record or known to Patriot and Wyndham to be the beneficial owner of more than
five percent of the paired shares and the security ownership of Patriot
preferred stock and paired shares by each of the directors of Patriot and
Wyndham, director nominees and each of the executive officers of Patriot and
Wyndham, and all directors and executive officers of Patriot and Wyndham as a
group. All information with respect to beneficial ownership has been furnished
by the respective director, director nominee, executive officer or five
percent beneficial owner, as the case may be. Unless otherwise indicated, the
persons named below have sole voting and investment power with respect to the
number of shares set forth opposite their names. Beneficial ownership of the
Patriot preferred stock and paired shares has been determined for this purpose
in accordance with applicable rules and regulations promulgated under the
Exchange Act. Except as otherwise described below, all shares of Patriot
preferred stock and paired shares are owned directly and the indicated person
has sole voting and investment power. The number of shares of Patriot
preferred stock or paired shares also includes the number of shares that the
person could receive if he, she or it redeemed his partnership units under
certain circumstances.
72
<PAGE>
As of March 22, 1999, there were 234,131,492 paired shares; 4,860,876 shares
of Patriot series A and 558,656 of Patriot series B preferred stock; 1,781,173
shares of Wyndham series A preferred stock; 1,781,181 shares of Wyndham series
B preferred stock; 7,717,601 options to purchase a like number of paired
shares; 1,324,804 preferred B paired partnership units, 655,892 preferred A
Wyndham partnership units and 586,814 preferred C Wyndham partnership units
outstanding.
<TABLE>
<CAPTION>
Number of Shares
and Amount and Nature of Percentof
Name of Beneficial Owner Beneficial Ownership Class(a)
- ------------------------ ------------------------ ---------
<S> <C> <C>
Karim Alibhai............................ 5,347,240(b) 2.23%
Karim Alibhai............................ 171,200(w)*** 4.81%***
Leslie V. Bentley........................ 653,232(c) *
John P. Bohlmann......................... 42,428(d) *
Leonard Boxer............................ 59,117(e) *
James D. Carreker........................ 2,028,661(f) 1.03%
Harlan R. Crow........................... 12,126,729(g)(v) 4.83%
Harlan R. Crow........................... 4,860,876(h)** 100%**
John H. Daniels.......................... 204,987(e) *
John C. Deterding........................ 54,697(e) *
Gregory R. Dillon........................ 54,697(e) *
Burton C. Einspruch, M.D................. 24,472(i) *
William W. Evans III..................... 773,637(j) *
Milton Fine.............................. 5,066,390 2.12%
Susan T. Groenteman...................... 30,768(v) *
Michael Grossman......................... 20,914(k) *
Richard Holtzman......................... 98,353(x) *
Arch K. Jacobson......................... 77,237(l) *
Lawrence S. Jones........................ 15,711(m) *
Stanley M. Koonce........................ 613,438(n) *
Thomas W. Lattin......................... 406,880(o) *
James C. Leslie.......................... 15,033(v) *
Carla S. Moreland........................ 70,879(p) *
Paul Novak............................... 96,837(q) *
Paul A. Nussbaum......................... 4,301,647(r) 1.87%
Anne Raymond............................. 609,167(y) *
Rolf E. Ruhfus........................... 1,896,505(z) *
Philip J. Ward........................... 11,790(v) *
Sherwood M. Weiser....................... 1,137,736(i)(s) *
Sherwood M. Weiser....................... 788,795(w)*** 22.14%***
Executive officers and directors as a
group (27 persons)...................... 35,839,181 15.15%
CFHS, L.L.C./Crow Family, Inc............ 11,074,443(t) 4.73%
4,768,874(u)** 98.1%**
</TABLE>
- --------
* Less than 1%.
** Patriot preferred stock
*** Wyndham series A preferred stock and Wyndham series B preferred stock
(a) Assumes that all partnership units and shares of Patriot preferred stock
held by each person are redeemed for a paired share. The total number of
shares outstanding in calculating the percentage assumes that none of the
partnership units or shares of Patriot preferred stock held by other
persons are redeemed for paired shares. Also assumes that all vested
options to purchase paired shares are exercised. The total number of
shares outstanding used in calculating the percentage assumes that no
other vested or unvested options held by other persons are exercised.
(b) Includes options to purchase 300,531 paired shares issued to Mr. Alibhai
which are currently exercisable. The number of shares beneficially held by
Mr. Alibhai includes an aggregate of 441,059 partnership units
73
<PAGE>
beneficially owned by Gencom Interest, Inc., a family corporation for which
he serves as Vice President and of which he owns 30% of the outstanding
capital stock. Mr. Alibhai disclaims beneficial ownership of these
partnership units, except to the extent of his 40% ownership interest in
such corporation.
(c) Includes options to purchase 62,103 paired shares issued to Mr. Bentley
which are currently exercisable.
(d) Includes options to purchase 10,765 paired shares issued to Mr. Bohlmann
which are currently exercisable.
(e) Includes options to purchase: 42,933, paired shares, all of which are
currently exercisable.
(f) Includes options to purchase 78,088 paired shares issued to Mr. Carreker
which are currently exercisable.
(g) The number of shares beneficially held by Mr. Crow include an aggregate of
7,265,853 paired shares held by various family limited partnerships, in
which Mr. Crow controls the general partner and various family
corporations and trust in which Mr. Crow exercises control over investment
decisions. Mr. Crow disclaims beneficial ownership of such paired shares.
The number of shares also include 4,860,876 shares of Patriot preferred
stock held by the same family limited partnerships, corporations and
trusts. Mr. Crow disclaims beneficial ownership of such Patriot preferred
stock. Certain of such paired shares and Patriot preferred stock are also
reported being held by CFHS LLC and Crow Family, Inc.
(h) Shares of Patriot preferred stock. Mr. Crow disclaims beneficial ownership
of such Patriot preferred stock to the extent such stock exceeds his
pecuniary interest in the limited partnerships that directly hold the
stock. Certain of such shares are also reported as held by CFHS LLC and
Crow and Family, Inc.
(i) Includes options to purchase 21,467 paired shares, all of which are
currently exercisable.
(j) Includes options to purchase 601,074 paired shares issued to Mr. Evans,
all of which are currently exercisable.
(k) Includes options to purchase 8,951 paired shares issued to Mr. Grossman,
which are currently exercisable.
(l) Includes options to purchase 64,400 paired shares issued to Mr. Jacobson,
all of which are currently exercisable.
(m) Includes options to purchase 6,011 paired shares issued to Mr. Jones which
are currently exercisable.
(n) Includes options to purchase 33,303 paired shares issued to Mr. Koonce
which are currently exercisable.
(o) Includes options to purchase 223,609 paired shares issued to Mr. Lattin
which are currently exercisable.
(p) Includes options to purchase 56,788 paired shares issued to Ms. Moreland
which are currently exercisable.
(q) Includes options to purchase 25,641 paired shares issued to Mr. Novak
which are currently exercisable.
(r) Includes options to purchase 3,005,575 paired shares issued to Mr.
Nussbaum which are currently exercisable.
(s) Includes an aggregate of 10,984 paired partnership units held by W L
Tampa, Ltd., and 129,900 paired shares held by CHC International, Inc. Mr.
Weiser disclaims beneficial ownership of such securities to the extent
that they exceed his pecuniary interest in such entities.
(t) Includes 6,305,569 paired shares and 4,768,874 shares of Patriot preferred
stock held by various limited partnerships in which CFHS LLC serves as the
general partner. All of such shares are also reported in Mr. Crow's
beneficial holdings. Beneficial ownership information is based on the
Schedule 13D filed by G-3 Securities, L.P., CFHS, LLC and Crow Family,
Inc. on January 8, 1998.
(u) Shares of Patriot preferred stock. All of such shares are also reported in
Mr. Crow's beneficial holdings above.
(v) Includes options to purchase 10,733 paired shares, all of which are
currently exercisable.
(w) Shares of Wyndham series A preferred stock and shares of Wyndham series B
preferred stock.
(x) Includes options to purchase 95,420 paired shares which are currently
exercisable.
(y) Includes options to purchase 3,851 paired shares which are currently
exercisable.
(z) Includes an aggregate of 1,766,936 of paired partnership units held by
Summerfield Suites Management Corp., Summerfield Development Corp.,
Summerfield Suites Lease Corp., SFHC Lease Corp., Summerfield Investment
Corp., and Witchita Consulting Co.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Title Insurance
Unity Title Company, a corporation wholly-owned by Mr. Nussbaum and members
of his family, receives a portion of the title insurance premiums paid in
connection with substantially all of the hotel acquisitions by the Companies.
In many cases, these premiums are paid by the seller of the hotel, and in
other cases are paid by the Companies. In 1998, Unity Title Company received
in excess of $60,000 in title premiums related to hotel acquisitions by the
companies.
Wyndham Merger
In connection with the merger of Wyndham Hotels Corporation with and into
Patriot in January 1998 (the "Wyndham Merger"), Patriot entered into an
Omnibus Purchase and Sale Agreement, as well as 11 individual purchase and
sale agreements with various descendants of Mr. and Mrs. Trammell Crow, and
various corporations, partnerships, trusts and other entities beneficially
owned or controlled by such persons (collectively, the "Crow Family Members"),
Mr. Carreker, Mr. Bentley and Mr. Koonce, for the acquisition of 11 hotels.
Messrs. Carreker, Bentley and Koonce are referred to herein collectively as
the "Wyndham Senior Executives." In connection with the Wyndham merger, the
Crow Family Members received $52,227,598, 6,427,217 shares of paired common
stock and 4,860,876 shares of Patriot preferred stock. Mr. Carreker received
$7,661,087 and 1,638,988 shares of Paired Common Stock, Mr. Bentley received
$2,189,652 and 468,423 shares of paired common stock and Mr. Koonce received
$2,166,908 and 463,580 shares of paired common stock, and Ms. Groenteman
received $174,530 and 37,337 shares of paired common stock. Additionally,
after payment of outstanding indebtedness and other transactional expenses,
the entities had available for distribution approximately $64,731,000 for the
Crow Family Members, approximately $1,527,000 for Mr. Carreker, and
approximately $462,000 for each of Mr. Bentley and Mr. Koonce. Also, in
connection with the Wyndham Merger, stock option granted to Messrs. Carreker,
Bentley and Koonce and Ms. Moreland became immediately exercisable in
accordance with their terms.
In connection with the Wyndham merger, Crow Family Members and certain
Wyndham senior executives retained the right to receive additional
consideration on April 30, 2000 based on a formula pertaining to the
performance of Wyndham Riverfront New Orleans and Wyndham Garden Laguardia as
set forth in the Omnibus Purchase and Sale Agreement dated April 14, 1997.
Based on the performance of such properties as of December 31, 1998, the
additional consideration would be $9,152,000 and $9,971,000, respectively.
Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries
Patriot loaned $40,500,000 in the form of mortgage notes to PAH Ravinia, a
corporation owned directly and indirectly by Paul Nussbaum Tom Lattin and Rex
Stewart, as part of the financing for PAH Ravinia's acquisitions of the Crowne
Plaza Ravinia Hotel. Patriot recognized $43,000 of interest income in 1998
related to such mortgage notes (excluding $4,268,000 of such interest
eliminated for financial reporting purposes in 1998). Patriot has aggregate
receivable (including mortgage notes) of $42,264,000 due from PAH Ravinia as
of December 31, 1998.
Patriot also loaned $31,400,000 in the form of a mortgage note to PAH
Windwatch, a limited liability company owned directly and indirectly by Paul
Nussbaum, Tom Lattin and Rex Stewart, as part of the financing for PAH
Windwatch's acquisition of the Wyndham WindWatch Hotel. Patriot recognized
$79,000 of interest income in 1998 related to such mortgage notes (excluding
$2,759,000 of such interest eliminated for financial reporting purposes).
Patriot had aggregate receivables (including the mortgage notes) of
$32,830,000 due from PAH Windwatch as of December 31, 1998.
Interstate Merger
In connection with the Companies acquisition of Interstate Hotels Company in
June 1998, Milton Fine and various entities beneficially owned or controlled
by Mr. Fine received cash and 9,706,019 shares of paired common stock.
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<PAGE>
Summerfield Acquisition
In connection with Wyndham's acquisition (the "Summerfield Acquisition") of
SF Hotels Company, L.P. in June 1998, Rolf Ruhfus and entities beneficially
owned or controlled by Mr. Ruhfus (the "Summerfield Entities") received
$40,885,214 in cash and 1,368,009 units (the "Units") of limited partnership
interest in each of the Patriot Partnership and the Wyndham Partnership.
Additionally, pursuant to the terms of Contribution Agreement relating to the
Summerfield Acquisition, the Summerfield Entities received an additional
327,993 Units in January 1999 and have earned the right to receive an
additional estimated $55 million of consideration in January 2000 and January
2001 (payable, at the election of the Summerfield Entities, in either cash or
additional OP Units).
In connection with the Summerfield Acquisition, Rolf Ruhfus retained the
right to a 15% participation with the Company in the appreciation in value of
the Miami Airport Summerfield based on terms set forth in the carried interest
payment agreement included as an exhibit to the Contribution Agreement.
GAH Acquisition--Phase II
In June 1998, in connection with certain transactions with affiliates of
Gencom American Hospitality, Inc. and CHCI to acquire certain real estate and
other assets, Mr. Alibhai received 156,863 partnership units and 85,600 shares
of Wyndham Series A and B preferred stock.
In connection with the company's acquisition of CHCI on June 30, 1998 the
Company may be obligated on September 30, 2000 and September 30, 2002 to pay
Mr. Alibhai and Mr. Weiser additional consideration, in each case based upon
the performance of certain specific assets, based on formulas as set forth in
certain merger and contribution agreements.
Sale of Hotels to Milton Fine
In November 1998, the companies sold the Courtyard by Marriott in
Westborough, Massachusetts and the Residence Inn by Marriott in Pittsburgh,
Pennsylvania, as well as 50% equity interest in each of the Courtyard by
Marriott in Orange, Connecticut and the Courtyard by Marriott in St. Louis,
Missouri to Milton Fine for an aggregate purchase price of $41.5 million.
Other Related Party Transactions
The company licenses from Paul Nussbaum the name and trademark of Patriot
American Hospitality, Inc. under a perpetual no-cost license agreement.
During 1998, Wyndham received hotel management fees in the aggregate amount
of $8,301,956 from the partnership owning Wyndham hotels ("Hotel
Partnerships") listed below, in which Crow Family Members have an interest.
Some or all of the Wyndham Senior Executive Officers have an ownership
interest in such Hotel Partnerships.
During 1998, Wyndham received payments in the aggregate amount of $4,207,325
from the Hotel Partnerships listed below, in which Crow Family Members have an
interest. Some or all of the Wyndham Senior Executive Officers have an
ownership interest in such Hotel Partnerships. The payments were received as
reimbursements for certain administrative, tax legal, accounting, finance,
risk management, sales and marketing services provided by Wyndham to such
entities.
<TABLE>
<CAPTION>
Hotel Partnership Hotel
----------------- -----
<S> <C>
Anatole Hotel Investors, L.P................... Wyndham Anatole
Bristol Hotel Associates, Ltd.................. Wyndham Bristol
Playhouse Square Hotel Limited Partnership..... Wyndham Playhouse Square
MTD Associates................................. Wyndham Milwaukee Center
Hotel and Convention Center Partners I-XI.
Ltd........................................... Wyndham Palm Springs
Amgreen-Heritage Hotel Partnership, Ltd........ Wyndham Garden Hotel-Orange
Waterfront-Hotel Associates, S.E............... Wyndham Old San Juan
</TABLE>
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<PAGE>
During 1998, Wyndham received hotel management fees in the aggregate of
$14,319,964 from the ownership entity of the hotel listed below in which
Milton Fine, Paul Nussbaum, Karim Alighai, Rolf Ruhfus, or Sherwood Weiser has
an interest.
<TABLE>
<CAPTION>
1998 Aggregate Management
Milt Fine and Service Fees
--------- -------------------------
<S> <C>
Marriott-Harrisburg, PA $ 265,734
Marriott Reach Resort; Key West, Fla. 201,187
Marriott-Pittsburgh Airport 294,884
Marriott-Albany, NY 340,144
Marriott Mission Valley, San Diego 323,684
Marriott Minnetonka, Minneapolis 273,466
Marriott Courtyard; St. Louis 378,029
Marriott Courtyard-Westborough; Boston 208,065
Marriott Courtyard Orange 210,486
Marriott-Ft. Lauderdale 173,532
Marriott Greentree, Pittsburgh 658,613
Marriott Providence 1,383,983
Marriott Trumbull 1,554,174
Embassy Suites Chicago 377,213
Residence Inn Pittsburgh 46,866
Hilton Garden Inn-Chicago 99 Opening
<CAPTION>
Paul Nussbaum
-------------
<S> <C>
Marriott Residence Inn, Houston $ 210,737
Holiday Inn Astrodome 215,020
Days Inn Astrodome 49,350
Sheraton Astrodome 524,190
Radisson Astrodome 94,849
Ramada Astrodome --
Sheraton Edmonton 216,335
Inn at Maingate dba Doubletree Maingate 204,220
<CAPTION>
Karim Alibhai
-------------
<S> <C>
Days Inn Astrodome, Houston $ 49,350
Days Inn Greenspoint, Houston 45,530
Hampton Inn Corpus Christi 46,824
Hawthorne Suites, Houston 86,974
Holiday Inn Stevens Point, Portage County, 273,629
Wisconsin
Holiday Inn Astrodome, Houston 161,733
Inn at Maingate dba Doubletree Maingate, 204,220
Kissimmee, FL
Marriott Residence Inn, Houston Medical Center 210,737
Sheraton Astrodome, Houston 524,190
Sheraton Edmonton, Alberta Canada 216,335
Omni Baltimore 916,675
Wyndham Miami-Biscayne Bay 449,110
Radisson Astrodome, Houston 94,849
Holiday Inn-Lenox 221,928
Wyndham Garden Market Center, Dallas 137,813
Days Inn Austin 40,314
Radisson Acapulco 21,639
Wyndham Montreal 256,793
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
Rolf Ruhfus
-----------
<S> <C>
Summerfield Suites-Bridgewater $141,990
Summerfield Suites-Burlington 136,446
Summerfield Suites Chicago Downtown 158,621
Summerfield Suites Charlotte 36,006
Summerfield Suites Gaithersburg 98,982
Summerfield Suites Pleasanton 51,339
Summerfield Suites Scottsdale 4,889
Summerfield Suites Harrison --
Summerfield Suites Plymouth Meeting --
Sierra Suites-Atlanta Perimeter --
Sierra Suites-Bothell 45,901
Sierra Suites-Chantilly 332
Sierra Suites-Orlando 40,272
Sierra Suites-Lake Buena Vista 36,740
Sierra Suites-Phoenix Metro Center 25,621
Sierra Suites-Piscataway 29,637
Sierra Suites-Pleasanton 23,613
Sierra Suites-Scottsdale 54,871
Sierra Suites-Waltham 32,470
Sierra Suites-Woburn 53,678
Sierra Suites-Atlanta Brookhaven --
Sierra Suites-San Jose --
<CAPTION>
Sherwood Weiser
---------------
<S> <C>
Holiday Inn Dayton Mall, Ohio 37,161
Sheraton University City, Philadelphia 161,089
Wyndham Miami-Biscayne Bay 449,110
Westin Hotel Providence, RI 143,982
Washington Duke 359,750
During 1998, the Company made lease payments of $455,414 to an affiliate of
Summerfield Associates L.P., a partnership in which Rolf Ruhfus has an
ownership interest, related to the hotels listed below:
Sierra Suites Atlanta Cumberland 82,894
Sierra Suites Phoenix Camelback 181,989
Sierra Suites Westborough 190,531
</TABLE>
During 1996, the Wyndham Senior Executive Officers incurred indebtedness to
Wyndham Finance Limited Partnership ("WFLP"), a partnership owned by the Crow
Family Members. Notes representing such loans were purchased by Wyndham Hotel
Corporation in May of 1996 in connection with its formation for a cash payment
to WFLP in the amount of $18,576,000, which is equivalent to the aggregate
outstanding principal and accrued interest severally owing by the Wyndham
Senior Executive Officers to WFLP. Such promissory notes, which are made
payable to Wyndham, accrue interest at 6% per annum and are secured by the
pledge of certain paired shares held by the note obligors. The outstanding
principal and accrued interest (compounded quarterly) is payable in a single
lump sum in May 2001. The aggregate principal amount of such loans, including
interest are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
James D. Carreker.......................................... $5,770,000
Leslie V. Bentley.......................................... $2,124,000
Stanley M. Koonce, Jr. .................................... $2,163,000
Anne L. Raymond............................................ $5,197,000
</TABLE>
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<PAGE>
During 1998, the Companies made payments in the aggregate amount of $1.2
million as lease payments for its corporate office space to an entity in which
Crow Family Members have an ownership interest.
In 1998 the Company made payments in the aggregate amounts of $66,000 as
lease payments for the Summerfield divisional offices in Wichita, Kansas to
Summerfield Associates L.P., a partnership in which Rolf Ruhfus has an
ownership interest. The leases terminate in June 2001.
During 1998, Wyndham made payments in the aggregate amount of $3,423,000 to
Wyndham Travel Management Ltd. an entity owned by Lucy Billingsley (the
daughter of Mr. Trammell Crow), for travel services provided to Wyndham.
During 1998, Wyndham received payments in the aggregate amount of $117,900
from Crow-Los Patriots Limited, a senior assisted living facility in which
certain Crow Family Members have an ownership interest. The payments were
received as management fees.
During 1998, Patriot provided William W. Evans, III with a non-recourse loan
of $424,375 to assist Mr. Evans with the payment of income taxes in the
vesting of his shares of Paired Common Stock. This loan is secured by 53,667
shares of Paired Common Stock and bears interest at 7.5% per annum. The loan
is due on November 27, 2003, or 60 days after Mr. Evans' termination of
employment, if earlier.
During 1998, Wyndham provided Lawrence S. Jones with a non-recourse loan of
$300,000. This loan bears interest at 7% per annum and is due on October 5,
2001. As provided in Mr. Jones's employment agreements, a portion of the loan
may be forgiven upon Mr. Jones's termination of employment with the Companies.
Wyndham is a guarantor of the obligations of Playhouse Square Hotel Limited
Partnership (the owners of which include Crow Family Members and the Wyndham
Senior Executive Officers) to fund operating deficits relating to such Hotel
Partnership. The guarantee requires the guarantors (including Wyndham) to
advance up to $600,000 per year to the extent the Hotel Partnership
experiences operating deficits, with maximum required advances of $2.3 million
over the term of the guarantee extending from 1995 to 2000. Playhouse Square
Hotel Limited Partnership has caused to be deposited the sum of $1,000,000 as
reserve to secure the payment of the guaranteed obligations and to fund
operating deficits. Wyndham has not to date been required to make any advance
under the guarantee.
Pursuant to the terms of its management agreement relating to the Wyndham
Hotel at Los Angeles Airport (the "LAX"), Wyndham agreed to loan $4,560,000 to
be applied to costs of refurbishment of the LAX. The refurbishment loan is
evidenced by a promissory note (the "Note Receivable"), which has been
partially funded in the amount of $4,237,000 as of December 31, 1998.
Wyndham's obligation to make the remaining advances under the refurbishment
loan is secured by a letter of credit, which, in turn, is collateralized by
$440,241 (in cash) as of December 31, 1998. Prior to the formation of Wyndham,
WHC LAX Associates, L.P. ("WHC LAX"), a limited partnership owned by Crow
Family Members and the Wyndham Senior Executive Officers, paid Wyndham
$4,560,000 in return for Wyndham's agreement to pay to WHC LAX all payments
that Wyndham receives under the Note Receivable. Wyndham also agreed that,
insofar as the WHC LAX's $4,560,000 payment to Wyndham exceeds advances that
Wyndham is obligated to make, but has not yet made, under the Note Receivable,
it would pay to WHC LAX interest at a variable rate that has ranged from 5.25%
to 5.81% per annum on the unfunded amounts. As of December 31, 1998, Wyndham
has accrued such interest in the amount of $ .
In 1996, Wyndham entered into a five year service agreement with ISIS 2000,
an entity owned by Crow Family Members and the Wyndham Senior Executive
Officers, whereby ISIS 2000 will provide centralized reservations and property
management services to all Wyndham brand hotels. The services will be provided
for
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<PAGE>
a fee comprised of an initial link-up charge plus a per reservation fee and a
per hotel charge for the property management system. The service fee incurred
by Wyndham totaled $4,368,000 in 1998. Wyndham has entered into an asset
management agreement with ISIS 2000 providing for human resource, finance,
accounting, payroll, legal and tax services. In addition, Wyndham had
guaranteed operating leases on behalf of ISIS 2000 in the approximate amount
of $1.8 million as of December 31, 1998. In connection with the Wyndham
Merger, each of the owners of ISIS 2000 granted an option (collectively, the
"ISIS Options") to Patriot to purchase their ownership interests in ISIS 2000.
The exercise price of the ISIS Options is equal to an amount that would yield
an internal rate of return equal to 12.5% on total capital contribution by the
owners of ISIS 2000 as of the date of exercise. As of December 31, 1998, the
aggregate exercise price of the ISIS Options was approximately $3,000,000.
In 1998 the Company made payments in the aggregate amount of $5,467,000 to
Kinetic Group Limited Partnership, an entity 50% owned by Trammell Crow
Company and 50% owned by an entity owned by Crow Family Members and certain
Senior Executive Officers. The payments were made under the terms of a service
agreement whereby Kinetic Group Limited Partnership provides management
information services to the Companies. In connection with the Wyndham merger,
the 50% entity owned by Crow Family Members and certain Senior Executive
Officers granted options to Patriot to purchase their ownership interests in
the 50% owner of Kinetic Group Limited Partnership. The exercise price of such
options is $100.00.
In 1997, Wyndham entered into a construction loan agreement with the Wyndham
Anatole Hotel (the "Anatole Hotel"), in which Crow Family Members have an
ownership interest. Under the agreement, Wyndham made a loan in the amount of
$10,000,000 for the construction costs of the hotel.
Crow Family Members retained the right to receive additional consideration
in an aggregate amount of up to $3,000,000 related to Wyndham Greenspoint-
Houston and Wyndham-Midtown Atlanta based on contingencies related to target
returns on invested capital as set forth in certain purchase and sale
agreements prior to the Wyndham merger and which survive the applicable
termination agreement.
In 1998 the Company managed Wyndham branded hotels for certain affiliates of
Hampstead Group L.L.C. An entity owned by Crow Family Members and certain
Senior Executive Officers (Hamcontinpay) may be entitled to a contingent
payment at such time as all such hotels achieve an investment return target of
15% on all equity capital invested through such program plus certain overhead
costs. The amount of such contingent payment is 10% of all cash proceeds
realized in excess of the investment return target.
Wyndham has made insurance premium payments to Wynright Insurance
("Wynright"), an entity owned by Crow Family Members and the Wyndham Senior
Executive Officers, with respect to certain insurance policies maintained for
the benefit of Wyndham and hotels owned or leased by Wyndham. Such payments
totaled $730,000 in 1998.
In 1996, a subsidiary of Wyndham entered into a master management agreement
with Homegate, an entity in which Crow Family Members have an interest. On
October 31, 1997, the management agreement with Homegate was terminated and
Wyndham received $8,000,000 in cash and a promissory note in the amount of
$3,000,000 in exchange for the termination. The promissory note was collected
on January 9, 1998.
Leonard Boxer, a director of Wyndham, is a partner is Stroock & Stroock &
Lavan, a law firm that has advised Patriot on certain matters relating to the
acquisition of certain real property.
In 1998 the Company paid Rolf Ruhfus in excess of $598,393 in consulting
fees under terms set forth in a consulting agreement entered into in
connection with the Summerfield Acquisition. The Consulting Agreement expires
in June 1999.
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<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act, requires the companies' officers,
directors and persons who beneficially own more than ten percent of the paired
common stock to file reports of securities ownership and changes in such
ownership with the SEC. Officers, directors and greater than ten percent
beneficial owners also are required by rules promulgated by the SEC to furnish
the Companies with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Companies, or written representations that no Form 5 filings were required,
Patriot and Wyndham believe that during 1998 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with except that: (1) Mr. Lyon
inadvertently failed to file a Form 4 with the SEC on a timely basis with
respect to the redemption and distribution of certain paired partnership
units; (2) Mr. Lyon inadvertently failed to file a Form 4 with the SEC on a
timely basis to report several sales of paired shares; (3) Mr. Weiser
inadvertently failed to file a Form 5 with the SEC on a timely basis with
respect to the redemption and distribution of certain paired partnership units
and the sale of certain paired shares; (4) Mr. Holtzman and Ms. Priest
inadvertently failed to file a Form 3 with the SEC on a timely basis when they
became reporting persons; (5) Mr. Alibhai inadvertently failed to file a Form
4 with the SEC on a timely basis to report the disposition of certain of
certain preferred C Wyndham partnership units; (6) Mr. Grossman inadvertently
failed to file a Form 4 with the SEC on a timely basis to report the grant of
certain paired shares as a bonus; (7) Mr. Novak inadvertently failed to file a
Form 4 with the SEC on a timely basis to report the acquisition of certain
paired shares in connection with the merger of Wyndham Hotel Company with and
into Patriot American Hospitality, Inc.; (8) Mr. Weiser inadvertently failed
to file a Form 4 with the SEC on a timely basis with respect to the redemption
of certain paired partnership units and a Form 4 with respect to the
redemption of certain paired partnership units and the sale of certain paired
shares.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(a) The index to the audited financial statements and financial statement
schedules is included on page F-1 of this report. The financial statements are
included herein at pages F-1 through . The following financial statement
schedules are included herein at pages through :
Schedule III--Real Estate and Accumulated Depreciation for Patriot
American Hospitality, Inc.
Schedule IV--Mortgage Loans on Real Estate for Patriot American
Hospitality, Inc.
All other schedules for which provision is made in Regulation S-X are
either not required to be included herein under the related instructions or
are inapplicable or the related information is included in the footnotes to
the applicable financial statement and, therefore, have been omitted.
(b) Reports on Form 8-K for the quarter ended December 31, 1998:
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated November 9, 1998 (Nos. 001-09319 and
001-09320 filed November 9, 1998), as amended November 10, 1998, reporting
under Item 5 current developments regarding combined liquidity and capital
resources, the forward contracts the treasury rate lock agreements,
Hurricane Georges and third quarter 1998 earnings.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated November 27, 1998 (Nos. 001-09319 and
001-09320 filed December 3, 1998) reporting under Item 5 current
developments regarding combined funds from operations for the three months
ending December 31, 1998.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated December 16, 1998 (Nos. 001-09319 and
001-09320 filed December 16, 1998) reporting under
81
<PAGE>
Item 5 current developments regarding a letter of intent with a group of
investors for a $1 billion equity investment.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated December 16, 1998 (Nos. 001-09319 and
001-09320 filed December 18, 1998) reporting under Item 5 current
developments regarding potential asset sales, the forward contracts and
fourth quarter 1998 earnings.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated December 20, 1998 (Nos. 001-09319 and
001-09320 filed December 22, 1998) reporting under Item 5 the adoption by
the Boards of Directors of a Shareholder Rights Agreement.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------------------------------------
<C> <S>
Statement regarding computation of ratios (filed
12.1 herewith).
Significant Subsidiaries of Patriot and Wyndham
21.1 (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
24.1 Powers of Attorney (included on signature pages).
Financial Data Schedule of Patriot (filed
27.1 herewith).
Financial Data Schedule of Wyndham (filed
27.2 herewith).
99. 1 Letter dated February 28, 1999 by and among
Patriot American Hospitality, Inc., Wyndham
International, Inc. and UBS, AG, London Branch
99.2 Letter dated February 28, 1999 by and among
Patriot American Hospitality, Inc., Wyndham
International, Inc. and PaineWebber Financial
Products, Inc.
99.3 Letter dated February 28, 1999 by and among
Patriot American Hospitality, Inc., Wyndham
International, Inc. and NationsBanc Mortgage
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, March 26, 1999.
PATRIOT AMERICAN HOSPITALITY, INC.
/s/ James D. Carreker
By: _________________________________
James D. Carreker
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacities in which signed Date
--------- -------------------------- ----
<S> <C> <C>
/s/ James D. Carreker Chief Executive Officer March 26, 1999
______________________________________ (Principal Executive
James D. Carreker Officer)
/s/ Paul A. Nussbaum Director March 26, 1999
______________________________________
Paul A. Nussbaum
/s/ William W. Evans III President, Chief Operating March 26, 1999
______________________________________ Officer and Director
William W. Evans III
/s/ Lawrence S. Jones Executive Vice President March 26, 1999
______________________________________ and Treasurer (Principal
Lawrence S. Jones Accounting Officer)
______________________________________ Director
Milton Fine
/s/ John H. Daniels Director March 26, 1999
______________________________________
John H. Daniels
/s/ John C. Deterding Director March 26, 1999
______________________________________
John C. Deterding
______________________________________ Director
Gregory R. Dillon
/s/ Arch K. Jacobson Director March 26, 1999
______________________________________
Arch K. Jacobson
/s/ Phillip J. Ward Director March 26, 1999
______________________________________
Phillip J. Ward
</TABLE>
83
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants has duly caused the Annual Report
on Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, March 26, 1999.
WYNDHAM INTERNATIONAL, INC.
/s/ James D. Carreker
By: _________________________________
James D. Carreker
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacities in which signed Date
--------- -------------------------- ----
<S> <C> <C>
/s/ James D. Carreker Chairman of the Board and March 26, 1999
______________________________________ Chief Executive Officer
James D. Carreker (Principal Executive
Officer)
/s/ Karim Alibhai President, Chief Operating March 26, 1999
______________________________________ Officer and Director
Karim Alibhai
/s/ Lawrence S. Jones Executive Vice President March 26, 1999
______________________________________ and Treasurer (Principal
Lawrence S. Jones Financial Officer and
Principal Accounting
Officer)
/s/ Arch K. Jacobson Director March 26, 1999
______________________________________
Arch K. Jacobson
/s/ Leonard Boxer Director March 26, 1999
______________________________________
Leonard Boxer
Director
______________________________________
Rolf E. Ruhfus III
/s/ Burton C. Einspruch, M.D. Director March 26, 1999
______________________________________
Burton C. Einspruch, M.D.
/s/ Sherwood Weiser Director March 26, 1999
______________________________________
Sherwood Weiser
/s/ James C. Leslie Director March 26, 1999
______________________________________
James C. Leslie
/s/ Susan T. Groenteman Director March 26, 1999
______________________________________
Susan T. Groenteman
/s/ Paul A. Nussbaum Director March 26, 1999
______________________________________
Paul A. Nussbaum
</TABLE>
84
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL FINANCIAL INFORMATION
COMBINED PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL,
INC.:
Report of Independent Auditors--Ernst & Young LLP....................... F-2
Combined Balance Sheets as of December 31, 1998 and 1997................ F-3
Combined Statements of Operations for the years ended December 31, 1998,
1997 and 1996.......................................................... F-4
Combined Statements of Shareholders' Equity for the years ended December
31, 1998, 1997 and 1996................................................ F-5
Combined Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996.......................................................... F-6
PATRIOT AMERICAN HOSPITALITY, INC.:
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-7
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.................................................. F-8
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996..................................... F-9
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997and 1996................................................... F-10
WYNDHAM INTERNATIONAL, INC.:
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-11
Consolidated Statements of Operations for the year ended December 31,
1998 and the six months ended December 31, 1997...................... F-12
Consolidated Statements of Shareholders' Equity for the year ended
December 31, 1998 and the six months ended December 31, 1997......... F-13
Consolidated Statements of Cash Flows for the year ended December 31,
1998 and the six months ended December 31, 1997...................... F-14
Notes to Financial Statements........................................... F-15
Financial Statement Schedules:
Schedule III--Real Estate and Accumulated Depreciation.................. F-60
Schedule IV--Mortgage Loans on Real Estate.............................. F-71
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Patriot American Hospitality, Inc. and
Wyndham International, Inc.
We have audited (i) the accompanying consolidated balance sheets of Patriot
American Hospitality, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998; (ii) the
accompanying consolidated balance sheets of Wyndham International, Inc.
(formerly known as Patriot American Hospitality Operating Company) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December
31, 1998 and the six months ended December 31, 1997; and (iii) the
accompanying combined balance sheets of Patriot American Hospitality, Inc. and
Wyndham International, Inc. (the "Companies") as of December 31, 1998 and
1997, and the related combined statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedules listed in the
Index at Item 14(a). These consolidated financial statements and schedules are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, (i) the consolidated financial position of Patriot
American Hospitality, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998; (ii) the consolidated financial position
of Wyndham International, Inc. at December 31, 1998 and 1997 and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1998 and the six months ended December 31, 1997; and (iii) the
combined financial position of the Companies at December 31, 1998 and 1997,
and the combined results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Dallas, Texas
March 1, 1999
F-2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Investment in real estate and related improvements
and land held for development, net of accumulated
depreciation of $252,580 in 1998 and $68,805 in
1997................................................ $5,585,616 $2,044,649
Cash and cash equivalents............................ 123,085 42,431
Restricted cash...................................... 35,869 5,005
Accounts and lease revenue receivable................ 194,583 57,046
Investment in unconsolidated subsidiaries............ 146,912 11,802
Mortgage notes and other receivables from
unconsolidated subsidiaries......................... 78,403 76,419
Mortgage notes and other receivables................. 41,334 12,983
Management contracts, net of accumulated amortization
of $11,258 in 1998 and $1,574 in 1997............... 194,014 20,879
Leaseholds, net of accumulated amortization of $5,989
in 1998............................................. 179,922 --
Trade names and franchise costs, net of accumulated
amortization of $6,670 in 1998 and $122 in 1997..... 125,974 11,166
Goodwill and intangibles, net of accumulated
amortization of $20,895 in 1998 and $1,851 in 1997.. 553,889 126,007
Deferred expenses, net of accumulated amortization of
$29,136 in 1998 and $2,097 in 1997.................. 37,998 21,417
Deferred acquisition costs........................... 16,144 52,500
Inventories.......................................... 23,583 10,450
Other assets......................................... 78,344 15,099
---------- ----------
Total assets........................................ $7,415,670 $2,507,853
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under credit facility, term loans,
mortgage notes and capital leases................... $3,857,521 $1,112,709
Accounts payable and accrued expenses................ 313,831 78,468
Dividends and distributions payable.................. -- 27,636
Deposits............................................. 26,392 12,423
Due to unconsolidated subsidiaries................... 7,919 7,304
Deferred income taxes................................ 123,463 9,550
Minority interest in the Operating Partnerships...... 253,970 220,177
Minority interest in consolidated subsidiaries....... 229,537 49,694
Commitment and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value, authorized:
100,000,000 shares each; shares issued and
outstanding: 8,981,886 shares in 1998.............. 90 --
Excess stock (paired shares), $0.01 par value,
authorized: 750,000,000 shares each; no shares
issued and outstanding............................. -- --
Common stock (paired shares), $0.01 par value,
authorized: 650,000,000 shares each; issued and
outstanding: 213,521,647 shares in 1998 and
73,276,716 shares in 1997.......................... 4,270 1,466
Additional paid in capital.......................... 3,024,540 1,070,973
Notes receivable from shareholders and affiliates... (16,364) --
Unearned stock compensation, net of accumulated
amortization of $13,447 in 1998 and $5,825
in 1997............................................ (5,494) (13,116)
Unrealized loss on securities available for sale.... (1,245) --
Unrealized foreign exchange gain.................... 2,749 --
Accumulated deficit and dividend distributions...... (405,509) (69,431)
---------- ----------
Total shareholders' equity.......................... 2,603,037 989,892
---------- ----------
Total liabilities and shareholders' equity.......... $7,415,670 $2,507,853
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1998 1997 1996
---------- -------- -------
<S> <C> <C> <C>
Revenue:
Hotel revenue................................. $1,842,682 $167,727 $ --
Participating lease revenue................... 58,440 127,033 75,893
Racecourse facility and land lease revenue.... 51,259 26,511 --
Management fee and service fee income......... 89,067 7,088 --
Interest and other income..................... 14,893 6,676 600
---------- -------- -------
Total revenue............................... 2,056,341 335,035 76,493
---------- -------- -------
Expenses:
Hotel expenses................................ 1,173,756 118,317 --
Racing facility operations.................... 43,198 21,620 --
Real estate and personal property taxes and
casualty insurance........................... 68,008 17,958 7,150
General and administrative.................... 117,666 17,181 4,500
Ground lease expense.......................... 110,108 4,117 1,075
Interest expense.............................. 260,103 50,531 7,380
Cost of acquiring leaseholds and license
agreements................................... 64,407 54,499 --
Treasury lock settlement...................... 49,334 -- --
Loss on sale of assets........................ 9,453 -- --
Impairment loss on assets held for sale....... 51,081 -- --
Depreciation and amortization................. 231,233 52,685 17,420
---------- -------- -------
Total expenses.............................. 2,178,347 336,908 37,525
---------- -------- -------
Operating (loss) income......................... (122,006) (1,873) 38,968
Equity in earnings of unconsolidated
subsidiaries................................. 9,498 6,015 5,845
---------- -------- -------
(Loss) income before income tax provision,
minority interests and extraordinary item...... (112,508) 4,142 44,813
Income tax provision.......................... (17,122) (481) --
---------- -------- -------
(Loss) income before minority interests and
extraordinary item............................. (129,630) 3,661 44,813
Minority interest in the Operating
Partnerships................................. 12,651 (1,684) (6,767)
Minority interest in consolidated
subsidiaries................................. (9,427) (1,615) (55)
---------- -------- -------
(Loss) income before extraordinary item......... (126,406) 362 37,991
Extraordinary loss from early extinguishment
of debt, net of minority interest and income
taxes........................................ (31,817) (2,534) --
---------- -------- -------
Net (loss) income............................... $ (158,223) $ (2,172) $37,991
========== ======== =======
Basic (loss) income (attributable) available to
common shareholders:
Net (loss) income............................. $ (158,223) $ (2,172) $37,991
Adjustment for equity forwards................ (21,151) -- --
Preferred stock dividends..................... (7,956) -- --
---------- -------- -------
Basic net (loss) income....................... $ (187,330) $ (2,172) $37,991
========== ======== =======
Basic (loss) earnings per common paired share:
(Loss) income before extraordinary item....... $ (1.13) $ 0.01 $ 0.84
Extraordinary loss............................ (0.23) (0.04) --
---------- -------- -------
Net (loss) income per common paired share... $ (1.36) $ (0.03) $ 0.84
========== ======== =======
Diluted (loss) income (attributable) available
to common shareholders:
Net (loss) income............................. $ (158,223) $ (2,172) $37,991
Adjustment for equity forwards................ (188,392) -- --
Preferred stock dividends..................... (7,956) -- --
---------- -------- -------
Diluted net (loss) income..................... $ (354,571) $ (2,172) $37,991
========== ======== =======
Diluted (loss) earnings per common paired share:
(Loss) income before extraordinary item....... $ (2.34) $ 0.01 $ 0.83
Extraordinary loss............................ (0.23) (0.04) $ --
---------- -------- -------
Net (loss) income per common paired share... $ (2.57) $ (0.03) $ 0.83
========== ======== =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Notes
--------------- -------------------------------- Receivable Unearned Accumulated
Patriot Wyndham Additional From Share- Stock Deficit and
Number Par Number Number Par Paid in holders and Compen- Dividend
of Shares Value of Shares of Shares Value Capital affiliates sation Distributions
--------- ----- ----------- ----------- ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... -- $ -- 29,331,870 -- $ 293 $ 264,515 $ -- $(1,351) $ (1,679)
Issuance of
shares, net of
offering
expenses........ -- -- 13,916,186 -- 139 181,253 -- -- --
Issuance of
shares to
employees and
directors....... -- -- 365,440 -- 4 5,177 -- (5,144) --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- -- (8,841) - -- --
Net income...... -- -- -- -- -- -- -- -- 37,991
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- -- 1,068 --
Cash dividends.. -- -- -- -- -- -- -- -- (36,386)
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Balance, December
31, 1996......... -- -- 43,613,496 -- 436 442,104 -- (5,427) (74)
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 12,824,433 57,135,658 699 231,247 -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 15,830,033 15,830,033 318 386,417 -- -- --
Issuance of
shares to
employees and
directors....... -- -- 547,867 4,167 5 12,896 -- (12,839) --
Forfeiture of
unvested
employee stock
grants.......... -- -- (42,900) (42,900) -- (464) -- 464 --
Issuance of
shares for
exercise of
options......... -- -- 314,967 310,938 6 2,301 -- -- --
Issuance of
shares to redeem
OP units........ -- -- 188,820 38,820 2 2,554 -- -- --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- -- (6,082) -- -- --
Net loss........ -- -- -- -- -- -- -- -- (2,172)
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- -- 4,686 --
Cash dividends -- -- -- -- -- -- -- -- (67,185)
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Balance, December
31, 1997......... -- -- 73,276,716 73,276,716 1,466 1,070,973 -- (13,116) (69,431)
Issuance of
shares for
mergers and
acquisition of
properties...... 8,423,230 85 59,491,863 59,491,863 1,190 1,607,050 -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 64,084,627 64,084,627 1,282 257,439 -- -- --
Return of
capital......... -- -- -- -- -- (52,873) -- -- --
Issuance of
shares to
employees and
directors....... -- -- 39,790 39,790 -- 928 -- -- --
Issuance of
shares for
exercise of
options......... -- -- 1,210,737 1,210,737 24 15,250 -- -- --
Issuance of
shares to redeem
OP units........ -- -- 1,362,316 1,362,316 28 27,868 -- -- --
Issuance of
notes receivable
from
shareholders and
affiliates for
mergers and
acquisitions.... -- -- -- -- -- -- (18,617) -- --
Accrued interest
on notes
receivable from
shareholders and
affiliates...... -- -- -- -- -- -- (863) -- 863
Collections on
notes receivable
from
shareholders and
affiliates...... -- -- -- -- -- -- 3,116 -- --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- 7,622 --
Net loss........ -- -- -- -- -- -- -- -- (158,223)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- --
Unrealized loss
on securities
held for sale... -- -- -- -- -- -- -- -- --
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Comprehensive
loss............. -- -- -- -- -- -- -- -- --
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Cash dividends.. -- -- -- -- -- -- -- -- (87,390)
Stock dividends
declared........ 558,656 5 14,055,598 14,055,598 280 97,905 -- -- (91,328)
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Balance, December
31, 1998......... 8,981,886 $ 90 213,521,647 213,521,647 $4,270 $3,024,540 $(16,364) $(5,494) $(405,509)
========= ===== =========== =========== ====== ========== ======== ======= =========
<CAPTION>
Accumulated
Other
Comprehensive
Income
-------------------
Unrealized
Loss on
Foreign Securities
Currency Held for
Exchange Sale Total
-------- ---------- -----------
<S> <C> <C> <C>
Balance, December
31, 1995......... $ -- $ -- $ 261,778
Issuance of
shares, net of
offering
expenses........ -- -- 181,392
Issuance of
shares to
employees and
directors....... -- -- 37
Redemption price
of OP units in
excess of book
value........... -- -- (8,841)
Net income...... -- -- 37,991
Amortization of
unearned stock
compensation.... -- -- 1,068
Cash dividends.. -- (36,386)
-------- ---------- -----------
Balance, December
31, 1996......... -- -- 437,039
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 231,946
Issuance of
shares, net of
offering
expenses........ -- -- 386,735
Issuance of
shares to
employees and
directors....... -- -- 62
Forfeiture of
unvested
employee stock
grants.......... -- -- --
Issuance of
shares for
exercise of
options......... -- -- 2,307
Issuance of
shares to redeem
OP units........ -- -- 2,556
Redemption price
of OP units in
excess of book
value........... -- -- (6,082)
Net loss........ -- -- (2,172)
Amortization of
unearned stock
compensation.... -- -- 4,686
Cash dividends -- -- (67,185)
-------- ---------- -----------
Balance, December
31, 1997......... -- -- 989,892
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 1,608,325
Issuance of
shares, net of
offering
expenses........ -- -- 258,721
Return of
capital......... -- -- (52,873)
Issuance of
shares to
employees and
directors....... -- -- 928
Issuance of
shares for
exercise of
options......... -- -- 15,274
Issuance of
shares to redeem
OP units........ -- -- 27,896
Issuance of
notes receivable
from
shareholders and
affiliates for
mergers and
acquisitions.... -- -- (18,617)
Accrued interest
on notes
receivable from
shareholders and
affiliates...... -- -- --
Collections on
notes receivable
from
shareholders and
affiliates...... -- -- 3,116
Amortization of
unearned stock
compensation.... -- 7,622
Net loss........ -- -- (158,223)
Foreign currency
translation
adjustment...... 2,749 -- 2,749
Unrealized loss
on securities
held for sale... -- (1,245) (1,245)
-------- ---------- -----------
Comprehensive
loss............. -- -- (156,719)
-------- ---------- -----------
Cash dividends.. -- -- (87,390)
Stock dividends
declared........ -- -- 6,862
-------- ---------- -----------
Balance, December
31, 1998......... $2,749 $(1,245) $2,603,037
======== ========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $ (158,223) $ (2,172) $ 37,991
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.............. 231,233 52,787 17,536
Amortization of unearned stock
compensation.............................. 7,622 4,686 1,068
Amortization of deferred loan costs........ 26,914 2,630 431
Loss on sale of assets..................... 9,453 -- --
Impairment loss on assets held for sale.... 51,081 -- --
Cost of acquiring leaseholds............... 64,407 54,499 --
Payment of interest on notes receivable
from unconsolidated subsidiaries.......... -- 5,001 4,833
Treasury lock settlement................... 49,225 -- --
Award of unearned stock compensation and
other..................................... 928 61 37
Equity in earnings of unconsolidated
subsidiaries.............................. (9,498) (6,015) (5,845)
Minority interest in Operating
Partnerships.............................. (12,652) 1,684 6,767
Minority interest in consolidated
subsidiaries.............................. 9,427 1,615 55
Deferred income tax benefits............... (14,665) -- --
Extraordinary items........................ 31,817 2,534 --
Changes in assets and liabilities:
Accounts receivable....................... (65,927) (19,494) --
Prepaid expenses and other assets......... 47,020 (5,965) (1,003)
Lease revenue receivable.................. 924 (4,359) (3,091)
Due to/from affiliates.................... -- (421) (324)
Accounts payable and accrued expenses..... (24,593) 21,039 2,741
---------- ---------- ---------
Net cash provided by operating
activities.............................. 244,493 108,110 61,196
---------- ---------- ---------
Cash flows from investing activities:
Acquisition of hotel properties and related
working capital assets, net of cash
acquired (1,946,227) (933,948) (353,217)
Improvements and additions to hotel
properties................................ (189,885) (82,269) (21,889)
Proceeds from sale of assets............... 77,325 -- --
Changes in other assets.................... 880 -- 1,219
Collections on other notes receivable...... 12,009 -- 399
Deferred acquisition costs................. (19,926) (67,743) (14,797)
Investment in unconsolidated subsidiaries.. (24,557) (1,574) --
Principal payments received on mortgage and
other notes receivable.................... -- (500) (31,400)
Investment in mortgage notes and other
receivables............................... 14,022 (116,090) --
---------- ---------- ---------
Net cash used in investing activities.... (2,076,359) (1,202,124) (419,685)
---------- ---------- ---------
Cash flows from financing activities:
Borrowings under credit facility, term
loans and mortgage notes.................. 2,883,719 1,865,634 396,302
Repayments of borrowings under credit
facility and other debt................... (997,436) (1,001,236) (191,463)
Payment of deferred loan costs............. (39,923) (24,471) (1,189)
Proceeds from issuance of common stock..... 273,995 388,621 199,261
Contributions received from minority
interest in consolidated subsidiarries.... 5,952 35,829 11,656
Distribution made to minority interest in
other partnerships........................ (11,081) -- --
Collections on notes receivable from
shareholders.............................. 3,116 -- --
Payments to redeem OP units................ -- (63,826) (16,584)
Dividends and distributions paid........... (124,834) (65,705) (37,659)
Forward equity settlements................. (52,873) -- --
Foreign currency translation adjustment.... 2,749 -- --
---------- ---------- ---------
Net cash provided by financing
activities.............................. 1,943,384 1,134,846 360,324
---------- ---------- ---------
Net increase in cash and cash equivalents... 111,518 40,832 1,835
Cash and cash equivalents at beginning of
year....................................... 47,436 6,604 4,769
---------- ---------- ---------
Cash and cash equivalents at end of year.... $ 158,954 $ 47,436 $ 6,604
========== ========== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest during the year...... $ 224,444 $ 48,254 $ 6,938
========== ========== =========
Cash paid for income taxes during the year.. $ 26,729 $ 325 --
========== ========== =========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Investment in real estate and related improvements
and land held for development, net of accumulated
depreciation of $216,548 in 1998 and $67,501 in
1997................................................ $4,960,429 $2,016,267
Cash and cash equivalents............................ 72,360 15,355
Restricted cash...................................... 17,525 5,005
Accounts receivable.................................. 8,589 14,458
Investment in unconsolidated subsidiaries............ 975,591 11,802
Mortgage notes and other receivables from
unconsolidated subsidiaries......................... 78,403 76,419
Subscription Notes receivable from Wyndham........... 133,669 --
Notes and other amounts receivable from Wyndham...... 180,152 42,946
Other notes receivable............................... 20,079 --
Leaseholds, net of accumulated amortization of
$3,301.............................................. 102,088 --
Goodwill and intangibles, net of accumulated
amortization of $5,287 in 1998 and $1,257 in 1997... 139,240 87,999
Deferred expenses, net of accumulated amortization of
$27,426 in 1998 and $2,097 in 1997.................. 36,900 21,417
Deferred acquisition costs........................... 1,587 21,374
Inventories.......................................... -- 1,306
Other assets......................................... 22,594 6,757
---------- ----------
Total assets........................................ $6,749,206 $2,321,105
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under credit facility, term loans,
mortgage notes and capital leases................... $3,612,076 $1,112,709
Subscription Notes payable to Wyndham................ 91,020 12,875
Notes and other amounts payable to Wyndham........... 19,109 --
Accounts payable and accrued expenses................ 63,850 28,151
Dividends and distributions payable.................. -- 27,185
Deferred income taxes................................ 38,912 --
Due to unconsolidated subsidiaries................... 7,919 7,304
Minority interest in Patriot Partnership............. 217,924 174,640
Minority interest in consolidated subsidiaries....... 229,537 49,214
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
100,000,000 shares; shares issued and outstanding:
5,419,532 in 1998.................................. 54 --
Excess stock, $0.01 par value; authorized:
750,000,000 shares; no shares issued and
outstanding........................................ -- --
Common stock, $0.01 par value; authorized:
650,000,000 shares; shares issued and outstanding:
213,521,647 shares in 1998 and 73,276,716 shares in
1997............................................... 2,135 733
Additional paid in capital.......................... 2,775,722 990,821
Notes receivable from shareholders.................. (15,254) --
Unearned stock compensation, net of accumulated
amortization of $13,447 in 1998 and $5,825
in 1997............................................ (5,494) (13,116)
Unrealized foreign exchange gain.................... 1,142 --
Accumulated deficit and dividend distributions ..... (289,446) (69,411)
---------- ----------
Total shareholders' equity......................... 2,468,859 909,027
---------- ----------
Total liabilities and shareholders' equity......... $6,749,206 $2,321,105
========== ==========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Revenue:
Participating lease revenue.................... $ 578,029 $180,451 $75,893
Interest and other income...................... 17,381 5,103 600
--------- -------- -------
Total revenue................................ 595,410 185,554 76,493
--------- -------- -------
Expenses:
Real estate and personal property taxes and
casualty insurance............................ 55,352 17,958 7,150
General and administrative..................... 29,784 11,157 4,500
Ground lease expense........................... 44,972 4,117 1,075
Interest expense............................... 245,205 51,000 7,380
Cost of acquiring leaseholds and license
agreements.................................... 11,686 54,499 --
Treasury lock settlement....................... 49,334 -- --
Loss on sale of assets......................... 9,453 -- --
Impairment loss on assets held for sale........ 27,897 -- --
Depreciation and amortization.................. 161,857 49,069 17,420
--------- -------- -------
Total expenses............................... 635,540 187,800 37,525
--------- -------- -------
Operating (loss) income........................ (40,130) (2,246) 38,968
Equity in earnings of unconsolidated
subsidiaries.................................. 36,726 6,015 5,845
--------- -------- -------
(Loss) income before income tax, minority
interest and extraordinary item............... (3,404) 3,769 44,813
Income tax provision........................... (2,742) -- --
--------- -------- -------
(Loss) income before minority interests and
extraordinary item............................ (6,146) 3,769 44,813
Minority interest in the Patriot Partnership... (98) (1,713) (6,767)
Minority interest in consolidated
subsidiaries.................................. (8,084) (1,674) (55)
--------- -------- -------
(Loss) income before extraordinary item........ (14,328) 382 37,991
Extraordinary loss from early extinguishment of
debt, net of minority interest................ (30,560) (2,534) --
--------- -------- -------
Net (loss) income................................ $ (44,888) $ (2,152) $37,991
========= ======== =======
Basic (loss) income (attributable) available to
common shareholders:
Net (loss) income.............................. $ (44,888) $ (2,152) $37,991
Adjustment for equity forwards................. (21,151) -- --
Preferred stock dividends...................... (5,249) -- --
--------- -------- -------
Basic net (loss) income...................... $ (71,288) $ (2,152) $37,991
========= ======== =======
Basic (loss) earnings per common share:
(Loss) income before extraordinary item........ $ (0.30) $ 0.01 $ 0.84
Extraordinary loss............................. (0.22) (0.04) --
--------- -------- -------
Net (loss) income per common share........... $ (0.52) $ (0.03) $ 0.84
========= ======== =======
Diluted (loss) income (attributable) available to
common share:
Net (loss) income.............................. $ (44,888) $ (2,152) $37,991
Adjustment for equity forwards................. (188,392) -- --
Preferred stock dividends...................... (5,249) -- --
--------- -------- -------
Diluted net (loss) income.................... $(238,529) $ (2,152) $37,991
========= ======== =======
Diluted (loss) earnings per common share:
(Loss) income before extraordinary item........ $ (1.51) $ 0.01 $ 0.83
Extraordinary loss............................. (0.22) (0.04) --
--------- -------- -------
Net (loss) income per common share........... $ (1.73) $ (0.03) $ 0.83
========= ======== =======
</TABLE>
See notes to financial statements.
F-8
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income Item
-------------
Preferred Stock Common Stock
------------------- ---------------------- Notes Accumulated
Additional Receivable Unearned Deficit and Foreign
Number of Par Value Number of Par Value Paid in from Stock Dividend Currency
Shares Stock Shares Stock Capital Shareholders Compensation Distributions Translation
--------- --------- ----------- --------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... -- $ -- 29,331,870 $ 293 $ 264,515 $ -- $(1,351) $ (1,679) $ --
Issuance of
shares, net of
offering
expenses........ -- -- 13,916,186 139 181,253 -- -- -- --
Issuance of
shares to
employees and
directors....... -- -- 365,440 4 5,177 -- (5,144) -- --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- (8,841) -- -- -- --
Net income...... -- -- -- -- -- -- -- 37,991 --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- 1,068 -- --
Cash dividends.. -- -- -- -- -- -- -- (36,386) --
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Balance, December
31, 1996......... -- -- 43,613,496 436 442,104 -- (5,427) (74) --
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 12,824,433 128 170,222 -- -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 15,830,033 159 367,076 -- -- -- --
Issuance of
shares to
employees and
directors....... -- -- 547,867 5 12,896 -- (12,839) -- --
Forfeiture of
unvested
employee stock
grants.......... -- -- (42,900) -- (464) -- 464 -- --
Issuance of
shares for
exercise of
options......... -- -- 314,967 3 2,192 -- -- -- --
Issuance of
shares to redeem
OP units........ -- -- 188,820 2 2,494 -- -- -- --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- (5,699) -- -- -- --
Net loss........ -- -- -- -- -- -- -- (2,152) --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- 4,686 -- --
Cash dividends.. -- -- -- -- -- -- -- (67,185) --
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Balance, December
31, 1997......... -- -- 73,276,716 733 990,821 -- (13,116) (69,411) --
Issuance of
shares for
mergers and
acquisition of
properties...... 4,860,876 49 59,491,863 595 1,454,845 -- -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 64,084,627 641 245,068 -- -- -- --
Return of
capital......... -- -- -- -- (52,460) -- -- -- --
Issuance of
shares to
employees and
directors....... -- -- 39,790 -- 882 -- -- -- --
Issuance of
shares for
exercise of
options......... -- -- 1,210,737 12 14,498 -- -- -- --
Issuance of
shares to redeem
OP units........ -- -- 1,362,316 14 26,337 -- -- -- --
Issuance of
notes receivable
from
shareholders for
mergers......... -- -- -- -- -- (17,389) -- -- --
Accrued interest
on notes
receivable from
shareholders.... -- -- -- -- -- (863) -- 863 --
Collections on
notes receivable
from
shareholders.... -- -- -- -- -- 2,998 -- -- --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- 7,622 -- --
Net loss........ -- -- -- -- -- -- -- (44,888) --
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- 1,142
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Comprehensive
loss............. -- -- -- -- -- -- -- -- --
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Cash dividends.. -- -- -- -- -- -- -- (86,250) --
Stock dividends
declared........ 558,656 5 14,055,598 140 95,731 -- -- (89,760) --
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Balance, December
31, 1998......... 5,419,532 $ 54 213,521,647 $2,135 $2,775,722 $(15,254) $(5,494) $(289,446) $1,142
========= ===== =========== ====== ========== ======== ======= ========= ======
<CAPTION>
Total
-----------
<S> <C>
Balance, December
31, 1995......... $ 261,778
Issuance of
shares, net of
offering
expenses........ 181,392
Issuance of
shares to
employees and
directors....... 37
Redemption price
of OP units in
excess of book
value........... (8,841)
Net income...... 37,991
Amortization of
unearned stock
compensation.... 1,068
Cash dividends.. (36,386)
-----------
Balance, December
31, 1996......... 437,039
Issuance of
shares for
mergers and
acquisition of
properties...... 170,350
Issuance of
shares, net of
offering
expenses........ 367,235
Issuance of
shares to
employees and
directors....... 62
Forfeiture of
unvested
employee stock
grants.......... --
Issuance of
shares for
exercise of
options......... 2,195
Issuance of
shares to redeem
OP units........ 2,496
Redemption price
of OP units in
excess of book
value........... (5,699)
Net loss........ (2,152)
Amortization of
unearned stock
compensation.... 4,686
Cash dividends.. (67,185)
-----------
Balance, December
31, 1997......... 909,027
Issuance of
shares for
mergers and
acquisition of
properties...... 1,455,489
Issuance of
shares, net of
offering
expenses........ 245,709
Return of
capital......... (52,460)
Issuance of
shares to
employees and
directors....... 882
Issuance of
shares for
exercise of
options......... 14,510
Issuance of
shares to redeem
OP units........ 26,351
Issuance of
notes receivable
from
shareholders for
mergers......... (17,389)
Accrued interest
on notes
receivable from
shareholders.... --
Collections on
notes receivable
from
shareholders.... 2,998
Amortization of
unearned stock
compensation.... 7,622
Net loss........ (44,888)
Foreign currency
translation
adjustment...... 1,142
-----------
Comprehensive
loss............. (43,746)
-----------
Cash dividends.. (86,250)
Stock dividends
declared........ 6,116
-----------
Balance, December
31, 1998......... $2,468,859
===========
</TABLE>
See notes to financial statements.
F-9
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................ $ (44,888) $ (2,152) $ 37,991
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............ 161,857 49,171 17,536
Amortization of unearned stock
compensation............................ 7,622 4,686 1,068
Amortization of deferred loan costs...... 25,210 2,630 431
Loss on sale of assets................... 9,453 -- --
Impairment loss on assets held for
sale.................................... 27,897 -- --
Cost of acquiring leaseholds............. 11,686 54,499 --
Payment of interest on notes receivable
from unconsolidated subsidiaries........ -- 5,001 4,833
Treasury lock settlement................. 49,225 -- --
Award of unearned stock compensation and
other................................... 882 61 37
Equity in earnings of unconsolidated
subsidiaries............................ (36,726) (6,015) (5,845)
Minority interest in Patriot
Partnership............................. 98 1,713 6,767
Minority interest in consolidated
subsidiaries............................ 8,084 1,674 55
Extraordinary items...................... 30,560 2,534 --
Changes in assets and liabilities:
Accounts receivable..................... (7,549) (550) --
Lease revenue receivable................ -- (6,754) (3,091)
Prepaid expenses and other assets....... 28,438 (2,407) (1,003)
Participating lease payments receivable
....................................... (14,549) -- --
Due to/from affiliates.................. 35,879 85 (324)
Accounts payable and accrued expenses... (25,082) 10,657 2,741
----------- ----------- ---------
Net cash provided by operating
activities............................ 268,097 114,833 61,196
----------- ----------- ---------
Cash flows from investing activities:
Acquisition of hotel properties and
related working capital assets, net of
cash acquired........................... (1,987,429) (937,135) (353,217)
Improvements and additions to hotel
properties.............................. (161,674) (82,269) (21,889)
Proceeds from sale of assets............. 69,266 -- --
Changes in other assets.................. -- (38,921) 1,618
Collections on other notes receivable.... 6,998 -- --
Deferred acquisition costs............... (6,507) (36,617) (14,797)
Investment and receivables from
unconsolidated subsidiaries............. (24,979) (2,074) (31,400)
Investment in mortgage notes and other
receivables............................. (6,925) (103,875) --
----------- ----------- ---------
Net cash used in investing activities.. (2,111,250) (1,200,891) (419,685)
----------- ----------- ---------
Cash flows from financing activities:
Borrowings under credit facility, term
loans and mortgage notes................ 2,696,381 1,865,634 396,302
Payments on subscription notes........... (12,875) -- --
Repayments of borrowings under credit
facility and other debt................. (825,013) (1,017,447) (191,463)
Payment of deferred loan costs........... (34,759) (24,471) (1,189)
Proceeds from issuance of common stock... 260,219 369,430 199,261
Contributions received from minority
interest in consolidated subsidiaries... 5,952 35,829 11,656
Distribution made to minority interest in
consolidated subsidiaries............... (7,587) -- --
Collections on notes receivable from
shareholders 2,998 -- --
Payments to redeem OP units.............. -- (63,826) (16,584)
Dividends and distributions paid......... (121,320) (65,335) (37,659)
Forward equity settlements............... (52,460) -- --
Other.................................... 1,142 -- --
----------- ----------- ---------
Net cash provided by financing
activities............................ 1,912,678 1,099,814 360,324
----------- ----------- ---------
Net increase in cash and cash
equivalents.............................. 69,525 13,756 1,835
Cash and cash equivalents at beginning of
year..................................... 20,360 6,604 4,769
----------- ----------- ---------
Cash and cash equivalents at end of year.. $ 89,885 $ 20,360 $ 6,604
=========== =========== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest during the year.... $ 207,716 $ 48,254 $ 6,938
=========== =========== =========
</TABLE>
See notes to financial statements.
F-10
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 50,725 $ 27,076
Restricted cash..................................... 18,344 --
Accounts receivable................................. 185,994 46,340
Notes and other receivables from Patriot............ 19,109 12,875
Inventories......................................... 23,583 9,144
Prepaid expenses and other current assets........... 28,195 5,227
---------- --------
Total current assets................................ 325,950 100,662
Investment in real estate and related improvements,
net of accumulated depreciation of $36,032 in 1998
and $1,304 in 1997.................................. 626,103 28,382
Investments in unconsolidated subsidiaries........... 86,812 --
Subscription Notes receivable from Patriot........... 91,020 --
Mortgage notes and other receivables................. 21,255 12,983
Management contract costs, net of accumulated
amortization of $11,258 in 1998 and $1,574 in 1997.. 194,014 20,879
Leaseholds, net of accumulated amortization of
$2,688.............................................. 77,834 --
Trade names and franchise costs, net of accumulated
amortization of $6,198 in 1998 and $122 in 1997..... 125,974 11,166
Deferred acquisition costs........................... 14,557 31,126
Goodwill, net of accumulated amortization of $15,608
in 1998 and $594 in 1997............................ 414,649 38,008
Deferred expenses, net of accumulated amortization of
$1,710.............................................. 1,098 --
Other assets......................................... 27,555 8,882
---------- --------
Total assets........................................ $2,006,821 $252,088
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 249,981 $ 50,317
Dividends and distributions payable................. -- 451
Participating lease payments payable to Patriot..... 40,996 9,519
Deposits............................................ 26,392 12,423
Notes and other amounts payable to Patriot.......... 139,156 42,946
Current portion of mortgage notes and capital lease
obligations........................................ 145,969 --
---------- --------
Total current liabilities........................... 602,494 115,656
Subscription notes payable to Patriot................ 133,669 --
Mortgage notes payable and capital lease
obligations......................................... 99,476 --
Deferred income taxes................................ 84,551 9,550
Minority interest in Wyndham Partnership............. 36,046 45,537
Minority interest in consolidated subsidiaries....... 915,491 480
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
100,000,000 shares; shares issued and outstanding:
3,562,354 in 1998.................................. 36 --
Excess stock, $0.01 par value; authorized:
750,000,000 shares; no shares issued and
outstanding........................................ -- --
Common stock, $0.01 par value; authorized:
650,000,000 shares; issued and outstanding:
213,521,647 shares in 1998 and 73,276,716 shares in
1997............................................... 2,135 733
Additional paid in capital.......................... 248,818 80,152
Notes receivable from affiliates.................... (1,110) --
Unrealized loss on securities held for sale......... (1,245) --
Unrealized foreign exchange gain.................... 1,607 --
Accumulated deficit and dividend distributions...... (115,147) (20)
---------- --------
Total shareholders' equity.......................... 135,094 80,865
---------- --------
Total liabilities and shareholders' equity......... $2,006,821 $252,088
========== ========
</TABLE>
See notes to financial statements.
F-11
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Six
Year Ended Months Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Hotel revenue...................................... $1,842,682 $167,727
Racecourse facility revenue........................ 51,259 26,344
Management fee and service fee income.............. 89,983 7,088
Interest and other income.......................... 18,303 2,975
---------- --------
Total revenue.................................... 2,002,227 204,134
---------- --------
Expenses:
Hotel expenses..................................... 1,251,548 118,317
Racecourse facility operations..................... 43,198 24,245
General and administrative......................... 87,882 6,024
Cost of acquiring leaseholds....................... 52,721 --
Impairment loss on assets held for sale............ 23,184 --
Depreciation and amortization...................... 69,375 3,616
Participating lease payments....................... 519,589 50,626
Interest expense................................... 35,690 933
---------- --------
Total expenses................................... 2,083,187 203,761
---------- --------
Operating (loss) income............................ (80,960) 373
Equity in earnings of unconsolidated subsidiaries.. 3,134 --
---------- --------
(Loss) income before income tax provision, minority
interests and extraordinary item.................. (77,826) 373
Income tax provision............................... (14,381) (481)
---------- --------
Loss before minority interests and extraordinary
item.............................................. (92,207) (108)
Minority interest in Wyndham Partnership........... 12,750 29
Minority interest in consolidated subsidiaries..... (31,705) 59
---------- --------
Loss before extraordinary item..................... (111,162) (20)
Extraordinary loss from early extinguishment of
debt, net of applicable taxes..................... (1,257) --
---------- --------
Net loss......................................... $ (112,419) $ (20)
========== ========
Basic (loss) income (attributable) available to
common shareholders:
Net (loss) income.................................. $ (112,419) $ (20)
Preferred stock dividends.......................... (2,707) --
---------- --------
Basic net loss..................................... $ (115,126) $ (20)
========== ========
Basic loss per common share:
Loss before extraordinary item..................... $ (0.83) $ --
Extraordinary loss................................. (0.01) --
---------- --------
Loss per common share............................ $ (0.84) $ --
========== ========
Diluted (loss) income (attributable) available to
common shareholders:
Net (loss) income.................................. $ (112,419) $ (20)
Preferred stock dividends.......................... (2,707) --
---------- --------
Diluted net loss................................. $ (115,126) $ (20)
========== ========
Diluted loss per common share:
Loss before extraordinary item..................... $ (0.83) $ --
Extraordinary loss................................. (0.01) --
---------- --------
Loss per common share............................ $ (0.84) $ --
========== ========
</TABLE>
See notes to financial statements.
F-12
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income Items
-----------------------
Preferred Stock Common Stock Unrealized
--------------- ------------------- Notes Accumulated Loss on
Additional Receivable Deficit and Securities Foreign
Number of Par Number of Par Paid in from Dividend Held for Currency
Shares Value Shares Value Capital Affiliates Distributions Sale Translation Total
--------- ----- ----------- ------ ---------- ---------- ------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
shares for
mergers and
acquisition of
properties...... -- $-- 57,135,658 $ 571 $ 61,025 $ -- $ -- $ -- $ -- $ 61,596
Issuance of
shares, net of
offering
expenses........ -- -- 15,830,033 159 19,341 -- -- -- -- 19,500
Issuance of
shares to
employees and
directors....... -- -- 4,167 -- -- -- -- -- -- --
Forfeiture of
unvested
employee stock
grants.......... -- -- (42,900) -- -- -- -- -- -- --
Issuance of
shares for
exercise of
options......... -- -- 310,938 3 109 -- -- -- -- 112
Issuance of
shares to redeem
OP units........ -- -- 38,820 -- 60 -- -- -- -- 60
Redemption price
of OP units in
excess of book
value........... -- -- -- -- (383) -- -- -- -- (383)
Net loss........ -- -- -- (20) (20)
--------- ---- ----------- ------ --------- ------- ------- --------- ------ --------
Balance, December
31, 1997......... -- -- 73,276,716 733 80,152 -- -- (20) -- 80,865
Issuance of
shares for
mergers and
acquisition of
properties...... 3,562,354 36 59,491,863 595 152,205 -- -- -- -- 152,836
Issuance of
shares, net of
offering
expenses........ -- -- 64,084,627 641 12,371 -- -- -- -- 13,012
Return of
capital......... -- -- -- -- (413) -- -- -- -- (413)
Issuance of
shares to
employees and
directors....... -- -- 39,790 -- 46 -- -- -- -- 46
Note receivable
from
affiliates...... -- -- -- -- -- (1,228) -- -- -- (1,228)
Collections on
note receivable
from affiliate.. -- -- -- -- -- 118 -- -- -- 118
Issuance of
shares for
exercise of
options......... -- -- 1,210,737 12 752 -- -- -- -- 764
Issuance of
shares to redeem
OP units........ -- -- 1,362,316 14 1,531 -- -- -- -- 1,545
Net loss........ -- -- -- (112,419) (112,419)
Unrealized loss
on securities
held for sale... -- -- -- -- -- -- (1,245) -- -- (1,245)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- 1,607 1,607
--------- ---- ----------- ------ --------- ------- ------- --------- ------ --------
Comprehensive
loss............. -- -- -- -- -- -- -- -- -- (112,057)
--------- ---- ----------- ------ --------- ------- ------- --------- ------ --------
Cash dividend... -- -- -- -- -- -- -- (1,140) -- (1,140)
Stock dividend
declared........ -- -- 14,055,598 140 2,174 -- -- (1,568) -- 746
--------- ---- ----------- ------ --------- ------- ------- --------- ------ --------
Balance, December
31, 1998......... 3,562,354 $ 36 213,521,647 $2,135 $ 248,818 $(1,110) $(1,245) $(115,147) $1,607 $135,094
========= ==== =========== ====== ========= ======= ======= ========= ====== ========
</TABLE>
See notes to financial statements.
F-13
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six
Year Ended Months Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(112,419) $ (20)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 69,375 3,616
Amortization of deferred loan costs.............. 1,705 --
Impairment loss on assets held for sale.......... 23,184 --
Cost of acquiring leaseholds..................... 52,721 --
Award of unearned stock compensation............. 46 --
Equity in earnings of unconsolidated
subsidiaries.................................... (3,134) --
Minority interest in Wyndham Partnership......... (12,750) (29)
Minority interest in consolidated subsidiaries... 31,705 (59)
Deferred income tax benefit...................... (14,665) --
Extraordinary items.............................. 1,257 --
Changes in assets and liabilities:
Accounts receivable............................ (39,758) (18,944)
Prepaid expenses and other assets.............. 19,582 (1,204)
Participating lease payments
payable/receivable............................ 15,473 2,395
Due to/from affiliates......................... (42,624) (506)
Accounts payable and accrued expenses.......... 489 8,028
--------- -------
Net cash used in operating activities........ (9,813) (6,723)
--------- -------
Cash flows from investing activities:
Acquisition of hotel properties and related working
capital assets.................................... (44,494) 5,147
Cash received upon acquisition of hotel assets..... 85,696 --
Improvements and additions to hotel properties..... (29,127) (2,099)
Proceeds from sale of assets....................... 8,059 --
Changes in other assets............................ 880 --
Collections on other notes receivable.............. 5,011 --
Deferred acquisition costs......................... (13,419) --
Investment in unconsolidated subsidiaries.......... 422 --
Due to/from affiliates............................. (20,676) --
Investment in mortgage notes and other
receivables....................................... 20,947 (4,281)
--------- -------
Net cash provided by (used in) investing
activities.................................. 13,299 (1,233)
--------- -------
Cash flows from financing activities:
Borrowings under credit facility, term loans and
mortgage notes.................................... 187,338 --
Payments on subscription notes..................... 12,875 --
Repayments of borrowings under credit facility, and
other debt........................................ (172,423) 141
Payment of deferred loan costs..................... (5,164) --
Proceeds from issuance of common stock............. 13,776 19,191
Distributions made to minority interest in other
partnerships...................................... (3,494) --
Collections on notes receivable from shareholders.. 118 16,070
Dividends and distributions paid................... (3,514) (370)
Forward equity settlements......................... (413) --
Due to/from affiliates............................. 7,801 --
Foreign currency translation adjustment............ 1,607 --
--------- -------
Net cash provided by financing activities.... 38,507 35,032
--------- -------
Net increase in cash and cash equivalents............ 41,993 27,076
Cash and cash equivalents at beginning of period..... 27,076 --
--------- -------
Cash and cash equivalents at end of period........... $ 69,069 $27,076
========= =======
Supplemental disclosure of cash flow information:
Cash paid for interest during the period............. $ 16,728 $ --
========= =======
Cash paid for taxes during the period................ $ 26,729 $ 325
========= =======
</TABLE>
See notes to financial statements.
F-14
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
1. Organization:
Patriot American Hospitality, Inc. ("Old Patriot") was formed April 17, 1995
as a self-administered real estate investment trust ("REIT"). The Virginia
corporation was formed for the purpose of acquiring equity interests in hotel
properties. On October 2, 1995, Old Patriot completed an initial public
offering of shares of common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club,
with Cal Jockey being the surviving legal entity. Cal Jockey's shares of
common stock are paired and trade together with the shares of common stock of
Bay Meadows Operating Company. In connection with the Cal Jockey merger, Cal
Jockey changed its name to "Patriot American Hospitality, Inc" referred
hereinafter as Patriot and Bay Meadows changed its name to "Patriot American
Hospitality Operating Company". As a result of the merger with Wyndham Hotel
Company in January, 1998, the operating company subsequently changed its name
to "Wyndham International, Inc." ("Wyndham"). Patriot and Wyndham are now
collectively referred to as the Companies. Patriot and Wyndham are both
Delaware corporations.
The Cal Jockey merger has been accounted for as a reverse acquisition
whereby, Cal Jockey is considered to be the acquired company for accounting
purposes. Consequently, the historical financial information of Old Patriot
became the historical financial information of Patriot. For accounting
purposes, Wyndham commenced its operations concurrent with the closing of the
Cal Jockey merger on July 1, 1997. The financial statements have been adjusted
for the purchase method of accounting whereby the Bay Meadows Racecourse
facilities and related leasehold improvements owned by Cal Jockey and Bay
Meadows have been adjusted to estimated fair market value.
In connection with the Cal Jockey merger, Bay Meadows formed an operating
partnership, Wyndham International Operating Partnership, L.P. referred to as
the Wyndham Partnership into which Bay Meadows contributed its assets in
exchange for units of limited partnership interest ("OP units") of the Wyndham
Partnership, and Cal Jockey contributed certain of its assets to Patriot
American Hospitality Partnership, L.P. referred to herein after as the Patriot
Partnership, in exchange for OP units. Patriot Partnership (collectively, the
Patriot Partnership and Wyndham Partnership are referred to herein as the
"Operating Partnerships"). Subsequent to the completion of the Cal Jockey
merger, substantially all of the operations of the Companies have been
conducted through the Operating Partnerships and their subsidiaries.
The shares of common stock of Patriot are paired and trade together with the
shares of common stock of Wyndham as a single unit pursuant to a stock pairing
arrangement. The single unit is comprised of one share of common stock of
Patriot and one share of common stock of Wyndham and is referred to as a
paired share.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in the
Patriot Partnership. In addition, Patriot, through its wholly-owned
subsidiary, PAH LP, Inc., owns an approximate 88.0% limited partnership
interest in the Patriot Partnership as of December 31, 1998.
Wyndham owns a 1.0% general partnership interest and an approximate 86.8%
limited partnership interest in the Wyndham Partnership as of December 31,
1998.
F-15
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, Patriot and Wyndham, through the Operating
Partnerships and other subsidiaries including hotels owned through
unconsolidated subsidiaries, owned interests in 178 hotels with an aggregate
of over 43,800 guest rooms and leased 121 hotels from third parties with over
15,800 guest rooms. In addition, Wyndham manages 161 hotels for third party
owners with over 38,300 guest rooms and franchises 12 hotels with over 2,900
guest rooms.
Patriot leases 203 of its owned and leased hotels to Wyndham and five of its
hotels are leased to third party lessees. Generally, the participating leases
between Patriot and the hotel lessees provide for the payment of the greater
of base or participating rent, plus certain additional charges, as applicable.
The lessees, in turn, have entered into separate agreements with hotel
management entities to manage the hotels.
The Companies own interests in nine hotels along with 82 leaseholds for
hotels leased from third parties through special purpose entities which are
non-controlled subsidiaries. Patriot owns the non-voting interest and Wyndham
owns the controlling voting interest in each of the non-controlled
subsidiaries. As a result of this ownership, the operating results of the non-
controlled subsidiaries are consolidated with Wyndham for financial reporting
purposes. Patriot accounts for its investment in the non-controlled
subsidiaries using the equity method of accounting.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The separate consolidated financial statements include the accounts of
Patriot and Wyndham, their respective wholly-owned subsidiaries, and the
partnerships, corporations and limited liability companies in which Patriot or
Wyndham own at least a 50% controlling interest. The separate consolidated
financial statements of Patriot and Wyndham have also been combined for
purposes of financial statement presentation. All significant intercompany
accounts and transactions have been eliminated.
Investment in Real Estate and Related Improvements
The hotel properties are stated at cost. Depreciation is computed using the
straight-line method based upon estimated useful lives of the assets of 35 to
40 years for the hotel buildings and improvements, 7 years for the Racecourse
facility and 3 to 10 years for furniture, fixtures and equipment. These
estimated useful lives are based on management's knowledge of the properties
and the industry in general.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Companies would record impairment losses on
long-lived assets used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those
assets.
When management identifies an asset as held for sale, the Companies estimate
the fair value of such assets. If in management's opinion the fair value of
the asset is less than the carrying amount of the asset, a reserve for
impairment is established. Fair value is estimated as the amount at which the
asset could be bought or sold less costs to sell. For the year ended December
31, 1998, Patriot and Wyndham recognized approximately $27,897 and $2,681,
respectively, of impairment losses. Patriot recognized approximately $9,453 of
losses related to other assets sold during the year.
F-16
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Repairs and maintenance of hotel properties owned by Patriot are paid by the
lessees. Major renewals and betterments are capitalized. Interest associated
with borrowings used to finance substantial hotel renovations is capitalized
and amortized over the estimated useful life of the assets. Interest of
$12,112, $2,562 and $91 was capitalized in 1998, 1997 and 1996, respectively.
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Restricted Cash
Certain debt agreements and the franchise agreements provide that cash from
hotel operations be restricted for the future acquisition or replacement of
property and equipment each year based on a percentage of gross hotel revenues
and premiums for property taxes and insurance. The requirements range from 3%
to 6%.
Investment in Unconsolidated Subsidiaries
The Companies' investments in unconsolidated subsidiaries include
investments in 23 assets ranging from approximately 5% to 99%. These
investments are accounted for using the equity method of accounting.
Generally, Patriot owns an approximate 99% non-voting interest in each
investment. Wyndham owns an approximate 1% voting interest in each investment,
except for PAH Ravinia, Inc. which owns the Crowne Plaza Ravinia Hotel and PAH
Windwatch, L.L.C. which owns the Wyndham Windwatch Hotel for which the 1%
voting interest is held by certain officers of the Companies.
Management contracts, trade names and franchise costs
The costs associated with the acquisition of management contracts, trade
names and franchises have been recorded as deferred costs. Amortization is
computed using the straight-line method over estimated useful lives ranging
from 6 to 30 years. Certain management agreements include repayment provisions
if termination occurs prior to the term of the agreement. During 1998, Wyndham
recorded $2,950 for termination of management contracts that is included in
interest and other income.
Leaseholds
The costs associated with the acquisition of 121 leaseholds for hotel
properties leased from third party owners have been recorded as deferred
costs. Leasehold costs are amortized using the straight-line method over the
terms of the related leasehold agreement.
Goodwill and intangibles
Goodwill and intangibles recognized in connection with the acquisition of
certain businesses are amortized utilizing the straight-line method over a
period of 5 to 40 years. The carrying value of goodwill is reviewed based on
undiscounted cash flows over the remaining amortization period. Should this
review indicate that the goodwill will not be recoverable, a reserve for
impairment is established. For the year ended December 31, 1998, Wyndham
recognized an approximate $20,503 impairment loss on goodwill, related to
assets and businesses held for sale at December 31, 1998.
F-17
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred Expenses
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- -------
<S> <C> <C>
Deferred loan costs....................................... $ 61,708 $22,798
Costs of non-compete agreements........................... 1,479 --
Franchise fees............................................ 616 429
Other..................................................... 3,331 287
-------- -------
67,134 23,514
Less: accumulated amortization............................ (29,136) (2,097)
-------- -------
$ 37,998 $21,417
======== =======
</TABLE>
Deferred loan costs are amortized to interest expense on a straight-line
basis (which approximates the interest method) over the terms of the related
loans, which range from one to ten years. Deferred loan costs include $4,132
of fully-amortized costs associated with Patriot's old credit facility which
was repaid in July 1997. Costs of non-compete agreements are amortized using
the straight-line method over the terms of the related agreement. Franchise
costs are amortized using the straight-line method over the terms of the
related franchise agreements.
Inventories
Inventories consist of food, beverages, china, linen, glassware and
silverware and are stated at cost, which approximates market.
Other Assets
Leasehold improvements and furniture, fixtures and equipment related to the
Companies' corporate offices are carried at cost and amortized over estimated
useful lives of 5 to 7 years. Insurance premiums included in other assets are
expensed on a pro-rata basis over the life of the related policies. Security
deposits paid in connection with certain leasehold agreements of approximately
$42,988 are included in other assets.
Dividends
Patriot has paid sufficient dividends in order to maintain its status as a
REIT under the Internal Revenue Code of 1996 (the "Code"). Payment of such
dividends is dependent upon receipt of distributions from the Patriot
Partnership. Dividends may be paid in cash or securities.
Deposits
Deposits represent cash received from guests for future hotel reservations
at the hotels that Wyndham manages.
Income Taxes
Patriot has qualified to be a REIT under Sections 856 through 860 of the
Code. Under the Code, if certain requirements are met in a given tax year, a
corporation that is treated as a REIT will generally not be subject to federal
income tax with respect to income which it distributes to its shareholders.
Patriot has declared dividends
F-18
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
in excess of its taxable income through 1998. Accordingly, no provision for
federal income taxes has been reflected in the Patriot's financial statements.
For federal income tax purposes, 1998 dividends totaled $2.04 per common
share, of which 1% and 39% were considered capital gain and return of capital,
respectively. In 1997, dividends totaled $1.09 per common share, none of which
was considered return of capital and in 1996, dividends totaled $0.92 per
common share, none of which was considered return of capital.
Wyndham records its provision for income taxes in accordance with SFAS No.
109. Under the liability method of SFAS No. 109, deferred taxes are determined
based on the difference between the carrying amounts of assets and liabilities
for financial reporting purposes and the tax bases of assets and liabilities
using enacted tax rates in effect in the years the differences are expected to
reverse. See Note 15.
Minority Interest in the Operating Partnerships
Minority interest in the Operating Partnerships includes adjustments for the
minority partners' share of the current period net income and certain other
adjustments for the issuance or redemption of OP units.
Minority Interest in Consolidated Subsidiaries
The Companies have entered into a number of joint ventures in which a third
party owns a minority interest. For financial reporting purposes, the
financial position and results of operations for each controlled joint venture
is included in the consolidated financial statements of the Companies.
Forward Equity Transactions Subject to Price Adjustments
The Companies are parties to transactions with three counterparties
involving the sale of paired shares, with related price adjustment mechanisms.
The original agreements and subsequent amendments provide for a settlement
mechanism in either cash or additional paired shares. At each settlement date,
the Companies have and will record an adjustment to equity for the change in
fair market value of the Companies' paired shares until the forward equity
contracts are settled in full. See Note 11 for additional details on the
forward equity transactions.
Stock Splits
On January 30, 1997, the Board of Directors declared a 2-for-1 stock split
on Patriot common stock effected in the form of a stock dividend distributed
on March 18, 1997 to shareholders of record on March 7, 1997.
In addition, on July 10, 1997, the respective Boards of Directors of Patriot
and Wyndham declared a 1.927-for-1 stock split on its shares of common stock
effected in the form of a stock dividend distributed on July 25, 1997 to
shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the combined and consolidated
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock have been
restated to reflect the impact of the conversion of each share of Patriot
common stock into
F-19
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
0.51895 paired shares issued in the Cal Jockey merger and the 1.927-for-1
stock split. In addition, all references in the combined and consolidated
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock related to
periods prior to the 2-for-1 stock split distributed in March 1997 have been
restated to reflect the impact of such stock split.
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey merger
and the 1.927-for-1 stock split in July 1997, the number of OP units
outstanding and the OP unit conversion factor has been adjusted to re-
establish a 1-for-1 exchange ratio of OP units to common shares.
Stock Dividend
On December 22, 1998, Patriot declared a stock dividend of $0.44 per share
of common stock for the fourth quarter ended December 31, 1998 (the
"Dividend"). The Dividend was payable on January 25, 1999 to shareholders of
record on December 30, 1998. Each shareholder received the option to receive
the Dividend in the form of additional paired shares or shares of Series B
Cumulative Perpetual Preferred Stock, par value $0.01 per share of Patriot.
Per share data (including dividends), weighted average shares outstanding
and all stock option activity have been restated to reflect the stock
dividend.
Earnings per Share
The Companies have adopted SFAS No. 128 "Earnings Per Share". SFAS No. 128
specifies the computation, presentation and disclosure requirements for basic
earnings per share and diluted earnings per share. Earnings per share
disclosures for all periods presented have been calculated in accordance with
requirements of SFAS No. 128. Basic earnings per share is computed based upon
the weighted average number of shares of common stock outstanding during the
period presented. Shares of common stock granted to officers and employees of
Patriot and Wyndham are included in the computation only after the shares
become fully vested. Diluted earnings per share is computed based upon the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding during the periods presented. The diluted earnings per
share computations also include the dilutive impact of options to purchase
common stock which were outstanding during the period calculated by the
"treasury stock" method, unvested stock grants and other restricted awards to
officers and employees of Patriot and Wyndham, convertible preferred shares
and collateral shares issued in conjunction with certain forward equity
transactions (see Note 10).
Stock Compensation
The Companies account for their stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", ("APB No. 25"), and intend to continue to do so.
See Note 14 for a discussion of the Companies' stock compensation arrangements
and pro forma disclosure of the effect on income from operations and earnings
per share of such arrangements pursuant to the requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation".
Revenue Recognition
Patriot and the Patriot Partnership lease their hotel properties to Wyndham
and other lessees pursuant to separate participating leases. In addition, the
Patriot Partnership leases the Racecourse facilities to Wyndham pursuant to a
separate lease agreement. Lease income is recognized when earned under the
related leases. Wyndham primarily operates and manages hotel properties. Hotel
revenue, management fees, service and other fees, are recognized when earned.
F-20
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
Financial statements of foreign subsidiaries not maintained using U.S.
dollars are remeasured into the U.S. dollar functional currency for
consolidation and reporting purposes. Assets and liabilities of non-U.S.
operations are translated into U.S. dollars at the exchange rate in effect at
the balance sheet date. Revenues and expenses of non-U.S. operations are
translated at the weighted average exchange rate during the year. Resulting
translation adjustments are reflected in shareholders' equity. Realized
foreign currency gains and losses are included in results of operations.
Advertising Costs
The Companies participate in various advertising and marketing programs. All
costs are expensed in the period in which the advertising first takes place.
The Companies have recognized advertising expenses of $61,468 for 1998.
Self Insurance
The Company is self insured for various levels of general liability,
workers' compensation and employee medical coverage. Accrued expenses include
the estimated cost from unpaid incurred claims.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations
With the exception of its investment in the Racecourse facility, Patriot
currently invests primarily in hotel properties. The hotel industry is highly
competitive and Patriot's hotel investments are subject to competition from
other hotels for guests. Each of Patriot's hotels competes for guests
primarily with other similar hotels in its immediate vicinity and other
similar hotels in its geographic market. Patriot believes that brand
recognition, location, quality of the hotel, services provided and price are
the principal competitive factors affecting its hotel investments.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires that all components of comprehensive income and
the ending accumulated balances for each item, classified by their nature, be
reported in the financial statements in the period in which they are
recognized. The Companies adopted SFAS No. 130 beginning with the interim
financial statements for the quarter ended March 31, 1998.
Business Segments
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. SFAS No. 131 changes current
practice by establishing a new framework on which to base segment reporting,
including the determination of a segment and the financial
F-21
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
information to be disclosed for each segment, referred to as the "management"
approach. The management approach requires that management identify "operating
segments" based on the way that management reviews the entity for making
internal operating decisions. SFAS No. 131 was adopted by the Companies with
the fiscal year ended December 31, 1998. See Note 18.
Derivative Instruments and Hedging Activities
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. The Companies expect to adopt SFAS No. 133
effective January 1, 2000. SFAS No. 133 will require the Companies to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings,
or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. Management has not yet
determined what the effect of SFAS No. 133 will have on the earnings and
financial position of the Companies.
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 revenues at Patriot's hotels may cause quarterly fluctuations in
Patriot's lease revenues.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation.
3. Investments in Real Estate and Related Improvements and Land Held for
Development:
Investment in Real Estate and Related Improvements and Land Held for
Development consists of the following:
<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------------------------
Patriot
---------------------------------
Hotel Racecourse Wyndham
Properties Facility Total International
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Land...................... $ 376,794 $ 2,340 $ 379,134 $114,664
Land held for
development.............. 81,314 -- 81,314 --
Buildings and
improvements............. 4,063,747 21,865 4,085,612 416,427
Furniture, fixtures and
equipment................ 515,224 837 516,061 122,290
Renovations in progress... 142,217 536 142,753 11,435
---------- ------- ---------- --------
5,179,296 25,578 5,204,874 664,816
Less: impairment reserve.. (8,803) (19,094) (27,897) (2,681)
Less: accumulated
depreciation............. (212,800) (3,748) (216,548) (36,032)
---------- ------- ---------- --------
$4,957,693 $ 2,736 $4,960,429 $626,103
========== ======= ========== ========
</TABLE>
F-22
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------------------------
Patriot
---------------------------------
Hotel Racecourse Wyndham
Properties Facility Total International
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Land...................... $ 168,222 $ -- $ 168,222 $ --
Land held for
development.............. 17,980 -- 17,980 --
Buildings and
improvements............. 1,676,551 18,795 1,695,346 --
Furniture, fixtures and
equipment................ 187,705 517 188,222 29,686
Renovations in progress... 13,998 -- 13,998 --
---------- ------- ---------- -------
2,064,456 19,312 2,083,768 29,686
Less: accumulated
depreciation............. (66,122) (1,379) (67,501) (1,304)
---------- ------- ---------- -------
$1,998,334 $17,933 $2,016,267 $28,382
========== ======= ========== =======
</TABLE>
The Companies have approximately $550,315 of assets held for sale which are
included in investments in real estate and related improvements and land held
for development in the accompanying financial statements which are expected to
be sold during 1999. The assets held for sale include approximately $435,906
of non-proprietary branded segment assets, $93,337 of resort segment assets
and $21,072 of other segment assets. See Note 18 for Segment Reporting.
Additionally, the Companies have recorded an impairment reserve of
approximately $30,578 related to these assets held for sale. The impairment
relates in part to six hotels which had a combined net income of $1,323 for
the year ended December 31, 1998. Additionally, the impairment relates to the
Bay Meadows Racecourse which had operating income of $969 for the year ended
December 31, 1998 and was sold in February of 1999. See Note 22.
Investments in Hotel Properties
During 1996, Patriot acquired investments in 23 hotels for approximately
$372,147 (including closing costs and approximately $3,456 related to the
assumption of operating liabilities and acquisition costs). These acquisitions
were financed primarily with funds drawn on Patriot's credit facility and the
issuance of 600,703 OP units valued at approximately $16,391. In addition, the
payment of a portion of the purchase price related to the acquisition of six
of the hotels, in the amount of $2,000, was paid in February 1998. This amount
is included in accounts payable and accrued expenses at December 31, 1997.
During 1997, Patriot, through the Patriot Partnership and its subsidiaries,
invested approximately $1,331,459 in the acquisition of 45 hotels with a total
of approximately 12,000 guest rooms. These acquisitions were financed
primarily with funds drawn on Patriot's Credit Facility, a $350,000 term loan,
new mortgage financing in the amount of $236,892, the issuance of 5,629,172 OP
units valued at approximately $130,137, the issuance of 1,719,535 paired
shares valued at approximately $38,492, like-kind exchange of properties (see
discussion below) and the assumption of mortgage debt in the amount of
approximately $34,263.
During 1998, Patriot, through the Patriot Partnership and its subsidiaries,
invested approximately $234,116 in the acquisition of four hotels with a total
of over 1,700 guest rooms and the Golden Door Spa. These acquisitions were
financed primarily with funds drawn on Patriot's Credit Facility, the issuance
of 53,989 OP units valued at approximately $1,496, the issuance of 390,335
paired shares valued at approximately $10,000 and the assumption of mortgage
debt in the amount of approximately $80,074. In addition, Patriot acquired an
office building that will be converted into a hotel for approximately $33,900.
Cal Jockey Merger
At the closing of the Cal Jockey merger, 11,105,795 paired shares of Cal
Jockey and Bay Meadows were outstanding, resulting in total purchase
consideration for the transaction of approximately $190,188 (of which $130,516
related to Cal Jockey and $59,672 related to Bay Meadows). The estimated value
of the Cal Jockey
F-23
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and Bay Meadows paired shares was $33.00 per paired share based on a
conversion ratio of Patriot common stock into paired shares equal to 0.51895,
and the closing market price of Patriot's common stock on October 30, 1996
(the date the Cal Jockey merger agreement was executed) of $17.125.
Land Leases
PaineWebber, a PaineWebber affiliate and Patriot entered into a ground lease
covering a portion of the land on which the Racecourse is situated for a term
of seven years. The lease provides for quarterly rental payments of $750
through March 1998, $813 through March 1999, $875 through March 2000, $1,000
through March 2002 and $1,250 through July 2004. Patriot has subleased the
Racecourse land and leased the related improvements to a wholly owned
subsidiary of Wyndham in order to permit Wyndham to continue horseracing
operations at the Racecourse through the term of Patriot's lease. The sublease
is for a term of seven years with annual payments based on percentages of
revenue generated. In addition, Patriot has leased certain land adjacent to
the Racecourse to Borders, Inc. for an initial term of 20 years with a fixed
net annual rent of $279 for years 1 through 10, $362 for years 11 through 15
and $416 for years 16 through 20. In connection with the sale, Patriot
assigned all of its rights and benefits under existing leases, contracts,
permits and entitlements relating to the land sold (excluding the Borders
lease) to the PaineWebber affiliate. The PaineWebber affiliate assumed
substantially all of Patriot's development obligations including, but not
limited to, all obligations for on and off-site improvements and all
obligations under existing lease and contracts. Pursuant to the agreement,
Patriot has funded $10,250 of development costs for new stables as of December
31, 1998). The parties have the option to renew such leases upon their
expiration under certain circumstances. See Note 22.
Asset Sales
During 1998, Patriot sold its interest in four hotel assets: Courtyard by
Marriott Hotel in Orange, Connecticut; Courtyard by Marriott Hotel in St.
Louis, Missouri; Residence Inn by Marriott in Pittsburgh, Pennsylvania; and
the Westborough by Marriott in Westborough, Massachusetts, collectively
hereinafter referred to as the Fine Transaction, for a net purchase price of
approximately $32,500. The assets were sold to an affiliate of an independent
member of the Patriot Board of Directors. Patriot recognized no gain or loss
on sale as a result of this transaction.
Additionally in December 1998, Patriot sold its interest in three hotel
assets previously leased to NorthCoast Hotels, LLC (a third party lessee of
Patriot); the WestCoast Roosevelt Hotel, the WestCoast Gateway Hotel located
in Seattle, Washington and the WestCoast Wenatchee Hotel located in Wenatchee,
Washington to an affiliate of NorthCoast. Patriot received net cash proceeds
of approximately $23,700 plus a mortgage note receivable in the amount of
$2,000. Patriot has also contracted with an affiliate of NorthCoast to sell a
fourth hotel; the WestCoast Long Beach Hotel and Marina located in Long Beach,
California for a total purchase price of approximately $7,000. Patriot
recognized a loss on sale of approximately $9,453 as a result of the sale of
these assets.
4. Other Businesses Acquired:
Grand Heritage
In August 1997, Wyndham acquired Grand Heritage Hotels, Inc. a hotel
management and marketing company, and other Grand Heritage subsidiaries
including Grand Heritage Leasing, L.L.C. which leased three hotels from
Patriot for a purchase price of approximately $22,500. The purchase was
financed primarily through the issuance of 931,972 Class A preferred OP units
of Wyndham.
F-24
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Gencom American Hospitality and CHC International, Inc.
On September 1, 1997, Patriot acquired the leasehold interests related to
seven Patriot hotels which were previously leased by CHC Lease Partners and
re-leased such hotels to Wyndham.
On October 1, 1997, Patriot acquired one additional leasehold interest
related to a Patriot hotel previously leased by CHC Lease Partners and re-
leased such hotel to Wyndham. The hotels' management contracts with CHCI
related to these eight leaseholds were terminated prior to the acquisition.
The aggregate purchase price of the eight leasehold interests was
approximately $52,766, which is reflected as a cost of acquiring leaseholds in
the accompanying statements of operations of Patriot for the year ended
December 31, 1997. Concurrently, Wyndham purchased an approximate 50%
managing, controlling ownership interest in GAH-II, L.P. from affiliates of
Gencom American Hospitality for a purchase price of approximately $13,860.
These transactions were financed with approximately $644 of cash, and by
issuing 2,388,932 paired OP units of the Operating Partnerships and 476,682
preferred OP units of the Wyndham Partnership.
On June 30, 1998, pursuant to an Agreement and Plan of Merger dated as of
September 30, 1997 between Patriot, Wyndham and CHCI ("CHCI merger"), the
hospitality-related businesses of CHCI merged with and into Wyndham with
Wyndham being the surviving company. CHCI's gaming operations were transferred
to a new legal entity prior to the CHCI merger and such operations were not a
part of the transaction. As a result of the CHCI merger, Wyndham, through its
subsidiaries, acquired the remaining 50% investment interest in GAH-II, L.P.,
the remaining 17 leases and 16 of the associated management contracts related
to the Patriot hotels leased by CHC Lease Partners, 8 third-party management
contracts, two third-party asset management contracts, the Grand Bay
proprietary brand name and certain other hospitality management assets. The
aggregate purchase price of the 17 leasehold interests was approximately
$52,721, which is reflected as a cost of acquiring leaseholds in the
accompanying statements of operations of Wyndham for the year ended December
31, 1998.
These transactions are collectively referred to as the GAH acquisition.
By operation of the CHCI Merger, all the issued and outstanding shares of
common stock, par value $0.005 per share, of CHCI and certain stock option
rights were exchanged for an aggregate of 1,781,173 shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham
and 1,781,181 shares of Series B Redeemable Convertible Preferred Stock, par
value $0.01 per share, of Wyndham. In addition, Wyndham assumed CHCI's
outstanding debt in the amount of approximately $16,600.
In addition, on September 30, 2000 and September 30, 2002, Wyndham may be
obligated to pay the CHCI stockholders and a subsidiary of Wyndham may be
obligated to pay a Gencom-related entity additional consideration, in each
case based upon the performance of certain specified assets.
Wyndham Hotel Corporation
On January 5, 1998, Wyndham Hotel Corporation ("Old Wyndham") merged with
and into Patriot, with Patriot being the surviving corporation ("Wyndham
merger").
Patriot, as a result of the Wyndham merger, acquired ownership of ten Old
Wyndham hotels and 14 ClubHouse hotels and leased such hotels to Wyndham.
Thirteen of the 14 hotel leases assumed by Patriot were sub-leased to Wyndham.
Wyndham's remaining 52 management and franchise contracts (excluding 16
Patriot hotels that Wyndham managed prior to the merger), the Wyndham and
ClubHouse proprietary brand names, and the Wyndham hotel management company
were transferred to certain non-controlled subsidiaries. The total purchase
consideration for the Wyndham merger was approximately $982,000. The
consideration consisted of: 21,594,137 paired shares; 4,860,876 shares of
Series A Convertible Preferred Stock of Patriot (which are convertible on a
one-for-one basis into paired shares); cash of approximately $339,000 to repay
debt and pay Wyndham shareholders who elected to receive cash (which was
financed with funds drawn on Patriot's Credit Facility); and the assumption of
approximately $59,063 in debt. In connection with the repayment of debt
F-25
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
assumed in the Wyndham merger, Patriot incurred certain prepayment penalties
and wrote off the remaining balance of unamortized deferred financing costs
associated with such debt of approximately $18,716, net of minority interest.
Such amount has been reported as an extraordinary item in Patriot's
consolidated statement of operations.
In connection with the Wyndham merger, which was accounted for using the
purchase method of accounting, goodwill of $323,959 was recognized.
In 1998, the Companies issued an aggregate 261,224 paired shares valued at
approximately $5,847 in settlement of certain purchase price adjustment
arrangements related to Old Wyndham's acquisition of ClubHouse Hotels, Inc.
prior to the merger with Patriot.
WHG Casinos & Resorts, Inc. and related transactions
On January 16, 1998, a subsidiary of Wyndham merged with and into WHG
Casinos & Resorts Inc., with WHG being the surviving corporation, ("WHG
merger"). As a result of the WHG merger, Wyndham acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the partnership that owns the 389-room
El San Juan Hotel & Casino and a 23.3% interest in the partnership that owns
the 751-room El Conquistador Resort & Country Club, all of which are located
in Puerto Rico. In addition, Wyndham acquired a 62% interest in Williams
Hospitality Group, Inc., the management company for the three hotels and the
Las Casitas Village at the El Conquistador. A total of 5,004,690 paired shares
were issued in connection with the WHG merger and approximately $21,300 of
debt was assumed, resulting in total purchase consideration of approximately
$159,400.
In connection with the WHG merger, which was accounted for using the
purchase method of accounting, goodwill of $22,758 was recognized.
Effective March 1, 1998, Patriot acquired from unaffiliated third parties a
40% interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity
interest in the El Conquistador and a 38% interest in Williams Hospitality
Group, Inc. for approximately $31,000 in cash, issuance of 1,818,182 paired
shares valued at approximately $49,227 and assumed approximately $169,572 of
debt.
On July 13, 1998, Patriot acquired the remaining minority interests held by
a third party in entities that own the El Conquistador and the El San Juan
Hotel & Casino for a total purchase price of approximately $3,890. Wyndham
owns the controlling general partner interest in the partnerships that own the
El San Juan Hotel & Casino and the El Conquistador. Wyndham also holds voting
control of Williams Hospitality Group, Inc. Therefore, the operating results
of these entities have been consolidated with those of Wyndham for financial
reporting purposes.
Arcadian International Limited
In April 1998, Patriot announced the completion of its acquisition of all of
the issued and to-be-issued shares of Arcadian International Limited for 60
pence per share referred to hereinafter as the Arcadian acquisition. Including
the exercise of all outstanding options to purchase shares, the assumption of
debt and the acquisition of the remaining shares in the Malmaison Group, the
total transaction cost was approximately (Pounds)185,900 (approximately
$308,700 U.S. based on exchange rates at the time of closing). As a result of
the transaction, Patriot acquired ten owned hotels located throughout England;
one owned hotel in Jersey; five owned and managed Malmaison Hotels; two
resorts under development in Tuscany, Italy and Paris, France; and the
proprietary Malmaison brand name. Patriot also acquired Arcadian's 50%
partnership interest in the redevelopment of the luxury Great Eastern Hotel in
London, to be branded as a flagship Wyndham Hotel and operated by Wyndham once
the development has been completed. The Arcadian acquisition, was financed
through a short-term financing agreement with PaineWebber Real Estate
Securities, Inc. for $160,000, at a rate equal to the borrowing rate on
Patriot's revolving credit facility. In addition, Patriot assumed
approximately $112,600 of debt in connection with the Arcadian acquisition.
See Note 6.
F-26
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In connection with the Arcadian acquisition which was accounted for using
the purchase method of accounting, goodwill of $54,405 was recognized.
Interstate Hotels Company
On June 2, 1998, pursuant to an Agreement and Plan of Merger dated as of
December 2, 1997, as thereafter amended, between Patriot, Wyndham and
Interstate Hotels Company, Interstate merged with and into Patriot with
Patriot being the surviving company ("Interstate merger"). Pursuant to the
Interstate merger agreement, stockholders of Interstate could elect to convert
each of their shares of Interstate common stock into the right to receive
either (i) $37.50 in cash, subject to proration in certain circumstances, or
(ii) a number of paired shares of Patriot and Wyndham common stock based on an
exchange ratio of 1.341 paired shares for each share of Interstate common
stock not exchanged for cash.
As a result of the Interstate merger, Patriot acquired controlling interest
in, or ownership of, 42 hotels representing over 12,000 rooms; leases for 84
hotels representing over 10,100 rooms and management or service agreements for
82 hotels representing over 20,400 rooms located throughout the United States
and in Canada, the Caribbean and Russia.
The total purchase consideration for the Interstate merger of approximately
$2,086,812 consisted of 28,825,875 paired shares, cash of approximately
$525,385 to pay Interstate shareholders who elected to receive cash,
approximately $787,117 in debt assumed or refinanced by Patriot and
approximately $73,351 to pay other transaction-related costs. In addition,
Interstate shareholders received rights to receive a cash distribution of
$0.40 on each share of Interstate common stock that was converted into paired
shares, aggregating approximately $9,138. In connection with the repayment of
debt assumed in the Interstate merger, Patriot incurred certain prepayment
penalties and wrote off the remaining balance of unamortized deferred
financing costs associated with such debt of approximately $11,553, net of
minority interest. Such amount has been reported as an extraordinary item in
Patriot's consolidated financial statement.
In connection with the Interstate merger which was accounted for using the
purchase method of accounting, goodwill of $254 was recognized.
Interstate's Third-Party Hotel Management Business
In May, 1998, the Companies, along with Interstate, entered into a
settlement agreement (as amended, the "Settlement Agreement") with Marriott
International, Inc. ("Marriott") which addressed certain claims asserted by
Marriott in connection with Patriot's then proposed merger with Interstate.
The Settlement Agreement provided for the dismissal of litigation brought by
Marriott, and allowed Patriot's merger with Interstate to close.
. In addition to dismissal of the Marriott litigation, the Settlement
Agreement provides for three principal transactions: (1) the re-
branding of ten Marriott hotels under the Wyndham name, (2) Marriott's
assumption of the management (the "Assumed Management Contracts") of
ten Marriott hotels formerly managed by Interstate for the remaining
term of the Marriott franchise agreement, and (3) the divestiture,
either through a sale or a spin-off of assets, of the third-party
management business which was operated by Interstate (the
"Divestiture").
. For Patriot to sell the third-party management business which was
operated by Interstate to a third party (a "Sale Transaction"),
Patriot must (1) sign a non-binding letter of intent (the "Letter of
Intent") for the Sale Transaction on or before March 31, 1999, (2)
sign a final binding contract (the "Final Binding Contract") for the
Sale Transaction no later than midnight on April 14, 1999, and
(3) consummate the Sale Transaction no later than June 14, 1999. If
Patriot does not complete a Sale Transaction, it must consummate the spin-
off of the third-party management business which was operated by
Interstate (the "Spin-off") no later than the earliest of (1) June 14,
1999, (2) April 30, 1999 (if Patriot does not enter into a Letter of
Intent by March 31, 1999), (3) thirty
F-27
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
days after the date Marriott disapproves the Letter of Intent, (4) May
14, 1999 (if Patriot does not enter into a Final Binding Contract by
April 14, 1999), or (5) thirty days after the date of Marriott
disapproves of the Final Binding Contract. The last date on which
either the Sale Transaction or the Spin-off may be complete pursuant
to the Settlement Agreement is the "Final Divestiture Date."
The assets expected to be included in the spin-off include management
contracts, leaseholds, and other net assets with an approximate carrying value
of approximately $68,000 at December 31, 1998. These assets contributed
approximately $6,655 of net income for the period June 2, 1998 through
December 31, 1998.
If the Companies do not complete the Spin-off or the Sale Transaction by the
Final Divestiture Date, Marriott will be entitled to receive 110% of the fees
otherwise due under the Assumed Management Contracts. The Companies will also
be subject to additional penalties including Marriott's right to purchase,
subject to third-party consents, the hotels to be submanaged by Marriott and
six additional Marriott hotels owned by Patriot at their then appraised
values.
Moreover, subject to any defenses the Companies may have, the Companies
would owe Marriott liquidated damages with respect to the hotels converted to
the Wyndham brand, those to be submanaged by Marriott, and the six additional
Marriott hotels Marriott would have the option to purchase. The Companies also
anticipate that Marriott would require third-party owners of Marriott-branded
hotels that Wyndham manages to replace Wyndham as manager of their hotels. As
a result, each respective hotel would either: (1) lose the Marriott brand, at
which time the Companies would have to compensate Marriott for any lost
franchise fees or (2) terminate the management contract with Wyndham and enter
into a contract with another manager. The Companies would owe liquidated
damages on any third-party Marriott-franchised hotel which chooses to convert
its brand.
SF Hotel Company, L.P.
On June 5, 1998, Patriot, through the Patriot Partnership, acquired all of
the partnership interests in SF Hotel Company, L.P. for approximately $298,915
("Summerfield acquisition"). The total purchase consideration for the
Summerfield acquisition consisted of approximately 3,223,795 OP units,
1,397,281 paired shares, cash of approximately $165,514 and assumption of debt
in the amount of approximately $17,083. In addition, the purchase price is
subject to future adjustment based on (i) the market price of the paired
shares through the end of 1998 (the "1998 Summerfield adjustment") and (ii)
achievement of certain performance criteria through 2000 for 24 managed hotels
which were not open for business (or had recently opened) as of the date of
acquisition, and (iii) fulfillment of the Companies obligation to develop
seven hotels. As a result of the Summerfield acquisition, Patriot acquired
four Summerfield Suites(R) hotels, leasehold and management interests in 24
Summerfield Suites(R), Sierra Suites(R) and Sunrise Suites hotels and
management contracts and franchise interests for 12 additional Summerfield
Suites(R) and Sierra Suites(R) hotels. Patriot has leased or sub-leased 21 of
the 24 hotels to Wyndham. In addition, Patriot acquired the development
contracts for several additional hotels. Estimated obligations related to
these future purchase price adjustments are approximately $55,000 part of
which is payable in 2000 and in part in 2001.
In connection with the Summerfield acquisition which was accounted for using
the purchase method of accounting, goodwill of $45,207 was recognized. In
connection with the repayment of debt assumed in the Summerfield acquisition,
Patriot incurred certain repayment penalties and wrote off the remaining
balance of unamortized deferred financing costs associated with such debt of
approximately $291, net of minority interest. Such amount has been reported as
an extraordinary item in Patriot's consolidated financial statement.
Effective January 15, 1999, an additional 1,311,709 OP units valued at
approximately $8,969 were issued in connection with the Summerfield
acquisition as additional consideration pursuant to the purchase agreement in
satisfaction of the 1998 Summerfield adjustment.
F-28
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Other
In July 1998, Wyndham acquired an approximate 49% limited partnership
interest in a partnership with affiliates of Don Shula's Steakhouse, Inc. for
$1,500 in cash and 156,272 of Preferred OP units of the Wyndham Partnership
which were valued at approximately $3,500.
During 1998, Patriot also re-acquired the leasehold interests for nine of
its hotels from the lessees and purchased certain license agreements for an
aggregate purchase price of approximately $11,686, which is reflected as a
cost of acquiring leaseholds in the accompanying statements of operations of
Patriot. The Companies issued 118,812 paired shares valued at $3,000 and paid
cash of $8,686. Patriot has leased the hotels to Wyndham.
5. Mortgage Notes Receivable and Other Receivables from Unconsolidated
Subsidiaries:
In December 1995, Patriot, through the Patriot Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Ravinia, a Virginia
corporation, for $4,458 and PAH Ravinia acquired the 495-room Crowne Plaza
Ravinia Hotel in Atlanta, Georgia. As part of the financing for the
acquisition of the Crowne Plaza Ravinia Hotel, Patriot, through the Patriot
Partnership, advanced $40,500 to PAH Ravinia, which is evidenced by two
mortgage notes consisting of a $36,000 first mortgage note and a $4,500 second
mortgage note. The principal amount of both notes is due January 1, 2000.
Interest at an annual rate equal to 10.25% and 12.5% on the first and second
mortgage notes, respectively, is payable monthly. All amounts owing under the
mortgage notes will become due upon a sale of the hotel to a third party
purchaser. The mortgage notes are collateralized by deeds of trust on the
Crowne Plaza Ravinia Hotel.
In September 1996, Patriot, through the Patriot Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Windwatch, a Delaware
limited liability company. Patriot's investment in PAH Windwatch of
approximately $6,217 is evidenced by a promissory note. PAH Windwatch acquired
the 362-room Wyndham WindWatch Hotel in Hauppauge (Long Island), New York for
approximately $31,102. As part of the financing for the acquisition of the
Wyndham WindWatch Hotel, Patriot, through the Patriot Partnership, advanced
PAH Windwatch $31,400 which is evidenced by a first lien mortgage note. The
principal amount of the note is due on August 31, 1999. Interest at an annual
rate equal to 9% is payable monthly. All amounts owed under the mortgage note
will become due upon the sale of the hotel to a third party purchaser. The
mortgage note is collateralized by a deed of trust on the Wyndham WindWatch
Hotel.
These acquisitions have been accounted for using the equity method of
accounting. As a result, profits and losses related to these acquisitions are
reflected in equity in earnings of unconsolidated subsidiaries for financial
accounting purposes.
6. Credit Facility, Term Loans, Mortgage and Other Notes and Capital Lease
Obligations:
Outstanding borrowings under Patriot's credit facility, term loans, various
mortgage and other notes and capital lease obligations consist of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Credit Facility...................................... $ 875,587 $ 455,743
Term Loans........................................... 1,799,500 350,000
Paine Webber Mortgage Financing...................... 298,000 138,000
El Conquistador and Condado Financing................ 170,000 --
Royal Bank of Scotland and Coutts Consortium
Financing........................................... 97,140 --
Mortgage notes payable to Metropolitan Life Insurance
Company............................................. 98,892 98,892
Unsecured Financing.................................. 66,753 --
Other mortgage debt.................................. 421,944 69,702
Capital lease obligations............................ 29,705 372
---------- ----------
$3,857,521 $1,112,709
========== ==========
</TABLE>
F- 29
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Credit Facility and Term Loans
In connection with the Interstate merger, the Companies closed on the
commitment from the Chase Manhattan Bank and Chase Securities, Inc. and Paine
Webber Real Estate Securities, Inc. to increase Patriot's existing credit
facilities to an aggregate of $2,700,000 (an increase of $1,450,000 from the
prior $1,250,000 credit package). The increased credit facilities include the
$900,000 revolving credit facility ("Credit Facility") and a series of term
loans in the aggregate amount of up to $1,800,000 (the "Term Loans"). Proceeds
from the increased credit facilities were used to fund the cash portion of the
Interstate merger consideration, as well as to refinance certain outstanding
indebtedness of the Patriot Companies. Interest rates will be based on the
Companies' leverage ratio and may vary from 1.5% to 2.5% over LIBOR. As of
December 31, 1998 the effective rate of interest was 7.314% for all borrowings
under the Credit Facility except for Tranche B which was 7.564%. Patriot
incurred approximately $27,405 in loan fees and other expenses associated with
this financing arrangement.
As of December 31, 1998, the Companies had no additional availability under
the Credit Facility. The weighted average interest rate in effect for the
Credit Facility for the period ended December 31, 1998 was 7.90% per annum. As
of December 31, 1998, there was $875,587 outstanding under the Credit
Facility. Additionally, Patriot had outstanding letters of credit totaling
$24,413 as of December 31, 1998.
The Credit Facility matures July 2000. The Term Loans mature on January 31,
1999 ($350,000); March 31, 1999 ($400,000); March 31, 2000 ($450,000); and
March 31, 2003 ($599,500).
Under the original terms of the Credit Facility, two of the term loans
matured on January 31, 1999 ($350 million) and March 31, 1999 ($400 million),
respectively. All of the lenders under the Credit Facility have agreed to
extend maturity of these two term loans to June 30, 1999, subject to Patriot
and Wyndham consummating the Securities Purchase Agreement by that date (see
Note 22). In addition to the maturity extension dates, the lenders have waived
certain debt covenants to June 30, 1999 which the Companies would have been in
default if not waived. If the Securities Purchase Agreement is not consummated
by June 30, 1999, or the Securities Purchase Agreement otherwise terminates,
the maturity on these two Term Loans will be extended to March 31, 2000, and
require $300,000 of principal amortization by December 31, 1999. Additionally
the Companies will be required to secure the Credit Facility with mortgages
and other security interests. In connection with their agreement to extend the
maturities of the term loans to June 30, 1999, the Companies have paid
approximately $11,700 in fees.
Treasury Rate Lock Agreements
Patriot previously entered into three treasury interest rate lock agreements
to protect the Companies against the possibility of rising interest rates.
Under the rate lock agreements, Patriot receives or makes payments based on
the difference between specified interest rates, 6.06%, 6.07%, and 5.62%, and
the actual 10-year U.S. Treasury interest rate on a principal amount of
$525,000. The Patriot settled the entire $525,000 in treasury interest rate
locks resulting in a $49,334 one-time charge to earnings in 1998.
Interest Rate Swaps and Caps
As of December 31, 1998 Patriot has entered into six interest rate swap
arrangements to swap floating rate LIBOR-based interest rates for fixed rate
interest amounts as a hedge against $822,000 of the outstanding balance on the
Credit Facility and related term loans. If the actual LIBOR rate is less than
the specified fixed interest rate, Patriot is obligated to pay the
differential interest amount, such amount being recorded as incremental
interest expense. If the LIBOR rate is greater than the specified fixed
interest rate, the differential interest amount is refunded to Patriot.
F-30
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The interest rate swaps, cover borrowings under the Credit Facility and Term
Loans as follows:
<TABLE>
<CAPTION>
Amount Rate Maturity
------ ---- --------
<S> <C> <C>
$125,000 5.625%(1) 11/01/02
125,000 6.044%(1) 11/01/02
125,000 6.090%(1) 11/01/02
72,000 5.80% 12/15/00
125,000 5.56% 11/01/02
250,000 5.84% 06/01/03
</TABLE>
- --------
(1) See Note 22.
Patriot paid $2,331 and $587 of net incremental interest expense related to
the interest rate swap arrangements in 1998 and 1997, respectively.
Additionally, Patriot has four interest rate cap arrangements as follows: an
interest rate cap that limits LIBOR to 6% on up to $105,000 of indebtedness
through June 1999; an interest rate cap that limits LIBOR to 7% on up to
$208,750 of indebtedness through October 1999; an interest rate cap that
limits LIBOR to 8.5% on up to $29,125 of indebtedness through August 2004; and
an interest rate cap that limits LIBOR to 7.83% on up to $38,000 of
indebtedness through October 2001.
Paine Webber Mortgage Financing
In July 1997, Patriot entered into a short-term financing arrangement (the
"Paine Webber Mortgage Financing") with an affiliate of Paine Webber Real
Estate Securities, Inc. ("Paine Webber Real Estate") whereby such affiliate
loaned Patriot $103,000 through April 15, 1998. The loan was amended to
extended the maturity to December 1998 then amended and extended to April 15,
1999, at a rate equal to the greater of 30-day LIBOR plus 1.75% or the
borrowing rate on the Credit Facility. The effective interest rate and
weighted average interest rate incurred under this borrowing was 7.314% and
7.81%, respectively for the period ended December 31, 1998. The proceeds of
the Paine Webber Mortgage Financing were used by Patriot to fund or acquire
four mortgage loans to certain partnerships affiliated with members of CHC
Lease Partners. The Paine Webber Mortgage Financing is secured by a collateral
assignment of the first lien mortgage loans encumbering four hotels (which
have an aggregate net book value as of December 31, 1998 of $122,060).
Patriot, through the Patriot Partnership and certain other subsidiaries, owns
the hotels securing these mortgage notes.
Effective February 15, 1999 the agreement was amended and extended to the
earlier of June 30, 1999 or the closing of the Securities Purchase Agreement
(see Note 22). Additionally, the amendment provides for an increase in the
rate of interest to LIBOR plus 2.75% per annum.
In connection with the acquisition of the Wyndham Emerald Plaza Hotel
located in San Diego, California and the Arcadian acquisition, Paine Webber
Real Estate provided loans of $35,000 and $160,000, respectively. The $160,000
loan bears interest at a rate equal to the borrowing rate of Patriot's Credit
Facility and matures December 1998 (amended to April 15, 1999). The $35,000
loan bears interest at a rate of LIBOR plus 1.9% and matures December 1998
(April 15, 1999, as amended). This loan is secured by a first lien mortgage on
the property (which has an aggregate net book value as of December 31, 1998 of
$64,699) and the $160,000 loan is unsecured. The weighted average interest
rate incurred under these borrowings was 7.76% for the period ended December
31, 1998. The effective interest rate as of December 31, 1998 was 6.964% for
the $35,000 mortgage loan and 7.314% for the $160,000 unsecured loan.
F-31
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Effective February 15, 1999 these agreements were amended and extended to
the earlier of June 30, 1999 or the closing of the Securities Purchase
Agreement (see Note 22). Additionally, the amendments provide for an increase
in the rate of interest to LIBOR plus 2.75% per annum for the $35,000 loan and
to LIBOR plus 5% per annum for the $160,000 loan.
El Conquistador and Condado Hotel & Casino Financing
In August 1998, the Companies refinanced certain debt related to the El
Conquistador and the Condado Hotel & Casino. Proceeds of $145,000 from the
refinancing were used to repay outstanding indebtedness of approximately
$139,350, to pay legal and closing costs and to establish certain reserves,
including interest reserves, required by the loan agreements. In connection
with the refinancing, unamortized deferred financing costs of $1,257, net of
minority interest, was written off. Such amount has been reported as an
extraordinary item in Wyndham's consolidated financial statements. The loans
are secured by mortgages on the properties (which have an aggregate net book
value as of December 31, 1998 of $324,734), bear interest at a rate of LIBOR
plus 2.25% and prior to the extension as described below, matured on November
3, 1998. The effective interest rate at December 31, 1998 was 7.314%.
On October 20, 1998, the El Conquistador Partnership, L.P., which is
beneficially owned 100% by the Companies, filed a Form S-11 with the SEC with
respect to the offering of the undivided interests in a Loan Agreement between
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority ("AFICA") and the El Conquistador
Partnership relating to certain AFICA tourism revenue bonds. It is
contemplated that the AFICA Bonds will be issued in a total principal amount
of $104,000, will consist of serial bonds and term bonds and will be issued in
registered form, without coupons, in denominations which are multiples of $5.
The proceeds from the AFICA Bond offering will be used to repay existing debt
on the property, fund reserve requirements and pay costs and expenses of
issuing the AFICA Bonds.
In November 1998, the Companies entered into agreements to amend and extend
the maturity dates of certain debt related to the El Conquistador and Condado
Hotel and Casino to January 29, 1999. The extension agreements required that
$10,000 be deposited into escrow accounts in installments beginning on the
date of the extension through January 29, 1999 to secure the Companies
obligations to complete the renovations caused by Hurricane Georges.
Additionally the amendments provide for an increase in the rate of interest to
LIBOR plus 2.75%. Upon receipt of all proceeds related to the insurance claims
from Hurricane Georges, the $10,000 will be released from escrow. The
financing has been subsequently extended to June 30, 1999. As a condition of
the extension for the El Conquistador loan, the Companies must obtain a
release from the second lien mortgage holder or repay the outstanding
obligation by March 31, 1999.
Additionally, the Companies have a term loan agreement with the Government
Development Bank for Puerto Rico (GDB). As of December 31, 1998, the loan had
an outstanding balance of $25,000. The loan bears interest at a rate of LIBOR
plus 0.09% and matures February 2006. The Companies are required to deposit
50% of available cash flow, as defined per the loan agreement with GDB, to a
maximum of $1,667 plus any prior year requirements. The loan is secured
through a second lien mortgage on the property. The effective interest rate at
December 31, 1998 was 5.964%.
The weighted average interest rate incurred under these borrowings was 7.47%
for the period ended December 31, 1998.
Royal Bank of Scotland and Coutts Consortium Debt Obligations
In connection with the Arcadian acquisition, the Companies assumed debt
obligations to the Royal Bank of Scotland and Coutts Consortium which have a
total outstanding balance of $97,140 as of December 31, 1998. The debt
obligations include approximately $70,103 of syndicated debt to the Royal Bank
of Scotland which
F-32
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
bear interest ranging from Sterling LIBOR plus 1.25% to Sterling LIBOR plus
1.75% and UK Base Rate plus 1.25% and matures from 1999 through 2001. As of
December 31, 1998 Sterling LIBOR and the UK Base Rate were 6.375% and 6.25%
respectively. The Companies have negotiated with the banks to extend certain
of the debt obligations which mature prior to June 30, 1999, through this
date. Additionally, the amendments provide for an increase in the rate of
interest of 50 to 125 basis points. The debt is secured by first lien
mortgages encumbering 11 hotels of Arcadian (which have an aggregate net book
value as of December 31, 1998 of $143,268). The weighted average interest rate
incurred under these borrowings was 9.02% for the period ended December 31,
1998. The Companies also assumed debt obligations which have a total
outstanding balance of approximately $27,037 as of December 31, 1998 to the
Coutts Consortium debt which bear interest at Sterling LIBOR plus 2% and
matures December 2003. The debt is secured by first lien mortgages encumbering
four Malmaison hotels and one Malmaison hotel currently under development
(which have an aggregate net book value as of December 31, 1998 of $77,290).
The weighted average interest rate incurred under these borrowings was 10.8%
for the period ended December 31, 1998. The effective rate for the Royal Bank
of Scotland loans range from 7.5% to 8.0% at December 31, 1998. The effective
rate of the debt obligations with the Coutts Consortium are at 8.375% at
December 31, 1998.
Metropolitan Life Insurance Company Mortgage Notes
In connection with the purchase of four hotels in September 1997, Patriot
obtained $98,892 of mortgage financing with Metropolitan Life Insurance
Company encumbering six hotels (which have an aggregate net book value as of
December 31, 1998 of $196,948). The loans bear interest at 8.08% per annum and
require monthly payments of interest only until October 1999. Thereafter,
monthly payments of principal and interest in the amount of $755 are required
until the October 1, 2007 maturity date.
Unsecured Financing
Patriot, through the Patriot Partnership and other subsidiaries, is
obligated under notes with various banks and financial institutions that as of
December 31, 1998, had an outstanding balance of $66,753. These notes are
unsecured and bear interest at a rate ranging from 5.5% to 10.5% per annum.
The notes mature from June 1999 through 2023. The weighted average interest
rate incurred under these borrowings was 6.58% for the period ended December
31, 1998.
Other Mortgage Debt
Patriot, through the Patriot Partnership and other subsidiaries, is
obligated under other mortgage notes with various banks and financial
institutions that, as of December 31, 1998, had outstanding balances totaling
$421,944. These notes are collateralized by mortgage liens on the property and
equipment of 22 hotels including two hotels under development (which have an
aggregate net book value as of December 31, 1998 of $954,423). The notes bear
interest at rates ranging from 5.56% to 9.75% per annum and maturity dates in
1999 through 2005. The weighted average interest rate incurred by Patriot
under these borrowings during the year ended December 31, 1998 was 8.37%.
F-33
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under the terms of the related loan agreements and capital lease
obligations, principal amortization and balloon payment requirements at
December 31, 1998 are as follows for each of the next five years:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999.............................................................. $1,274,918
2000.............................................................. 1,371,266
2001.............................................................. 139,485
2002.............................................................. 65,463
2003.............................................................. 660,824
2004 and thereafter............................................... 345,565
----------
$3,857,521
==========
</TABLE>
7. Subscription Notes:
In order to effect the issuance of the paired shares of common stock and OP
units which were issued in connection with certain of the Companies' mergers,
other acquisition transactions and equity transactions, Patriot and Wyndham
have issued promissory notes to fund the issuance of paired shares and OP
units. These promissory notes are referred to as subscription notes.
As of December 31, 1998, Patriot's obligations to Wyndham under the
subscription notes totaled $91,020. In connection with each issuance of shares
and OP units pursuant to a specific transaction, these subscriptions for
shares and OP units are funded through the issuance of promissory notes
between the Companies. The notes bear interest ranging from 6.06% to 8.7% per
annum and mature from 1999 through 2001. As of December 31, 1998, Wyndham's
obligations to Patriot under a subscription note totaled $133,669. The note
bears interest at 8.7% per annum and mature January 2001.
8. Participating Leases:
As of December 31, 1998 the Patriot Partnership leased all but five of its
hotels to Wyndham. The remaining five hotels were leased to third party
lessees. Subsequent to year end and pursuant to a prior agreement, four of the
leases were terminated effective January 1, 1999. The remaining hotel leased
to a third party is currently under contract to be sold. The leases as of
December 31, 1998 have terms expiring through 2008. Minimum future rental
income under these non-cancelable operating leases for the next five years and
thereafter is as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999................................................................ $246,672
2000................................................................ 197,045
2001................................................................ 163,891
2002................................................................ 123,839
2003................................................................ 51,896
2004 and thereafter................................................. 117,163
--------
$900,506
========
</TABLE>
The participating leases obligate Patriot to establish a reserve for capital
improvements for the replacement and refurbishment of furniture, fixtures and
equipment and other capital expenditures. Patriot and the lessees agree on the
use of funds in these reserves, and Patriot has the right to approve the
lessees' annual and long-term capital expenditures budgets. Such reserve
amount is to average 4.0% of total revenues for the hotels.
F-34
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Generally, Patriot is responsible for the payment of (i) real estate and
personal property taxes on its hotel investments (except to the extent that
personal property associated with the hotels is owned by the lessees), (ii)
casualty insurance on the hotels and (iii) business interruption insurance on
the hotels. The lessees are required to pay for all liability insurance on
Patriot's hotels, with extended coverage, including comprehensive general
public liability, workers' compensation and other insurance appropriate and
customary for properties similar to Patriot's hotels with Patriot as an
additional named insured.
9. Management Services and Related Revenues:
In connection with the Grand Heritage acquisition, the GAH acquisition, the
Wyndham merger, the Interstate merger and other transactions, Wyndham entered
into or acquired management agreements. As of December 31, 1998, Wyndham and
certain unconsolidated subsidiaries manage 185 of the hotels owned and leased
by Patriot and its subsidiaries and 161 hotels owned by third parties.
Management fees and related service fees earned for hotels owned by Patriot
and its subsidiaries were $42,859 in 1998 and $3,626 in 1997. Income and
expense for such fees have been eliminated in the accompanying combined
financial statements of the Companies.
F-35
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Computation of Earnings Per Share:
Basic and diluted earnings per share have been computed as follows:
Combined Basic and Diluted Earnings per Share
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
-------------------- ------------------- ------------------
Basic Diluted Basic Diluted Basic Diluted
--------- --------- -------- --------- -------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
(Loss) income before
extraordinary item..... $(126,406) $(126,406) $ 362 $ 362 $ 37,991 $ 37,991
Adjustment for equity
forwards (1)........... (21,151) (188,392) -- -- -- --
Preferred stock
dividends.............. (7,956) (7,956) -- -- -- --
--------- --------- -------- -------- -------- --------
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item..... (155,513) (322,754) 362 362 37,991 37,991
Extraordinary loss...... (31,817) (31,817) (2,534) (2,534) -- --
--------- --------- -------- -------- -------- --------
Net (loss) income
(attributable)
available to common
shareholders........... $(187,330) $(354,571) $ (2,172) $ (2,172) $ 37,991 $ 37,991
========= ========= ======== ======== ======== ========
Weighted average number
of common shares
outstanding............ 137,764 137,764 64,260 64,260 45,459 45,459
========= ========= ======== ======== ========
Dilutive securities (2):
Effect of unvested
stock grants......... 264
Dilutive options to
purchase paired
shares............... 274
--------
45,997
========
(Loss) earnings per
share:
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item... $ (1.13) $ (2.34) $ 0.01 $ 0.01 $ 0.84 $ 0.83
Extraordinary loss.... (0.23) (0.23) (0.04) (0.04) -- --
--------- --------- -------- -------- -------- --------
Net (loss) income..... $ (1.36) $ (2.57) $ (0.03) $ (0.03) $ 0.84 $ 0.83
========= ========= ======== ======== ======== ========
</TABLE>
- --------
(1) The adjustment relates to the mark-to-market adjustment for the UBS
Transaction and the Nations Transaction (see Note 11), which can be
settled in cash or stock, at the Companies' option. At December 31, 1998,
the PaineWebber Transaction can only be settled in stock; therefore only
the guaranteed return portion is adjusted in the earnings per share
calculation. There is no mark-to-market adjustment for the PaineWebber
Transaction which is accounted for by the Reverse Treasury Method.
(2) For 1998 the dilutive effect of unvested stock grants of 880, the option
to purchase common stock of 753, shares issued in connection with forward
equity contracts of 2,507 and 6,613 of preferred shares were not included
in the computation of diluted earnings per share for the year ended
December 31, 1998 because they are anti-dilutive. For 1997, the dilutive
effect of unvested stock grants of 804 and the option to purchase common
stock of 1,017 were not included in the computation of diluted earnings
per share for the year ended December 31, 1997 because they are anti-
dilutive.
F-36
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Patriot Basic and Diluted Earnings Per Share
<TABLE>
<CAPTION>
Year Ended Year Ended
Year Ended December 31, December 31,
December 31, 1998 1997 1996
------------------- ---------------- ---------------
Basic Diluted Basic Diluted Basic Diluted
-------- --------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
(Loss) income before
extraordinary item..... $(14,328) $ (14,328) $ 382 $ 382 $37,991 $37,991
Adjustment for equity
forwards (1)........... (21,151) (188,392) -- -- -- --
Preferred stock
dividends.............. (5,249) (5,249) -- -- -- --
-------- --------- ------- ------- ------- -------
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item..... (40,728) (207,969) 382 382 37,991 37,991
Extraordinary loss...... (30,560) (30,560) (2,534) (2,534) -- --
-------- --------- ------- ------- ------- -------
Net (loss) income
(attributable)
available to common
shareholders........... $(71,288) $(238,529) $(2,152) $(2,152) $37,991 $37,991
======== ========= ======= ======= ======= =======
Weighted average number
of common shares
outstanding............ 137,764 137,764 64,260 64,260 45,459 45,459
======== ========= ======= ======= =======
Dilutive securities (2):
Effect of unvested
stock grants......... 264
Dilutive options to
purchase common
stock................ 274
-------
45,997
=======
(Loss) earnings per
share:
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item... $ (0.30) $ (1.51) $ 0.01 $ 0.01 $ 0.84 $ 0.83
Extraordinary loss.... (0.22) (0.22) (0.04) (0.04) -- --
-------- --------- ------- ------- ------- -------
Net (loss) income..... $ (0.52) $ (1.73) $ (0.03) $ (0.03) $ 0.84 $ 0.83
======== ========= ======= ======= ======= =======
</TABLE>
- --------
(1) The adjustment relates to the mark-to-market adjustment for the UBS
Transaction and the Nations Transaction (described in Note 11), which can
be settled in cash or stock, at the Companies' option. At December 31,
1998, the PaineWebber Transaction can only be settled in stock; therefore
only the guaranteed return portion is adjusted in the earnings per share
calculation. There is no mark-to-market adjustment for the PaineWebber
Transaction which is accounted for by the Reverse Treasury Method.
(2) For 1998 the dilutive effect of unvested stock grants of 880, the option
to purchase common stock of 753, shares issued in connection with forward
equity contracts of 2,507 and 6,613 of preferred shares were not included
in the computation of diluted earnings per share for the year ended
December 31, 1998 because they are anti-dilutive. For 1997, the dilutive
effect of unvested stock grants of 804 and the option to purchase common
stock of 1,017 were not included in the computation of diluted earnings
per share for the year ended December 31, 1997 because they are anti-
dilutive.
F-37
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Wyndham Basic and Diluted Earnings Per Share (1)
<TABLE>
<CAPTION>
For the Six
Year Ended Months ended
December 31, 1998 December 31, 1997
Basic and Diluted Basic and Diluted
----------------- -----------------
(in thousands, except per share
amounts)
<S> <C> <C>
Loss before extraordinary item......... $(111,162) $ (20)
Preferred stock dividends.............. (2,707) --
--------- -------
Loss attributable to common
shareholders.......................... (113,869) (20)
Extraordinary loss..................... (1,257) --
--------- -------
Net loss attributable to common
shareholders.......................... $(115,126) $ (20)
========= =======
Weighted average number of common
shares outstanding.................... 137,764 64,260
Earnings per share:
Loss attributable to common
shareholders........................ $ (0.83) $ --
Extraordinary loss................... (0.01) --
--------- -------
Net loss............................. $ (0.84) $ --
========= =======
</TABLE>
- --------
(1) For 1998, the dilutive effect of unvested stock grants of 880, the option
to purchase common stock of 753 and 6,613 of preferred shares were not
included in the computation of diluted earnings per share for the year
ended December 31, 1998 because they are anti-dilutive. For 1997, the
dilutive effect of unvested stock grants of 804 and the option to purchase
common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
See Note 14 for a discussion of the impact of SFAS No. 123 ("Accounting for
Stock-Based Compensation") on earnings per share.
11. Commitments and Contingencies:
Office Lease
The Companies have entered into agreements to lease office space for the
Companies' corporate headquarters and other regional offices. In general, the
agreements provide for monthly payments of rent plus reimbursement for certain
other costs as specified per each agreement and are accounted for as operating
leases for financial reporting purposes. The leases have terms from 1 to 25
years and expire between 1999 and 2009. Annual rental payments of $3,125, $127
and $126 for 1998, 1997 and 1996, respectively are reflected in general and
administrative expense in the accompanying financial statements. The lease
agreement entered into for the Companies' corporate headquarters is with an
affiliated entity (see Note 12). Future five year minimum lease payments under
these lease agreements are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999................................................................. $ 4,366
2000................................................................. 3,834
2001................................................................. 3,486
2002................................................................. 3,414
2003................................................................. 3,361
2004 and thereafter.................................................. 7,940
-------
$26,401
=======
</TABLE>
F-38
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Hotel and Ground Leases
The Companies lease both land and hotels under agreements with terms ranging
from one to 100 years. The Companies have incurred rent expense totaling
$110,108, $4,117 and $1,075 for 1998, 1997 and 1996, respectively. Future five
year minimum lease payments under these lease agreements are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999.............................................................. $ 87,449
2000.............................................................. 87,567
2001.............................................................. 87,576
2002.............................................................. 87,692
2003.............................................................. 87,900
2004 and thereafter............................................... 1,009,738
----------
$1,447,922
==========
</TABLE>
Employment Agreements
The Companies have entered into employment agreements with each of their
respective executive officers. Generally, the agreements provide for annual
base compensation with any increases during the three-year term of the
agreement to be approved by the Compensation Committees of Patriot's or
Wyndham's Board of Directors, as applicable.
Future Earnout Obligations
In connection with the CHCI merger and the Gencom acquisition, Wyndham and a
subsidiary of Wyndham may be obligated to pay CHCI shareholders and a Gencom
related entity additional purchase consideration, in each case based on the
performance of certain specified assets.
In connection with the Summerfield acquisition, Patriot may be obligated to
pay in cash or OP units additional purchase consideration if certain
performance criteria are met based on (i) the average market price of the
paired shares of the Companies through December 31, 1998 and (ii) the
achievement of certain performance criteria for certain hotels under
development through the year 2000 (see Note 13).
Pursuant to the joint venture agreement related to the Wyndham Chicago St.
Claire Hotel (the hotel is currently under development), the agreement
provides for an earnout payment payable based on the net operating income from
the hotel for the year ended December 31, 2001, as calculated per the
agreement.
Forward Equity Contracts.
Patriot is a party to forward equity contracts with three counterparties
involving the sale of an aggregate of 13.3 million paired shares, with related
price adjustment mechanisms. Patriot's aggregate obligation under the forward
equity contracts was approximately $313,300 at December 31, 1998. As of such
date, Patriot has delivered an aggregate of 54 million shares to the
counterparties as collateral in addition to approximately 12.5 million paired
shares currently owned by the counterparties or their affiliates.
Patriot currently intends to settle in full all of the forward transactions
with the proceeds of the $1 billion equity investment. If the forward
transactions are settled in cash, the counterparties must deliver to the
Companies' paired shares then owned or held by them by them as collateral
under the respective forward agreements.
F-39
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On February 28, 1999, all three counterparties agreed, subject to specified
conditions, not to require settlement under their respective forward equity
agreements or to sell paired shares in connection with the forward equity
agreements until the earlier of (a) the closing of the investment and (b) June
30, 1999. The agreements provide that the standstill obligations terminate if:
(i) the agreement is terminated or the parties publicly announce that they do
not intend to close the investment and Patriot has not entered into another
agreement that provides for a complete settlement of the forward transactions
on or before June 30, 1999; (ii) the Companies' default on certain of
covenants under the forward agreements or under our credit facility: (iii) any
of the counterparties sells or agrees to sell paired shares; or (iv) the price
of the paired shares falls to a specified threshold, as described below. Any
counterparty whose standstill agreement terminates will have the right to
require an immediate settlement of its forward equity transaction.
The standstill agreement with PaineWebber Financial Products, Inc. provides
that the PaineWebber standstill obligation will terminate if the closing price
of the paired shares on any trading day is less than or equal to $4.50. If the
closing price of the paired shares fell below $4.50 PaineWebber's standstill
obligation would terminate and PaineWebber would be entitled to require
settlement under its forward contract. PaineWebber has not indicated that it
intends to sell paired shares or require settlement of its forward
transaction.
The standstill agreement with NationsBanc Mortgage Capital Corporation
provides that the NationsBanc standstill obligation will terminate if the
weighted average trading price of the paired shares (excluding the last 30
minutes of trading) on any trading day is less than or equal to $4.50.
The standstill agreement with UBS AG, London Branch provides that the UBS
standstill obligation will terminate if the paired share price (calculated as
provided in the UBS forward contract) falls below $4.50.
Nations has asserted that its standstill obligation has terminated by virtue
of the termination of PaineWebber's standstill obligation, based upon a "most
favored counterparty" clause in the Nations forward contract. UBS has asserted
that its standstill obligation has terminated based upon its interpretation of
the measure of the paired share price. The Companies have disputed both the
Nations and UBS assertions. Neither Nations nor UBS has indicated that it
intends to sell paired shares or require settlement of its forward
transaction.
The Companies may settle the forward transactions by delivering either cash
or paired shares (if such shares are covered by an effective registration
statement). Sources of cash are not currently available for the Companies to
make the payments that would be required to settle one or more of the forward
transactions in cash. Moreover, the Companies cannot assure you that their
bank lenders would consent to any cash settlements prior to the closing of the
transaction. In addition, given the current market price of the paired shares,
any settlement in paired shares would have severely dilutive effects on the
Companies' capital stock. The dilutive effects increase as the market price of
the paired shares decreases below the applicable forward prices. If any of the
counterparties sells paired shares, the conversion price of the preferred
stock to be issued to the investors will be adjusted downward to the extent
that the price recognized by the Companies on the sale is less than $8.75 per
share.
Generally, the Companies may settle by delivering paired shares only if a
registration statement covering such paired shares is effective. There are
currently effective registration statements covering the sale by the three
forward counterparties of up to 40 million paired shares and the sale by UBS
of an additional 4 million paired shares in connection with the forward equity
transactions. The Companies cannot assure you that these registration
statements will remain effective or that they will not be required to register
more paired shares in
F-40
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
connection with the forward equity transactions. Two of the counterparties
have requested that the Companies register the balance of the paired shares
delivered as collateral to all three counterparties. The Companies intend to
seek to register all such shares.
Contingencies
On January 12, 1999, a purported class action lawsuit was filed on behalf of
the stockholders of Patriot and Wyndham in the Delaware Chancery Court. The
lawsuit, captioned Charles Fraschilla v. Paul A. Nussbaum, et al., No.
16895NC, names as defendants the directors of Patriot ("Directors"), as well
as the Investors. The lawsuit alleges that the Directors breached their
fiduciary duties to Patriot's shareholders with respect to the Companies
financial condition. The lawsuit also alleges that the Directors breached
their fiduciary duty by "effectively selling control" of Patriot to the
investors for inadequate consideration and without having adequately
considered or explored all other alternatives to this sale or having taken
steps to maximize stockholder value. The lawsuit also alleges that the
Investors aided and abetted the Directors in their purported breaches of
fiduciary duty. The plaintiffs seek monetary damages from the Directors as
well as an injunction preventing the consummation of the deal with the
investors. On January 19, 1999, three nearly identical purported class action
lawsuits were filed in the same court on behalf of different purported class
representatives: (1) Sybil R. Meisel and Steven Langsam, Trustees, No.
16905NC; (2) Crandon Capital Partners, No. 16906NC; and Robert A. Staub, No.
16907NC. The plaintiffs have proposed an order of consolidation for these four
purported class action suits, and the parties are currently negotiating the
terms of that order.
On February 3, 1999, McNeill Investment Company, Inc. filed a lawsuit
against Patriot in the United States District Court for the Western District
of Pennsylvania. In the lawsuit, captioned McNeill Investment Company, Inc. v.
Patriot American Hospitality, Inc., No. 99-165, the plaintiff alleges that
Patriot breached its obligations under a registration rights agreement that
Patriot became obligated under through its merger transaction with Interstate
Hotels Corporation. The plaintiff claims approximately $9 million in damages.
Counsel is currently conducting a factual investigation of the claims made in
the complaint. Also, counsel is investigating the possibility of settlement
with the plaintiff, but if the matter is not settled, it will have to be
litigated. Patriot's answer or pleading in response to the complaint is due on
or before March 26, 1999.
The Companies are currently involved in certain guest and customer claims
and other disputes arising in the ordinary course of business. In the opinion
of management, the pending litigation will not have a material effect on the
financial statements.
12. Related Party Transactions:
Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries
As described in Note 5, Patriot, through the Patriot Partnership, loaned
$40,500 in the form of mortgage notes to PAH Ravinia as part of the financing
for PAH Ravinia's acquisition of the Crowne Plaza Ravinia Hotel. Patriot
recognized $43 of interest income in 1998, 1997 and 1996 related to such
mortgage notes (excluding $4,268 of such interest eliminated for financial
reporting purposes in 1998, and $4,280 in both 1997 and 1996). Patriot had
aggregate receivables (including mortgage notes) of $42,264 and $41,587 due
from PAH Ravinia as of December 31, 1998 and 1997, respectively.
Patriot through the Patriot Partnership, also loaned $31,400 in the form of
a mortgage note to PAH Windwatch (see Note 5), as part of the financing for
PAH Windwatch's acquisition of the Wyndham WindWatch Hotel. Patriot recognized
$79, $28 and $8 of interest income in 1998, 1997 and 1996, respectively,
related to such mortgage notes (excluding $2,759, $2,810 and $754 of such
interest eliminated for financial reporting purposes). Patriot had aggregate
receivables (including the mortgage note) of $32,830 and $34,060 due from PAH
Windwatch as of December 31, 1998 and 1997, respectively.
F-41
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additionally, the 1% voting stock of these entities is owned in part by
Senior Executive Officers of Patriot and Wyndham.
Acquisition and Sale of Interests From and to Officers and Affiliates
In September and October 1997, in connection with certain transactions with
affiliates of Gencom and CHCI to acquire ten hotels, eight leasehold interests
and an investment interest in GAH (see Note 4), two of the Companies'
Executive Officers and one of the Directors received cash in the aggregate
amount of approximately $3,577 and a total of 2,544,308 OP units of the
Operating Partnerships and 476,682 preferred OP units of the Wyndham
Partnership (with an aggregate value of approximately $70,238) as
consideration for their ownership interests in such assets acquired.
In connection with the CHCI Merger, Mr. Karim Alibhai, President and Chief
Operating Officer of Wyndham, received 156,863 OP units of the Operating
Partnerships valued at approximately $5,000 and entities affiliated with Mr.
Alibhai received 85,600 shares of Wyndham Series A Preferred Stock and 85,600
shares of Wyndham Series B Preferred Stock with an aggregate value of
approximately $3,946. These units and shares were issued in consideration of
Mr. Alibhai's ownership interests in CHCI and its affiliates. In addition, Mr.
Sherwood M. Weiser, a director of Wyndham, received 394,397 shares of Wyndham
Series A Preferred Stock and 394,398 shares of Wyndham, Series B Preferred
Stock valued at $18,182 in connection with the CHCI Merger as consideration
for his ownership interest in CHCI and its affiliates. Additionally, the
Companies issued 65,485 Paired Shares as part of the consideration for the
transaction of which Mr. Sherwood M. Weiser received 43,403 Paired Shares with
an approximate value of $994.
During 1998, Patriot sold its interest in four hotel assets: Courtyard by
Marriott Hotel in Orange, Connecticut, Courtyard by Marriott Hotel in St.
Louis, Missouri, Residence Inn by Marriott in Pittsburgh, Pennsylvania and the
Westborough by Marriott in Westborough, Massachusetts, for a net purchase
price of approximately $32,500 million. The assets were sold to an affiliate
of an independent member of the Board of Directors of Patriot. Patriot
recognized no gain or loss as a result of this transaction.
Effective January 15, 1999, in connection with the Summerfield acquisition
an additional 1,311,709 OP units valued at approximately $8,969 were issued as
additional consideration pursuant to the purchase agreement. Of the OP units
issued, Mr. Rolf E. Ruhfus III, a member of the Wyndham Board of Directors
received 344,082 of the OP units issued with an approximate value of $2,353.
Management and related services
Wyndham and certain subsidiaries provide management and related services to
a majority of the hotels owned and leased by Patriot and its subsidiaries and
leased to Wyndham. The management contracts provide for fees ranging from 2%
to 5%. Fees paid to Wyndham and certain subsidiaries totaled $42,859 and
$3,626 in 1998 and 1997, respectively. No such fees were earned in 1996.
Thc Companies received $22,940 fees in the aggregate from entities owned in
whole or in part by affiliates of the Companies.
During 1998, Wyndham received payments in the aggregate amount of $4,207
from hotel partnerships in which Crow Family Members have an interest. Some or
all of the Wyndham senior executive officers have an ownership interest in
such hotel partnerships. The payments were received as reimbursements for
certain administrative, tax legal, accounting, finance, risk management, sales
and marketing services provided by Wyndham to such entities.
Notes receivable from Affiliates, Officers and Employees
The Companies have provided funding to certain affiliated hotels as working
capital and have made loans to certain officers. As of December 31, 1998,
notes receivable from affiliated hotels totaled $35,766 and notes receivable
from officers and employees totaled $3,554. As of December 31, 1997 notes
receivable from affiliated hotels totaled $3,315.
F-42
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additionally, in connection with the Wyndham merger, Patriot assumed notes
receivable from senior executive officers of the merged company. As of
December 31, 1998, these promissory notes had an outstanding balance of
$15,254. The notes bear interest at 6% per annum and are fully secured by the
pledge of paired shares of the Companies held by the note obligors. The
balance of the notes including principal and accrued interest are due and
payable in one payment in May 2001. These notes are classified in
shareholders' equity for financial accounting purposes.
Other
During 1998, the Companies made payments totaling $3,423 to Wyndham Travel
Management Ltd., an entity owned by Lucy Billingsley (the daughter of Mr.
Trammell Crow), for travel services provided to Wyndham.
During 1998, the Companies made rent payments totaling $1,492 related to an
agreement with an affiliate of Mr. Harlan Crow to lease office space for the
Companies' corporate headquarters in Dallas, Texas and rent payments totaling
$81 related to an agreement with a board member Mr. Rolf E. Ruhfus.
The Companies, in connection with the Wyndham merger, have assumed a service
agreement with ISIS 2000, an entity affiliated with a member of the Crow
Family and Senior Executive Officers of the Companies, to provide centralized
reservations and property management services to all Wyndham branded hotels as
well as other hotels owned by the Companies. The service fees incurred by
Wyndham in 1998 were $4,368. No such fees were incurred in 1997 or 1996.
Pursuant to the Wyndham merger, the Companies have the option to purchase the
entity through April 1999 for approximately $3,000.
In addition, the Companies have a service contract with the Kinetic Group,
an entity affiliated with a member of the Crow Family, and senior executive
officers of the Companies, to provide the Companies with management
information services. Fees paid for the year ended December 31, 1998 totaled
$5,467. Pursuant to the Wyndham merger, the Companies have the option to
purchase the entity through April 1999 for approximately one hundred dollars.
In 1998, the Companies incurred lease expenses in the aggregate amount of
$455 for lease obligations to entities owned in whole or part by an affiliate
of the Companies.
In 1998, the Companies paid $598 as a consulting fee to a director,
Mr. Rolf E. Ruhfus.
In connection with the Wyndham merger, Crow Family Members and certain
Wyndham senior executives retained the right to receive additional
consideration on April 30, 2000 based on a formula pertaining to the
performance of Wyndham Riverfront New Orleans and Wyndham Garden Laguardia as
set forth in the Omnibus Purchase and Sale Agreement dated April 14, 1997.
Based on the performance of such properties as of December 31, 1998, the
additional consideration would be $9,152 and $9,971 respectively.
Wyndham has made insurance premium payments to Wynright Insurance
("Wynright"), an entity owned by Crow Family Members and the Wyndham senior
executive officers, with respect to certain insurance policies maintained for
the benefit of Wyndham and hotels owned or leased by Wyndham. Such payments
totaled $730,000 in 1998.
13. Minority Interest in the Operating Partnerships:
Pursuant to the Operating Partnerships' respective limited partnership
agreements, the common limited partners of the Operating Partnerships,
including certain affiliates of the Companies, received rights (the
"Redemption Rights") that enable them to cause the Operating Partnerships to
redeem each pair of OP units (consisting of one OP unit of the Patriot
Partnership and one OP unit of the Wyndham Partnership) in exchange
F-43
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
for cash equal to the value of a paired share (or, at the Companies' election,
the Companies may redeem each pair of OP units offered for redemption for one
paired share of common stock). In the case of the Wyndham Partnership's Class
A preferred OP units and Class C preferred OP units described below, each of
these preferred OP units may be redeemed for cash equal to the value of a
paired share (or, at Wyndham's election, Wyndham may redeem each preferred OP
unit offered for redemption for one paired share of common stock). The
Redemption Rights generally may be exercised at any time after one year
following the issuance of the OP units. The number of shares of common stock
issuable upon exercise of the Redemption Rights will be adjusted for share
splits, mergers, consolidations or similar pro rata transactions which would
have the effect of diluting the ownership interests of the limited partners of
the Operating Partnerships or the shareholders of the Companies.
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey merger
and the 1.927-for-1 stock split in July 1997, the number of OP units
outstanding and the OP unit conversion factor was adjusted to re-establish a
one-for-one exchange ratio of OP units to common shares.
The Patriot Partnership had a total of 49,974,000 OP units outstanding as of
December 31, 1996, of which 43,613,496 OP units were held by Patriot and
5,035,700 OP units and 1,324,804 Preferred OP units were held by minority
partners, which represent the minority interest in the Patriot Partnership.
During 1997, the Patriot Partnership issued an additional 20,376 OP units
valued at approximately $370 in connection with The Tutwiler Hotel
acquisition, and 2,590,197 OP units valued at approximately $58,662 in
connection with the acquisition of the four resort properties. In accordance
with their redemption rights, during the first six months of 1997 certain
partners elected to redeem a total of 379,606 OP units for a total of $14,441
in cash (based upon the market price of Patriot common stock on the effective
dates of the redemptions) and 150,000 shares of Patriot common stock (such
amounts have not been adjusted to reflect the stock splits and Cal Jockey
merger). As of June 30, 1997, the Patriot Partnership had 6,887,049 OP units
and 1,324,804 preferred OP units outstanding.
In connection with the Cal Jockey merger, the holders of Patriot Partnership
OP units and preferred OP units received OP units and Class B preferred OP
units of the Wyndham Partnership in an amount equal to the number of Patriot
Partnership units held by them at the closing of the Cal Jockey merger.
In addition, during 1997, the Operating Partnerships each issued 2,456,172
OP units in connection with the acquisition of hotel properties, and 2,388,932
OP units in connection with Patriot's acquisition of eight leasehold interests
from CHC Lease Partners and Wyndham's acquisition of its approximate 50%
ownership interest in GAH and redeemed 6,298 OP units. In addition, the
Wyndham Partnership issued 931,972 Class A Preferred OP units in connection
with the Grand Heritage Acquisition and 476,682 Class C Preferred OP units in
connection with the acquisition of the approximate 50% ownership interest in
GAH.
On September 30, 1997, the Companies exercised their right to call 2,000,033
OP units in each of the Operating Partnerships held by The Morgan Stanley Real
Estate Fund, L.P. and certain related entities (the "Morgan Stanley Call").
The exercise price on the Morgan Stanley Call was $25.875 per pair of OP
units. The Morgan Stanley Call was funded with the proceeds of certain direct
placements of the Companies' paired shares. See Note 14.
As of December 31, 1997, the Patriot Partnership had a total of 84,868,079
OP units outstanding of which 73,276,716 OP units were held by Patriot and
10,266,559 OP units and 1,324,804 preferred OP units were held by minority
partners, which represent the minority interest in the Patriot Partnership.
The Wyndham Partnership had a total of 86,276,733 OP units outstanding as of
December 31, 1997, of which 73,276,716 OP units were held by Wyndham and
10,266,559 OP units, 931,972 Class A Preferred OP units, 1,324,804 Class B
Preferred OP units and 476,682 Class C Preferred OP units were held by
minority partners, which represent the minority interest in the Wyndham
Partnership.
F-44
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
During 1998, the Operating Partnerships issued 53,989 OP units valued at
approximately $1,496 in connection with the Buena Vista hotel acquisition, and
3,223,795 OP units valued at approximately $81,146 in connection with the
Summerfield acquisition.
In accordance with their redemption rights, during 1998, certain partners of
the Operating Partnerships elected to redeemed 1,010,340 OP units, of which
1,009,570 were redeemed for paired shares of common stock, and 770 OP units
were redeemed for a total of $19 in cash (based on the 10 day average price of
the common stock immediately preceding the date of valuation). In addition,
certain limited partners of the Wyndham Partnership elected to redeem 324,809
preferred Class A OP units for common paired shares, and 46,731 preferred
Class C OP units were redeemed for 28,019 common paired shares in 1998 with
the remaining paired shares of 18,712 to be issued in 1999.
In connection with the Grand Heritage acquisition in 1997, the contribution
agreement provided that preferred Class A units with a value of $500 be placed
in escrow and released, subject to certain 1997 operating targets. In April of
1998, 20,942 preferred Class A OP units were issued.
In connection with the acquisition of GAH, preferred OP units of the Wyndham
Partnership with a value of approximately $5,000 were held back, subject to
the hotels and leaseholds acquired meeting certain operating targets over the
period prior to the CHCI Merger. On June 30 1998, 156,863 Preferred Class A Op
units were issued as those targets were met.
On July 30, 1998, the Wyndham Partnership, issued 156,272 Preferred Class A
OP units valued at approximately $3,500 in connection with the acquisition of
an approximate 49% ownership of Don Shula's Steak Houses Inc.
As of December 31, 1998, the Patriot Partnership had a total of 125,961,945
OP units outstanding of which 112,103,138 OP units were held by Patriot and
12,534,003 OP units, and 1,324,804 preferred OP units were held by minority
partners, which represent the minority interest in the Patriot Partnership.
The Wyndham Partnership had a total of 125,012,672 OP units outstanding as of
December 31, 1998, of which 109,782,674 OP units were held by Wyndham and
12,534,003 OP units, 784,377 Class A Preferred OP units, 1,324,804 Class B
Preferred OP units and 586,814 Class C Preferred OP units were held by
minority partners which represent the minority interest in the Wyndham
Partnership.
Subsequent to December 31, 1998, the Companies issued 1,311,709 OP units
valued at approximately $8,969 as additional purchase consideration in the
Summerfield acquisition.
14. Shareholders' Equity:
Capital Stock
Patriot's and Wyndham's respective Boards of Directors have authorized the
issuance of up to 100,000,000 shares of preferred stock in one or more series.
The number of shares in each series and the designation, powers, preferences
and rights of each such series and the qualifications, limitations or
restrictions thereof have not been established. As of December 31, 1997, no
preferred stock was issued.
During 1998, Patriot issued 4,860,876 Series A Convertible Preferred Stock
("Patriot Series A") in connection with the Wyndham merger. The holders of
Patriot Series A are entitled to receive dividends on a quarterly basis
payable concurrently with and in the same amount as dividends on paired
shares. Patriot Series A may convert into one paired share for each share of
Series A share which is held by the respective holder. Holders of Patriot
Series A are entitled to vote, on the basis of one vote for each share of
Patriot common stock as if the shares had been converted. Upon merger, the
holder has a right to receive upon conversion of Series A shares, shares which
could have been converted immediately prior to the merger.
F-45
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
During 1998, Wyndham issued 1,781,173 shares of Wyndham Series A Redeemable
Convertible Preferred Stock ("Wyndham Series A") and 1,781,181 Wyndham Series
B Redeemable Convertible Preferred Stock ("Wyndham Series B") in connection
with the CHCI merger. Holders of Wyndham Series A and Series B stock are
entitled to receive dividends payable concurrently with and in the same amount
as dividends on paired shares. Wyndham Series A and Series B stock may be
converted into cash based on the current market price, or at the option of
Wyndham, may receive one paired share for each share of Series A or Series B
stock which may be converted. Both Series A and B are non-voting.
Old Patriot was initially capitalized through the issuance of 2,850 shares
of no par value common stock to three of Old Patriot's executive officers for
which the executive officers paid nominal consideration. In connection with
the initial public offering, Patriot declared an approximate 41-to-1 stock
split of its outstanding common shares, resulting in the issuance of an
additional 115,900 shares of common stock to such executive officers. The
aggregate value of $1,425 (based upon the initial public offering price of
$12.00 per share), less cash received of $3, was recorded as unearned stock
compensation and is being amortized over the three-year vesting period.
In May 1996, Old Patriot sold an aggregate of approximately $40,000 of
equity securities in a private placement to an institutional investor that
purchased the securities on behalf of two owners. The securities consisted of
1,622,786 shares of common stock sold at $13.475 per share and 1,324,804 Class
B Preferred OP units sold at $13.688 per unit. The common stock is of the same
class as Old Patriot's then-existing common stock and is entitled to the same
voting and dividend rights as all outstanding common stock, subject to certain
restrictions on the resale of the stock. The Class B Preferred OP units are
entitled to quarterly distributions equal to 103% of the quarterly dividends
paid on the common stock (and, subsequent to the Cal Jockey merger, paired
shares). Generally, three years following issuance, the Class B Preferred OP
units may be converted into paired shares on a one-for-one basis (i.e., one
paired share for one Class B Preferred OP Unit), subject to certain
limitations. After 10 years, Patriot will have the right to exchange all the
outstanding Class B Preferred OP units for paired shares on a one-for-one
basis.
On December 31, 1997, the Companies sold 3,250,000 unregistered paired
shares to UBS Limited, an English corporation, for a purchase price per paired
share of $28.8125, or aggregate consideration of approximately $91,300, net of
a 2.5% discount.
On February 26, 1998, the Companies sold 4,900,000 unregistered paired
shares to Nations, for a purchase price per paired share of $24.8625, or
aggregate consideration of approximately $121,800, net of a 2.5% discount.
On April 6, 1998, the Companies sold 5,150,000 unregistered paired shares to
PaineWebber for a purchase price per paired share of $27.01125, or aggregate
consideration of approximately $139,108, net of a 2% discount.
Shareholders Rights Agreement
On December 20, 1998, the Board of Directors of Patriot adopted a
Shareholder Rights Agreement (the "Rights Agreement"). Pursuant to the terms
of the Rights Agreement, the Board of Directors declared a dividend
distribution of one Preferred Stock Purchase Right (a "Right") for each
outstanding share of Common Stock of the Patriot (the "Common Stock") and for
each outstanding share of Series A Convertible Preferred Stock of the Patriot
(the "Series A Preferred Stock") to stockholders of record as of December 20,
1998 (the "Record Date"). In addition, one Right will automatically attach to
each share of Common Stock and to each share of Series A Preferred Stock
issued between the Record Date and the Distribution Date as defined per the
F-46
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rights Agreement. Each Right entitles the registered holder thereof to
purchase from Patriot a unit consisting of one one-thousandth of a share of
Series X Junior Participating Cumulative Preferred Stock, par value $0.01 per
share, at a cash exercise price of $35.00 per Unit, subject to adjustment.
Dividends
On December 23, 1997, Patriot declared a $0.2981 per common share dividend
to holders of record on January 5, 1998. Patriot paid dividends of $0.2446 per
common share for each of the first three quarters of 1997. In addition, in
connection with the Cal Jockey Merger, Old Patriot also declared a special
dividend of $0.0559 per common share payable to holders of record on June 27,
1997, which was paid on June 30, 1997. Concurrent with each of the dividend
declarations, the Operating Partnerships authorized distributions in the same
amount on outstanding OP units. Old Patriot paid dividends of $0.2236 per
common share for the fourth quarter of 1995 (its first quarter of operations)
and for the each of the first three quarters of 1996. Old Patriot paid
dividends of $0.2446 per common share for the fourth quarter of 1996.
On October 5, 1998, Patriot made a capital contribution to Wyndham to
facilitate an acquisition by Wyndham. This contribution resulted in a "deemed
distribution" for tax purposes to Patriot's shareholders of common stock of
$0.7081 per share. No cash was actually distributed to the shareholders.
However, for tax purposes the shareholders will treat the distribution as
though cash were received and then contributed to Wyndham.
On May 4, 1998, Patriot declared a $0.2981 per common share dividend to
holders of record on May 20, 1998 and on July 28, 1998, Patriot declared a
$0.2981 per common share dividend to holders of record on August 10, 1998.
On December 22, 1998, Patriot declared a stock dividend of $0.44 per share
of common stock for the fourth quarter ended December 31, 1998 (the
"Dividend"). The Dividend was payable January 25, 1999 to stockholders of
record on December 30, 1998. Each stockholder received the option to receive
the Dividend in the form of additional paired shares or shares of Series B
Cumulative Perpetual Preferred Stock, par value $0.01 per share of Patriot.
Per share data (including dividends), weighted average shares outstanding and
all stock option activity have been restated to reflect the stock dividend.
The holders of Series B Preferred Stock shall be entitled to receive, when,
as and if declared by Patriot's Board of Directors out of funds legally
available for the payment of dividends, cumulative preferential cash dividends
per share at the rate of 15% on the stated value of $25.00 per share per
annum. The Series B Preferred Stock is redeemable by Patriot on or after
January 2, 2000 at a redemption price of $25.00 per share and has a
liquidation preference of $25.00 per share.
Stock Incentive Plans
The Companies have adopted certain employee incentive programs for the
purpose of (i) attracting and retaining employees, directors and others, (ii)
providing incentives to those deemed important to the success of the
Companies, and (iii) associating the interests of these individuals with the
interests of the Companies and their shareholders through opportunities for
increased stock ownership. Certain of the stock options and restricted stock
grants issued under the incentive stock programs will fully vest and become
non-forfeitable upon consummation of the investment.
The Directors' Plan. The Directors' Plan provides for the award of stock
options and stock awards with respect to Director compensation through June
1997 for each eligible non-employee director of the Companies.
F-47
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Directors' Plan also provides for the annual award of common stock to
each eligible director in payment of one-half of the annual retainer of $25
payable to each such director through June 1997. The number of shares awarded
will be determined based upon the fair market value of the stock at the date
of the grant. Such shares vest immediately upon grant and are non-forfeitable.
The 1997 Incentive Plans. The 1997 Incentive Plans provide for the award of
stock options, stock awards or performance shares to each eligible employee
and director of Patriot and Wyndham. Under each 1997 Incentive Plan, the
aggregate number of paired shares available for grants of awards shall be the
sum of (i) 3,000,000 paired shares plus (ii) 10% of any future net increase in
the total number of shares of paired common stock.
Under the Companies' 1997 Incentive Plans, each independent director may
elect to take all or a portion of his/her fees in the form of deferred paired
share units. In addition, the independent directors of Patriot and Wyndham
will automatically be granted a non-qualified stock option, immediately
exercisable in full, to acquire 10,000 paired shares at an exercise price per
paired share equal to the fair market value of a paired share on the date of
grant. Option terms are fixed by the Compensation Committees and may not
exceed ten years from the date of grant.
Stock Grant Awards
During 1996, pursuant to the Directors' Plan and the Incentive Plan, Old
Patriot awarded 48,000 shares of common stock to its non-employee directors
and 314,800 shares of common stock to certain of its officers and employees.
In addition, the directors were granted 2,640 shares of common stock with an
aggregate value of $37 in payment of one-half of the annual retainer payable
to each director. Old Patriot recorded a total of $5,144 (the aggregate value
of Old Patriot's common stock based on the market price at the date of the
award) as unearned stock compensation in 1996, which is being amortized over
the vesting period of four years.
During 1997, pursuant to the Incentive Plans, the Board of Directors awarded
547,867 paired shares of common stock to certain officers of the Companies.
The Companies recorded a total of $12,897 (the aggregate value of the common
stock based on the market price at the date of the award) as unearned stock
compensation in 1997, which is being amortized over the vesting periods of one
to five years. For 1998, 1997 and 1996, $7,622 $4,686 and $1,068,
respectively, of amortization of stock compensation related to stock grants
awarded to Patriot's directors, officers and certain employees is included in
general and administrative expense in the accompanying consolidated financial
statements.
During 1998, pursuant to the Incentive Plans, the Board of Directors awarded
331,755 restricted awards to certain officers of the Companies. The Companies
have recorded $1,613 related to the restricted awards and such amount is
included in general and administrative expense in the accompanying
consolidated financial statements.
Stock Option Awards
Upon completion of the initial public offering in 1995, 1,073,333 options
were granted to the executive officers to purchase shares of Old Patriot
common stock. Each option is exercisable at an amount equal to the initial
public offering price of $11.18 per share. Of the options granted, 59,634
vested immediately, while the remaining options become exercisable at various
dates through January 1, 2005. In addition, each eligible director who was a
member of Old Patriot's Board as of September 27, 1995, was awarded
nonqualified options to purchase 16,100 shares of common stock on that date
(each such director, a "Founding Director"). The options granted to Founding
Directors have an exercise price equal to the initial public offering price of
$11.18 per share and vested immediately.
During 1996, pursuant to the Directors' Plan and the Incentive Plan, Old
Patriot's Board of Directors granted stock options to purchase 32,200 shares
of common stock to Old Patriot's directors and stock options to purchase
381,676 shares of common stock to Old Patriot's officers and certain
employees. The exercise price of
F-48
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the options granted to the directors is $13.22 (the market price of Old
Patriot's common stock on May 23, 1996, the date of the grant). For the
officers and employees employed as of the grant date of April 19, 1996, the
exercise price of the options is $12.52 (the market price of Old Patriot's
common stock on the date of grant). For officers and employees hired
subsequent to April 19, 1996, the exercise price is equal to the market price
of Old Patriot's common stock on the employee's date of hire. The options to
purchase common stock vest annually over a period of seven years.
During 1997, pursuant to the Directors' Plan, 1995 Incentive Plan and the
1997 Incentive Plan, the Companies awarded directors, officers and employees
nonqualified options to purchase an aggregate of 4,744,184 of paired shares of
common stock at prices ranging from $20.85 to $33.58.
As of December 31, 1998, pursuant to the Directors' Plan, the 1995 Incentive
Plan and the 1997 Incentive Plans, the Companies have authorized the grant of
options for up to 10,912,938 paired shares with exercise prices ranging from
$5.13 to $33.58 per paired share (2,981,685 of such options were vested).
During 1997, a total of 338,064 paired shares were issued pursuant to exercise
of options (at exercise prices ranging from $5.13 to $13.28) resulting in net
proceeds of $2,307. During 1998, a total of 1,299,250 paired shares were
issued pursuant to exercise of options (at exercise prices ranging from $11.18
to $17.82) resulting in net proceeds of $15,274.
The Companies have elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Companies'
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Wyndham Stock Option Exchange Program
All optionees, other than the directors and the top two executive officers,
were given the opportunity to exchange certain options for new options which
have a Black-Scholes value equal to the old options, but were for fewer
shares, at the then current stock price and with the same term as the
remaining term of the old options.
Statement 123
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Companies had accounted for their compensatory employee
stock options under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997 and 1996, respectively: risk-free interest rates of 5.31%, 6.61% and
6.09%; dividend yields of 6%; volatility factors of the expected market price
of the Companies' common stock of 0.735, 0.389 and 0.173, and a weighted
average expected life of the options of 4 years, 4 years and 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Companies' employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options that have vesting periods and are non-transferable.
F-49
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Companies' pro forma information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Basic
Pro forma net (loss) income available to common
shareholders.................................. $ 185,566 $(4,949) $37,607
Pro forma earnings per share: ................. $ (1.35) $ (0.08) $ 0.81
Diluted
Pro forma net (loss) income available to common
shareholders.................................. $(352,807) $(4,949) $37,607
Pro forma earnings per share: ................. $ (2.56) $ (0.09) $ 1.04
</TABLE>
A summary of the Companies' stock option activity, and related information
for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000's) Price (000's) Price (000's) Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 6,241 $20.82 1,584 $11.54 1,170 $11.18
Granted................. 3,997 17.50 4,692 24.51 414 12.59
Exercised............... (578) 11.38 (6) 12.89 --
Forfeited............... (1,943) 23.48 (29) 12.85 --
------ ----- -----
Outstanding, end of
year................... 7,717 19.28 6,241 20.82 1,584 11.54
====== ===== =====
Exercisable at end of
year................... 972 $14.89 430 $11.18
Weighted average fair
value of options
granted during year.... $ 7.70 $ 4.28 $ 1.27
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$7.55 to $33.58. The weighted average remaining contractual life of those
options was 8 years. Exercise prices for options outstanding as of December
31, 1997 ranged from $11.18 to $33.58. The weighted average remaining
contractual life of those options was nine years. Exercise prices for
compensatory options outstanding as of December 31, 1996 ranged from $11.18 to
$14.09. The weighted average remaining contractual life of those options was
nine years.
15. Income Taxes:
Patriot
Patriot, in accordance with SFAS No. 109, recorded a deferred tax liability
during 1998 in conjunction with the acquisition of foreign operations, the
Arcadian transaction. As of December 31, 1998, Patriot had a deferred tax
liability of approximately $38,912 and recognized $1,148 of deferred tax
expense associated with foreign operations.
F-50
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Wyndham
The income tax provision of Wyndham for year ended and six months ended
December 31, 1998 and 1997, respectively consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- ----
<S> <C> <C>
Current:
Federal.................................................... $ 25,691 $199
State...................................................... 3,355 130
-------- ----
Total current................................................ 29,046 329
-------- ----
Deferred:
Federal.................................................... (13,130) 136
State...................................................... (1,535) 16
-------- ----
Total deferred............................................... (14,665) 152
-------- ----
Total income tax expense................................. $ 14,381 $481
======== ====
The reason for the difference between total tax expense and the amount
computed by applying the statutory Federal income tax rate of 35% to income
before income taxes is as follows:
<CAPTION>
1998 1997
-------- ----
<S> <C> <C>
Tax at statutory rate........................................ $(27,874) $127
State income taxes........................................... 1,820 118
Valuation allowance.......................................... 17,866 --
Assets held for sale......................................... 7,573 --
Goodwill..................................................... 5,330 --
Lease buyout costs........................................... 20,033 --
Minority interest and other.................................. (10,367) 236
-------- ----
Total income tax expense................................... $ 14,381 $481
======== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Wyndham's deferred tax assets and liabilities for the year ended and six
months ended December 31, 1998 and 1997, respectively are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating losses................................... $ 21,221 $ --
Disposition of assets.................................. 887 --
Other non-current assets............................... 8,569 89
-------- -------
Total deferred tax assets............................ 30,677 89
Valuation allowance.................................... (17,866) --
-------- -------
Net deferred asset................................. $ 12,811 $ 89
======== =======
Deferred tax liabilities:
Depreciation........................................... (25,754) (600)
Management contracts and tradenames.................... (70,319) (8,896)
Other non-current liabilities.......................... (1,289) (143)
-------- -------
Total deferred tax liabilities....................... (97,362) (9,639)
-------- -------
Net deferred income tax liability.................. $(84,551) $(9,550)
======== =======
</TABLE>
As of December 31, 1998, Wyndham and certain affiliated subsidiaries have
net operating loss carryforwards for federal income tax purposes of
approximately $78,651, which are available to offset future federal taxable
income, if any, through 2018.
F-51
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
16. EMPLOYEE BENEFIT PLANS:
The Companies sponsors 401(K) retirement savings plans. Employees who are
over 21 years of age and have completed one year of service are eligible to
participate in the plans. The Companies match 50% of employee contributions up
to 4% of an employee's salary. The aggregate expense under the plans totaled
$511 for 1998. No plans were in effect prior to 1998.
The Companies maintain self-insured group health plans through a Voluntary
Employee Benefit Association referred to hereinafter as VEBA. The plans are
funded to the limits provided by the Internal Revenue Service, and liabilities
have been recorded for estimated incurred but unreported claims. Aggregate and
stop loss insurance exists at amounts which limit exposure to the Companies.
The Companies have recognized expense related to the plan of $2,313 for 1998.
No plan such as this was in effect prior to 1998.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107 requires disclosures about the fair value for all financial
instruments, whether or not recognized, for financial statement purposes.
Disclosures about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1998. Considerable
judgment is necessary to interpret market data and develop estimated fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized on disposition of the
financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Management estimates the fair value of (i) accounts receivable, accounts
payable and accrued expenses approximate carrying value due to the relatively
short maturity of these instruments; (ii) the notes receivable approximate
carrying value based upon effective borrowing rates for issuance of debt with
similar terms and remaining maturities; and (iii) the borrowings under the
Credit Facility, Term Loan and various other mortgage notes approximate
carrying value because these borrowings accrue interest at floating interest
rates based on market or accrue interest at fixed rates which approximate
market rates.
18. SEGMENT REPORTING:
The Companies' classify their business into proprietary owned brands and
non-proprietary brand hotel divisions, under which they manage the business.
Among its proprietary branded hotels, the Company is positioned in the
luxury segment under the Grand Bay Hotels & Resorts(R) brand; in the upscale
segment under Wyndham(TM); and in the mid-priced segment under the ClubHouse
brand. Additionally, the Company offers proprietary branded all-suite
accommodations through its upscale Summerfield Suites brand and its mid-priced
Sierra Suites brand. Other proprietary hotel brands owned and developed by the
Companies include Malmaison, Grand Heritage(R) and Carefree(R).
Description of reportable segments
The Companies have six reportable segments: Wyndham hotel properties, resort
properties, all suite properties, non-proprietary branded properties and other
proprietary branded hotel properties and other.
. Wyndham hotel properties include Wyndham Hotels, Wyndham Gardens and
Wyndham Grand Heritage. The Wyndham hotel properties are full-service
properties that generally offer a full range of meeting and conference
facilities and banquet space. Facilities generally include restaurants
and lounge areas, gift shops and recreational facilities, including
swimming pools. Full-service hotels generally provide a significant array
of guest services, including room service, valet services and laundry.
F-52
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
. Resort properties include Wyndham Resorts, Grand Bay resort properties
and other resort properties. Resorts are designed to offer unique
destinations which appeal to today's sophisticated vacation traveler and
to blend with their environment, enhancing the natural surroundings with
design that fits the locale. Each resort's recreational activities are of
the highest caliber and are designed to capitalize on the natural
attractions of the location. Many offer a combination of golf, tennis,
skiing, health spa, hiking and other sports.
. All suite properties include the Summerfield and Sierra Suite properties.
The Summerfield and Sierra Suite properties generally target the business
travelers who usually anticipate a one to two week stay. The suites
generally have limited public space and offer limited food and beverage
service. However, the suites provide guests with larger rooms and work
space.
. Non-proprietary branded properties include all properties which are not
Wyndham hotel properties, resort properties, all suite properties or
other proprietary branded properties. The properties consist of non
Wyndham branded assets such as: Crowne Plaza(R), Radisson(R), Hilton(R),
Hyatt(R), Four Points by Sheraton(R), Holiday Inn(R), DoubleTree(R),
Embassy Suites(R), Marriott(R), Courtyard by Marriott(R), Sheraton(R) and
independents.
. Other proprietary branded hotel properties include Malmaison, Grand
Heritage, Clubhouse and hotels acquired in the Arcadian Acquisition.
. Other includes participating lease revenues, racecourse facility revenue
and expenses, management fee and service fee income, interest and other
income, general and administrative costs, interest expense, depreciation
and amortization and other one-time charges. General and administrative
costs, interest expenses and depreciation and amortization are not
allocated to each reportable segment; therefore, they are reported in the
aggregate within this segment.
Measurement of segment profit or loss and segment assets
The Companies evaluate performance based on the operating income or loss
from each business segment. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies.
Factors management used to identify the reportable segments
The Companies' reportable segments are determined by brand affiliation and
type of property. The reportable segments are each managed separately due to
the specific characteristics of each segment.
<TABLE>
<CAPTION>
Year ended Non- Other
December 31, Wyndham Suite proprietary proprietary
1998 Hotels Resorts properties branded branded Other(1) Total
------------ ---------- -------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 610,523 $315,674 $ 74,333 $ 761,154 $ 80,998 $ 213,659 $2,056,341
Operating income
(loss)................. 153,723 76,349 14,690 183,703 26,492 (576,963) (122,006)
Segment assets.......... 1,461,037 900,431 245,578 2,906,527 297,609 1,604,488 7,415,670
Capital additions....... 635,853 544,060 204,292 1,930,121 296,769 16,264 3,627,359
</TABLE>
- --------
(1) Operating income (loss) for 1998 includes unusual items related to the
treasury rate lock settlement of $49,334 and the cost of reacquiring
leaseholds of $64,407.
F-53
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended Non- Other
December 31, Wyndham Suite proprietary proprietary
1997(2) Hotels Resorts properties branded branded Other(3) Total
------------ -------- -------- ---------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 10,711 $ 30,334 $ -- $115,223 $ 9,595 $169,172 $ 335,035
Operating income
(loss)................. 2,388 6,628 -- 29,947 1,436 (42,272) (1,873)
Segment assets.......... 435,452 348,013 -- 795,679 47,999 880,710 2,507,853
Capital additions....... 366,280 311,378 -- 577,788 25,287 125,946 1,406,679
</TABLE>
- --------
(2) Total revenue and operating income (loss) for the reportable segments is
reported for the six months ended December 31, 1997. Prior to July 1,
1997, revenue and operating income (loss) related to the operations of the
hotel properties was reported by the third party lessees who operated the
properties pursuant to Participating Leases.
(3) Operating income (loss) for 1997 includes unusual items related to the
cost of reacquiring leaseholds of $54,499.
<TABLE>
<CAPTION>
Year ended Non- Other
December 31, Wyndham Suite proprietary proprietary
1996 (4) Hotels Resorts properties branded branded Other Total
------------ ------- ------- ---------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ -- $ -- $ -- $ -- $ -- $ 76,493 $76,493
Operating income
(loss)................. -- -- -- -- -- 38,968 38,968
Segment assets.......... -- -- -- -- -- 760,931 760,931
Capital additions....... -- -- -- -- -- 393,599 393,599
</TABLE>
- --------
(4) Revenue and operating income (loss) related to the operations of the hotel
properties was reported by the third party lessees who operated the
properties pursuant to Participating Leases.
The following table represents revenue and long-lived asset information by
geographic area as of and for the period ending December 31, 1998. Revenues
are attributed to the United States and its territories and Europe based on
the location of hotel properties. The hotel properties in Europe were acquired
on April 6, 1998 with the Arcadian acquisition. Prior to this date, all of the
Companies' business was attributed to hotel properties located in the United
States and its territories.
<TABLE>
<CAPTION>
United
1998 States Europe Total
---- ---------- ------- ----------
<S> <C> <C> <C>
Revenues...................................... $2,034,949 $21,392 $2,056,341
Long-lived assets............................. 7,157,617 258,053 7,415,670
</TABLE>
19. Non-cash Investing and Financing Activities:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- -------
<S> <C> <C> <C>
In connection with the Cal Jockey Merger, the
acquisition of management companies, hotel
properties and other operating assets, the
Companies issued common stock, preferred stock,
options and OP units in exchange for net assets
as follows:
Patriot and Wyndham............................. $1,698,542 $449,415 $16,391
========== ======== =======
Patriot......................................... $1,532,649 $340,794 $16,391
========== ======== =======
Wyndham......................................... $ 165,893 $108,621 $ --
========== ======== =======
</TABLE>
F-54
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
20. Quarterly Financial Information (unaudited):
<TABLE>
<CAPTION>
Combined Patriot Wyndham
------------------ ------------------ ------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
First Quarter:
Total revenue.......... $349,807 $ 35,388 $113,165 $ 35,388 $329,982 $ --
Income before
extraordinary item.... $ 37,128 $ 11,348 $ 34,213 $ 11,348 $ 3,180 $ --
Net income............. $ 18,412 $ 11,348 $ 15,497 $ 11,348 $ 3,180 $ --
Net income per
share/paired share:
Basic.................. $ 0.17 $ 0.21 $ 0.14 $ 0.21 $ 0.03 $ --
Diluted................ $ 0.16 $ 0.21 $ 0.13 $ 0.21 $ 0.03 $ --
Weighted average number
of shares:
Basic.................. 109,549 53,248 109,549 53,248 109,549 --
Diluted................ 117,090 54,613 117,090 54,613 117,090 --
Second Quarter:
Total revenue.......... $465,463 $ 37,730 $140,257 $ 37,730 $452,247 $ --
(Loss) income before
extraordinary item.... $(14,411) $ 11,818 $ 23,902 $ 11,818 $(43,832) $ --
Net (loss) income...... $(26,254) $ 11,818 $ 12,059 $ 11,818 $(43,832) $ --
Net (loss) income per
share/paired share:
Basic.................. $ (0.21) $ 0.22 $ 0.08 $ 0.22 $ (0.33) $ --
Diluted................ $ (0.21) $ 0.21 $ 0.09 $ 0.21 $ (0.33) $ --
Weighted average number
of shares:
Basic.................. 132,804 53,382 132,804 53,382 132,804 --
Diluted................ 132,804 55,029 140,476 55,029 132,804 --
Third Quarter:
Total revenue.......... $603,850 $ 81,638 $184,696 $ 50,190 $593,680 $ 44,184
(Loss) income before
extraordinary item
(1)................... $(58,158) $(24,470) $(37,436) $(25,179) $(25,777) $ 709
Net (loss) income...... $(59,415) $(27,004) $(37,436) $(27,713) $(27,034) $ 709
Net (loss) income per
share/paired share:
Basic.................. $ (0.40) $ (0.38) $ (0.25) $ (0.39) $ (0.18) $ 0.01
Diluted................ $ (1.02) $ (0.38) $ (0.87) $ (0.39) $ (0.18) $ 0.01
Weighted average number
of shares:
Basic.................. 154,510 71,706 154,510 71,706 154,510 71,706
Diluted................ 154,510 71,706 154,510 71,706 154,510 73,679
Fourth Quarter:
Total revenue.......... $630,259 $180,279 $157,291 $ 62,246 $625,982 $159,950
(Loss) income before
extraordinary item
(2)................... $(90,968) $ 1,666 $(35,010) $ 2,395 $(44,732) $ (729)
Net (loss) income...... $(90,968) $ 1,666 $(35,010) $ 2,395 $(44,732) $ (729)
Net (loss) income per
share/paired share:
Basic.................. $ (0.65) $ 0.02 $ (0.28) $ 0.03 $ (0.30) $ (0.01)
Diluted................ $ (1.01) $ 0.02 $ (0.64) $ 0.03 $ (0.30) $ (0.01)
Weighted average number
of shares:
Basic.................. 154,139 78,346 154,139 78,346 154,139 78,346
Diluted................ 154,139 80,915 154,139 80,915 154,139 78,346
</TABLE>
- --------
(1) Income (loss) before extraordinary item for the third quarter of 1998
includes the cost of the Treasury Lock Settlement, a non-recurring
expense, of $49,225 that was reported by Patriot.
(2) Income (loss) before extraordinary item for the fourth quarter of 1998
includes the following non-recurring expense items:
. Impairment in value of assets held for sale of $27,897 reported by
Patriot
. Impairment in value of assets held for sale of $23,184 reported by
Wyndham
F-55
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
21. PRO FORMA RESULTS OF OPERATIONS:
The following unaudited separate and combined pro forma results of operations
of Patriot and Wyndham are presented as if (i) the merger and acquisition of
the WHG Casinos and Resorts and related third party minority interests
consummated in January 1998 and the acquisition of the remaining minority
interests completed in March and July 1998, the acquisition included the
Condado Plaza Hotel & Casino, El San Juan Hotel and Casino and the El
Conquistador Hotel and Casino and the management company for the three resorts,
located in San Juan, Puerto Rico, the acquisition of the Buena Vista Hotel
located in Orlando, Florida in January 1998, and the acquisition of the Golden
Door Spa located in Escondido, California in June 1998; (ii) the acquisition of
Arcadian International Limited and the Malmaison Group including 10 hotels,
land held for developments and the proprietary Malmaison brand in April 1998;
(iii) the merger of Interstate Hotels Company with and into Patriot and the
related financing in June 1998; (iv) the acquisition of the partnership
interests in SF Hotel Company, L.P. in June 1998, which included four hotels,
24 management and leasehold interests, 12 management contracts and the
proprietary brand names Summerfield Suites, Sierra Suites and Sunrise Sierra
Suites; (v) the merger of the hospitality related businesses of CHC
International with and into Wyndham in June 1998 including the remaining 50%
interest in GAH-II, L.P., the remaining 17 leases and 16 management contracts
related to Patriot Hotels leased by CHC Lease Partners, 10 management and asset
management contracts and the Grand Bay proprietary brand name which occurred in
1998 and 1997 had occurred on January 1, 1997.
The following unaudited pro forma financial information is not necessarily
indicative of what actual results of operations of Patriot and Wyndham would
have been assuming such transactions had been completed as of January 1, 1997,
nor do they purport to represent the results of operations for future periods.
PATRIOT AND WYNDHAM
COMBINED PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Total revenue....................................... $2,564,690 $2,457,182
Net loss............................................ (147,947) (55,656)
Basic loss per Paired Share......................... $ (1.17) $ (0.37)
========== ==========
Diluted loss per Paired Share....................... $ (2.28) $ (0.37)
========== ==========
Weighted average number of Paired Shares............ 151,313 151,313
========== ==========
PATRIOT
CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Total revenue....................................... $ 722,790 $ 713,582
Net loss............................................ (14,175) (97,337)
Basic loss per share................................ $ (0.27) $ (0.64)
========== ==========
Diluted loss per share.............................. $ (1.37) $ (0.64)
========== ==========
Weighted average number of common shares............ 151,313 151,313
========== ==========
</TABLE>
F-56
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
WYNDHAM
Consolidated Pro Forma Results of Operations
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1998 1997
---------- ----------
(in thousands,
except per share
data)
<S> <C> <C>
Total revenue........................................ $2,531,678 $2,433,794
Net (loss) income.................................... (132,856) 41,681
Basic (loss) income per share........................ $ (0.90) $ 0.28
========== ==========
Diluted (loss) income per share...................... $ (0.90) $ 0.26
========== ==========
Weighted average number of common shares............. 151,313 151,313
========== ==========
Dilutive Securities:
Effect of unvested stock grants...................... -- 880
Dilutive options to purchase paired shares........... -- 753
Dilutive convertible preferred shares................ -- 8,423
Weighted average number of common shares............. 151,313 161,369
========== ==========
</TABLE>
22. Subsequent Events:
Asset sales
In February 1999, Patriot sold its interest in the Bay Meadows Racecourse
located in San Mateo, California. The Companies received cash proceeds of
approximately $3,446 after payment of legal costs and other closing costs. The
Companies recognized an estimated impairment loss on assets held for sale of
$42,278 related to the Racecourse facility in 1998. In connection with the
transaction Patriot terminated its lease to Wyndham for the Racecourse
facilities. The actual loss on sale of asset recognized was $42,766.
Acquisitions
In January 1999, Patriot acquired the remaining 25% minority interests in
each of the five following hotels; Embassy Suites Schaumburg, the Hilton
Dania, the Marriott Suites at Valley Forge, the Marriott Boston Andover and
the Marriott Tysons Corner from CIGNA. The acquisition of such interests was
financed through additional mortgage indebtedness totaling $49,800 and the
sale of an additional 10% interest in the Marriott Warner Center.
Consulting Agreements
On February 26, 1999, Patriot, Wyndham and Paul A. Nussbaum entered into a
Separation Agreement (the "Separation Agreement") whereby Mr. Nussbaum
resigned his position as Chairman of the Board of Directors and Chief
Executive Officer of Patriot. Pursuant to the Separation Agreement, Mr.
Nussbaum has been named Chairman Emeritus of the Board of Directors of Patriot
and will remain as a Director of Wyndham.
In accordance with terms of the Separation Agreement, Patriot will: (i)
guarantee the repayment of the remaining outstanding principal on Mr.
Nussbaum's NationsBank Loan of approximately $7,000; (ii) make all interest
payments that become due and payable on the NationsBank Loan on or after the
date of separation; (iii) shall pay severance of $3,200 reduced by any
interest payments made by Patriot on the NationsBank Loan through June 30,
1999.
F-57
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additionally, Mr. Nussbaum's outstanding unvested options to purchase paired
shares shall vest and remain fully exercisable for the period of their
respective terms and within six months Mr. Nussbaum may elect to exchange such
options on a Black Scholes neutral basis for new options with an exercise
price equal to the fair market value of a Paired Share on the election date.
Mr Nussbaum will also receive 250,000 Paired Shares equally over a three year
period and any restrictions will be lifted from existing paired shares held by
Mr. Nussbaum.
As a condition to receiving the second and third installments of the paired
shares, Mr. Nussbaum has agreed to provide non-exclusive consulting services
to the Companies for a period of two years following the resignation date.
Additionally, Mr. Nussbaum will receive other compensation as provided for in
the separation agreement.
Interest Rate Swaps and Caps
Patriot has entered into two additional interest rate swap arrangements to
swap floating rate LIBOR-based interest rates for a fixed rate interest amount
as a hedge against $50,987 of the outstanding balance on specific property
related debt. The interest rate swap fixes the LIBOR portion of the debt
interest rate at 5.31% per annum through January 2000 ($19,987) and 5.42% per
annum through March 2001 ($31,000). If the actual LIBOR rate is less than the
specified fixed interest rate, Patriot is obligated to pay the differential
interest amount, such amount being recorded as incremental interest expense.
If the LIBOR rate is greater than the specified fixed interest rate, the
differential interest amount is refunded to Patriot.
Additionally, Patriot entered into two interest rate cap arrangements as
follows; an interest rate cap that limits LIBOR to 7% on up to $1,500,000 of
indebtedness through April 2000, and an interest cap that limits LIBOR to
6.75% on up to $19,475 of indebtedness through March 2001.
Securities Purchase Agreement
Wyndham and Patriot have entered into an agreement with investors providing
for a $1,000,000 equity investment and related restructing of the two
companies. The Companies have also received financing commitments for a
$2,450,000 credit facility to be put into place upon the completion of the $1
billion equity investment.
The new $2,450,000 credit facility will consist of: $1,000,000 of term loans
with a seven year term; an $800,000 credit facility with a five year term;
and, a $650,000 increasing rate loan facility with a five year term will
provide financing which may be redeemed with the proceeds of the issuance of
senior unsecured notes.
As a condition of the $1,000,000 equity investment, the Companies are
required to restructure their existing organization. Under the contemplated
restructuring, a subsidiary of Wyndham will merge with and into Patriot and
Patriot will become a wholly-owned subsidiary of Wyndham and new shares of
Wyndham will be issued in exchange for the then outstanding shares of Patriot
common stock. In addition, the pairing agreement between Wyndham and Patriot
will terminate, Patriot's status as a REIT will terminate effective January 1,
1999 and Patriot will become a taxable corporation at that date. As a result
of that transaction, the Company will be required to record a charge for
deferred income taxes for the difference between the income tax basis and the
recorded carrying value of assets and liabilities. The Company is continuing
its analysis of the expected effects of this non-cash charge. Currently the
estimate is in the range of $700,000, however; this amount could vary when the
analysis is completed. In addition, the Company will charge off the value of
an intangible asset associated with the paired share structure of
approximately $84,000.
F-58
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In the event that the equity and related debt transaction referred to above
are not completed, management has determined that additional capital would have
to be raised from other sources or the Companies would have to sell significant
amounts of assets to produce proceeds sufficient to meet its existing current
debt maturity obligations. These asset sales could include resort properties or
Wyndham-managed properties in major cities and could negatively impact
operations. Management believes these alternatives, if necessary, represent a
viable plan to address Company's liquidity needs.
F-59
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period(a)
--------------------- ------------------ ------------------------------
Buildings and Buildings and Accumulated Year
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation(b)(c) Built
----------- ------------ ------- ------------- ----- ------------ ------- ------------- -------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wyndham Brand
Properties:
Wyndham Bel Age
Hotel
Los Angeles,
California...... $ -- $ 5,653 $ 32,212 $ -- $ 106 $ 5,653 $ 32,318 $ 37,971 $ 961 1984
Wyndham Bristol
Palace Hotel
Toronto,
Canada.......... -- 3,048 15,503 -- -- 3,048 15,503 18,551 424 1974
Wyndham Buena
Vista Palace
Resort & Spa
Orlando,
Florida......... 49,353 -- 144,264 -- 123 -- 144,387 144,387 3,533 1977
Wyndham Buttes
Resort
Tempe, Arizona.. -- -- 55,297 -- 165 -- 55,462 55,462 1,931 1986
Wyndham City
Centre
Washington,
District of
Columbia........ -- 3,675 30,569 -- 91 3,675 30,660 34,335 1,143 1969
Wyndham Emerald
Plaza
San Diego,
California...... 35,000 5,551 60,462 17 95 5,568 60,557 66,125 1,730 1991
Wyndham Resprt &
Spa
Fort Lauderdale,
Florida......... -- 2,134 16,448 23 9,198 2,157 25,646 27,803 1,516 1961
Wyndham Franklin
Plaza
Philadelphia,
Pennsylvania.... -- 4,878 62,793 -- 117 4,878 62,910 67,788 2,016 1979
Wyndham
Greenspoint
Hotel
Houston, Texas.. 40,156 1,930 39,815 20 1,091 1,950 40,906 42,856 2,863 1985
Wyndham Miami
Beach Resort
Miami, Florida.. -- 13,000 54,875 -- 3 13,000 54,878 67,878 626
Wyndham
Gateway--Miami
Airport
Miami, Florida.. 25,625 2,561 23,009 -- 43 2,561 23,052 25,613 823 1976
Wyndham Myrtle
Beach Resort &
Golf Club
Myrtle Beach,
South Carolina.. -- 5,644 26,470 61 5,411 5,705 31,881 37,586 1,222 1974
Wyndham
Northwest
Chicago
Chicago,
Illinois........ -- 1,212 52,025 -- 76 1,212 52,101 53,313 1,549 1983
Wyndham
Peachtree
Conference
Center
Peachtree City
(Atlanta),
Georgia......... 37,873 3,059 21,915 33 4,833 3,092 26,748 29,840 2,185 1984
Wyndham Richmond
Airport
Richmond,
Virginia........ (h) -- 4,262 -- 2,800 -- 7,062 7,062 527 1997
Wyndham Toledo
Toledo, Ohio.... -- -- 16,082 -- 105 -- 16,187 16,187 599 1985
Wyndham
Riverfront Hotel
New Orleans,
Louisiana....... -- 2,774 28,023 -- 6 2,774 28,029 30,803 835 1996
Wyndham
Washington, D.C.
Washington,
District of
Columbia........ -- 4,750 40,439 -- -- 4,750 40,439 45,189 1,155 1983
<CAPTION>
Date of
Description Acquisition
----------- -----------
<S> <C>
Wyndham Brand
Properties:
Wyndham Bel Age
Hotel
Los Angeles,
California...... 1997
Wyndham Bristol
Palace Hotel
Toronto,
Canada.......... 1998
Wyndham Buena
Vista Palace
Resort & Spa
Orlando,
Florida......... 1998
Wyndham Buttes
Resort
Tempe, Arizona.. 1997
Wyndham City
Centre
Washington,
District of
Columbia........ 1997
Wyndham Emerald
Plaza
San Diego,
California...... 1997
Wyndham Resprt &
Spa
Fort Lauderdale,
Florida......... 1996
Wyndham Franklin
Plaza
Philadelphia,
Pennsylvania.... 1997
Wyndham
Greenspoint
Hotel
Houston, Texas.. 1996
Wyndham Miami
Beach Resort
Miami, Florida.. 1998
Wyndham
Gateway--Miami
Airport
Miami, Florida.. 1997
Wyndham Myrtle
Beach Resort &
Golf Club
Myrtle Beach,
South Carolina.. 1997
Wyndham
Northwest
Chicago
Chicago,
Illinois........ 1997
Wyndham
Peachtree
Conference
Center
Peachtree City
(Atlanta),
Georgia......... 1995
Wyndham Richmond
Airport
Richmond,
Virginia........ 1998
Wyndham Toledo
Toledo, Ohio.... 1997
Wyndham
Riverfront Hotel
New Orleans,
Louisiana....... 1997
Wyndham
Washington, D.C.
Washington,
District of
Columbia........ 1998
</TABLE>
F-60
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wyndham
Westshore Hotel
Tampa, Florida.. 31,675 1,448 31,565 -- 166 1,448 31,731 33,179 1,130
Wyndham Garden
Hotel--
Brookfield
Brookfield,
Illinois........ -- 1,787 17,564 -- -- 1,787 17,564 19,351 481
Wyndham Garden
Hotel--Charlotte
Charlotte, North
Carolina........ -- 792 17,535 -- -- 792 17,535 18,327 480
Wyndham Garden
Hotel--Commerce
Los Angeles,
California...... -- 2,116 26,497 -- -- 2,116 26,497 28,613 726
Wyndham Garden
Hotel--Market
Center
Dallas, Texas... -- 967 12,796 -- -- 967 12,796 13,763 350
Wyndham Garden
Hotel--Park
Central
Dallas, Texas... -- 4,523 -- -- 8,711 4,523 8,711 13,234 48
Wyndham Garden
Hotel--
Indianapolis
Indianapolis,
Indiana......... -- 513 15,497 -- -- 513 15,497 16,010 424
Wyndham Garden
Hotel--K.C.
Airport
Airport--Kansas
City, Missouri.. -- 970 7,993 -- -- 970 7,993 8,963 219
Wyndham Garden
Hotel--Knoxville
Knoxville,
Tennessee....... 4,539 825 6,467 -- -- 825 6,467 7,292 177
Wyndham Garden
Hotel LaGuardia
Airport
New York, New
York............ -- 1,800 16,443 -- 7 1,800 16,450 18,250 490
Wyndham Garden
Hotel--Las
Colinas
Dallas, Texas... -- 1,884 16,963 -- 6 1,884 16,969 18,853 505
Wyndham Garden
Hotel--Midtown
Atlanta,
Georgia......... -- 2,322 13,785 -- 749 2,322 14,534 16,856 1,010
Wyndham Garden
Hotel--Novi
Detroit,
Michigan........ -- 555 10,401 -- 6 555 10,407 10,962 310
Wyndham Garden
Hotel--Omaha
Omaha,
Nebraska........ 5,618 710 10,086 -- -- 710 10,086 10,796 276
Wyndham Garden
Hotel--Overland
Park
Overland Park,
Kansas.......... -- 769 3,532 -- -- 769 3,532 4,301 97
Wyndham Garden
Hotel--
Pleasanton
Pleasanton,
California...... -- 1,568 12,845 -- 6 1,568 12,851 14,419 369
Wyndham Garden
Hotel--
Richardson
Richardson,
Texas........... -- 530 8,048 -- -- 530 8,048 8,578 220
Wyndham Garden
Hotel--
Schaumburg,
Illinois........ -- 1,613 14,464 -- -- 1,613 14,464 16,077 396
Wyndham Garden
Hotel--West Port
St. Louis,
Missouri........ -- 862 9,273 -- 4 862 9,277 10,139 254
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Wyndham
Westshore Hotel
Tampa, Florida.. 1984 1997
Wyndham Garden
Hotel--
Brookfield
Brookfield,
Illinois........ 1990 1998
Wyndham Garden
Hotel--Charlotte
Charlotte, North
Carolina........ 1989 1998
Wyndham Garden
Hotel--Commerce
Los Angeles,
California...... 1991 1998
Wyndham Garden
Hotel--Market
Center
Dallas, Texas... 1968 1998
Wyndham Garden
Hotel--Park
Central
Dallas, Texas... 1998 1998
Wyndham Garden
Hotel--
Indianapolis
Indianapolis,
Indiana......... 1990 1998
Wyndham Garden
Hotel--K.C.
Airport
Airport--Kansas
City, Missouri.. 1992 1998
Wyndham Garden
Hotel--Knoxville
Knoxville,
Tennessee....... 1989 1998
Wyndham Garden
Hotel LaGuardia
Airport
New York, New
York............ 1988 1997
Wyndham Garden
Hotel--Las
Colinas
Dallas, Texas... 1986 1997
Wyndham Garden
Hotel--Midtown
Atlanta,
Georgia......... 1987 1996
Wyndham Garden
Hotel--Novi
Detroit,
Michigan........ 1988 1997
Wyndham Garden
Hotel--Omaha
Omaha,
Nebraska........ 1991 1998
Wyndham Garden
Hotel--Overland
Park
Overland Park,
Kansas.......... 1971 1998
Wyndham Garden
Hotel--
Pleasanton
Pleasanton,
California...... 1985 1997
Wyndham Garden
Hotel--
Richardson
Richardson,
Texas........... 1996 1998
Wyndham Garden
Hotel--
Schaumburg,
Illinois........ 1985 1998
Wyndham Garden
Hotel--West Port
St. Louis,
Missouri........ 1997 1998
</TABLE>
F-61
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
-------------------- ------------------- -----------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ------ ------------- ----- ------------ --------- ------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wyndham Garden
Hotel--Vinings
Atlanta,
Georgia......... 9,675 1,700 22,853 -- -- 1,700 22,853 24,553 626
Wyndham Garden
Hotel--Wichita
Wichita,
Kansas.......... 3,143 960 5,978 -- -- 960 5,978 6,938 164
Wyndham Garden
Hotal--WoodDale
Chicago,
Illinois........ -- 2,266 12,939 -- 7 2,266 12,946 15,212 446
Wyndham Grand
Heritage -
Ambassador West
Chicago,
Illinois........ -- 2,059 11,856 -- 1,659 2,059 13,515 15,574 502
Wyndham Grand
Heritage
- - Bourbon
Orleans Hotel
New Orleans,
Louisiana....... 13,500 1,942 14,209 171 1,168 2,113 15,377 17,490 1,391
Wyndham Grand
Heritage - The
Fairmount
San Antonio,
Texas........... -- -- 2,957 -- 137 -- 3,094 3,094 278
Wyndham Grand
Heritage - The
Mayfair
St. Louis,
Missouri........ -- 250 7,559 3 960 253 8,519 8,772 536
Wyndham Grand
Heritage - The
Tutwiler
Birmingham,
Alabama......... -- 1,444 8,124 (26) 812 1,418 8,936 10,354 505
Wyndham Grand
Heritage -
Tremont House
Boston,
Massachusetts... -- 1,776 14,066 18 10,033 1,794 24,099 25,893 1,445
Wyndham Grand
Heritage - Union
Station
Nashville,
Tennessee....... -- -- 7,512 -- 716 -- 8,228 8,228 326
Grand Bay Hotels
& Resort:
Carmel Valley
Ranch
Carmel,
California...... -- 4,430 14,704 -- 10,888 4,430 25,592 30,022 1,011
Grand Bay Hotel
Coconut Grove
Miami, Florida.. 25,200 3,066 28,442 1,237 (920) 4,303 27,522 31,825 1,007
The Boulders
Scottsdale,
Arizona......... -- 13,188 121,700 -- 1,051 13,188 122,751 135,939 6,833
The Lodge at
Ventana Canyon
Tucson,
Arizona......... 28,489 13,287 23,332 -- (208) 13,287 23,124 36,411 1,312
The Peaks Resort
& Spa
Telluride,
Colorado........ -- 5,141 13,997 -- 669 5,141 14,666 19,807 869
Summerfield
Suites:
Summerfield--
Denver South
Denver,
Colorado........ -- 1,072 8,183 -- 36 1,072 8,219 9,291 203
Summerfield--
Hanover
Whippany, New
Jersey.......... -- 2,223 18,585 -- 16 2,223 18,601 20,824 268
<CAPTION>
Year Date of
Description Built Acquisition
----------- ------ -----------
<S> <C> <C>
Wyndham Garden
Hotel--Vinings
Atlanta,
Georgia......... 1985 1998
Wyndham Garden
Hotel--Wichita
Wichita,
Kansas.......... 1985 1998
Wyndham Garden
Hotal--WoodDale
Chicago,
Illinois........ 1986 1997
Wyndham Grand
Heritage -
Ambassador West
Chicago,
Illinois........ 1924 1997
Wyndham Grand
Heritage
- - Bourbon
Orleans Hotel
New Orleans,
Louisiana....... 1800s 1995
Wyndham Grand
Heritage - The
Fairmount
San Antonio,
Texas........... 1906 1995
Wyndham Grand
Heritage - The
Mayfair
St. Louis,
Missouri........ 1925 1996
Wyndham Grand
Heritage - The
Tutwiler
Birmingham,
Alabama......... 1913 1996
Wyndham Grand
Heritage -
Tremont House
Boston,
Massachusetts... 1925 1996
Wyndham Grand
Heritage - Union
Station
Nashville,
Tennessee....... 1986 1997
Grand Bay Hotels
& Resort:
Carmel Valley
Ranch
Carmel,
California...... 1987 1997
Grand Bay Hotel
Coconut Grove
Miami, Florida.. 1983 1997
The Boulders
Scottsdale,
Arizona......... 1985 1997
The Lodge at
Ventana Canyon
Tucson,
Arizona......... 1985 1997
The Peaks Resort
& Spa
Telluride,
Colorado........ 1992 1997
Summerfield
Suites:
Summerfield--
Denver South
Denver,
Colorado........ 1997 1998
Summerfield--
Hanover
Whippany, New
Jersey.......... 1997 1998
</TABLE>
F-62
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summerfield--
Morristown
Morristown, New
Jersey.......... -- 3,050 20,920 -- 24 3,050 20,944 23,994 272
Summerfield--
Seattle Downtown
Seattle,
Washington...... -- 1,515 24,276 16 624 1,531 24,900 26,431 1,938
Summerfield--
Waltham
Waltham,
Massachusetts... -- 2,639 16,351 -- 140 2,639 16,491 19,130 286
Malmaison:
Malmaison
Edinburgh
Edinburgh,
United Kingdom.. (i) 2,674 7,747 6 496 2,680 8,243 10,923 188
Malmaison
Glasgow
Glasgow, United
Kingdom......... (i) 2,859 8,056 6 21 2,865 8,077 10,942 285
Malmaison
Manchester
Manchester,
United Kingdom.. (i) 5,332 9,859 12 3,565 5,344 13,424 18,768 203
Malmaison
Newcastle
Newcastle,
United Kingdom.. (i) 3,672 12,183 7 -- 3,679 12,183 15,862 197
Malmaison Leeds
Leeds, United
Kingdom......... (i) -- 10,315 -- -- -- 10,315 10,315 --
ClubHouse Inns:
ClubHouse--
Nashville
Airport
Nashville,
Tennessee....... -- 907 5,526 -- -- 907 5,526 6,433 151
ClubHouse Inn--
Albuquerque
Albuquerque, New
Mexico.......... -- 990 5,793 -- -- 990 5,793 6,783 159
ClubHouse Inn--
Atlanta
(Norcross)
Atlanta,
Georgia......... 4,530 785 9,691 -- -- 785 9,691 10,476 265
ClubHouse Inn--
Overland Park
Overland Park,
Kansas.......... 4,846 830 7,397 -- -- 830 7,397 8,227 203
ClubHouse Inn--
Savannah
Savannah,
Georgia......... -- 925 4,555 -- 105 925 4,660 5,585 127
ClubHouse Inn--
Topeka
Topeka, Kansas.. -- 390 5,312 -- -- 390 5,312 5,702 145
ClubHouse Inn--
Valdosta
Valdosta,
Georgia......... -- 825 5,588 -- -- 825 5,588 6,413 153
ClubHouse Inn &
Conference
Center
Nashville,
Tennessee....... -- 1,582 12,337 -- -- 1,582 12,337 13,919 338
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Summerfield--
Morristown
Morristown, New
Jersey.......... 1997 1998
Summerfield--
Seattle Downtown
Seattle,
Washington...... 1985 1996
Summerfield--
Waltham
Waltham,
Massachusetts... 1997 1998
Malmaison:
Malmaison
Edinburgh
Edinburgh,
United Kingdom.. 1994 1998
Malmaison
Glasgow
Glasgow, United
Kingdom......... 1997 1998
Malmaison
Manchester
Manchester,
United Kingdom.. 1998 1998
Malmaison
Newcastle
Newcastle,
United Kingdom.. 1997 1998
Malmaison Leeds
Leeds, United
Kingdom......... 1998 (e)
ClubHouse Inns:
ClubHouse--
Nashville
Airport
Nashville,
Tennessee....... 1988 1998
ClubHouse Inn--
Albuquerque
Albuquerque, New
Mexico.......... 1987 1998
ClubHouse Inn--
Atlanta
(Norcross)
Atlanta,
Georgia......... 1988 1998
ClubHouse Inn--
Overland Park
Overland Park,
Kansas.......... 1988 1998
ClubHouse Inn--
Savannah
Savannah,
Georgia......... 1989 1998
ClubHouse Inn--
Topeka
Topeka, Kansas.. 1986 1998
ClubHouse Inn--
Valdosta
Valdosta,
Georgia......... 1988 1998
ClubHouse Inn &
Conference
Center
Nashville,
Tennessee....... 1991 1998
</TABLE>
F-63
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
-------------------- ----------------- -----------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ------ ------------- ---- ------------ --------- ------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Proprietary
Brand
Properties:
Marriott Albany
Albany, New
York............ -- 4,000 68,856 -- 32 4,000 68,888 72,888 1,010
Marriott
Arlington
Arlington,
Texas........... -- -- 63,045 -- 91 -- 63,136 63,136 932
Marriott Atlanta
North Central
Atlanta,
Georgia......... -- -- 36,462 -- 185 -- 36,647 36,647 536
Marriott Boston
Andover
Andover,
Massachusetts... -- 2,318 33,245 -- 375 2,318 33,620 35,938 498
Marriott Boston
Westborough
Westborough,
Massachusetts... -- 1,500 41,968 -- 107 1,500 42,075 43,575 609
Marriott Houston
Greenspoint
North
Houston, Texas.. -- 3,600 44,211 -- 29 3,600 44,240 47,840 649
Marriott
Minneapolis
Southwest
Minnetonka,
Minnesota....... -- 2,968 36,933 -- 87 2,968 37,020 39,988 520
Marriott
Colorado Springs
Colorado
Springs,
Colorado........ -- 1,783 53,252 -- (5) 1,783 53,246 55,029 810
Marriott
Harrisburg
Harrisburg,
Pennsylvania.... 19,988 3,400 38,304 -- 246 3,400 38,550 41,951 560
Marriott Indian
River Plantation
Resort
Stuart,
Florida......... -- 6,800 48,606 -- 590 6,800 49,196 55,996 575
Marriott Casa
Marina Resort
Key West,
Florida......... 31,000 15,158 85,078 -- 136 15,158 85,214 100,372 415
Marriott Troy
Troy, Michigan.. -- 1,790 29,220 19 2,114 1,809 31,334 33,143 2,820
Marriott Reach
Resort
Key West,
Florida......... 24,911 10,029 24,947 -- 833 10,029 25,780 35,809 386
Marriott Suites
At Valley Forge
Valley Forge,
Pennsylvania.... -- 2,619 41,997 -- 23 2,619 42,020 44,639 605
Marriott
Philadelphia
West
West
Conshohocken,
Pennsylvania.... -- 2,500 67,279 -- -- 2,500 67,279 69,779 992
Marriott
Pittsburgh
Airport
Pittsburgh,
Pennsylvania.... 14,743 3,000 54,780 -- 46 3,000 54,826 57,826 801
Marriott Roanoke
Airport
Roanoke,
Virginia........ -- 1,653 27,693 -- 20 1,653 27,713 29,366 417
Marriott San
Diego Mission
Valley
San Diego,
California...... -- 8,000 40,743 -- 26 8,000 40,769 48,769 593
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Non-Proprietary
Brand
Properties:
Marriott Albany
Albany, New
York............ 1985 1998
Marriott
Arlington
Arlington,
Texas........... 1985 1998
Marriott Atlanta
North Central
Atlanta,
Georgia......... 1975 1998
Marriott Boston
Andover
Andover,
Massachusetts... 1985 1998
Marriott Boston
Westborough
Westborough,
Massachusetts... 1985 1998
Marriott Houston
Greenspoint
North
Houston, Texas.. 1981 1998
Marriott
Minneapolis
Southwest
Minnetonka,
Minnesota....... 1988 1998
Marriott
Colorado Springs
Colorado
Springs,
Colorado........ 1989 1998
Marriott
Harrisburg
Harrisburg,
Pennsylvania.... 1980 1998
Marriott Indian
River Plantation
Resort
Stuart,
Florida......... 1987 1998
Marriott Casa
Marina Resort
Key West,
Florida......... 1980 1998
Marriott Troy
Troy, Michigan.. 1990 1995
Marriott Reach
Resort
Key West,
Florida......... 1978 1998
Marriott Suites
At Valley Forge
Valley Forge,
Pennsylvania.... 1985 1998
Marriott
Philadelphia
West
West
Conshohocken,
Pennsylvania.... 1991 1998
Marriott
Pittsburgh
Airport
Pittsburgh,
Pennsylvania.... 1987 1998
Marriott Roanoke
Airport
Roanoke,
Virginia........ 1983 1998
Marriott San
Diego Mission
Valley
San Diego,
California...... 1988 1998
</TABLE>
F-64
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ----------------------------------
Buildings and Buildings and Accumulated Year
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c) Built
----------- ------------ ----- ------------- ---- ------------ -------- ------------------------- ------------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full Service
Hotels:
Marriott St.
Louis West
St. Louis,
Missouri........ 16,496 1,800 48,251 -- 58 1,800 48,309 50,109 717 1990
Marriott
Syracuse
East Syracuse,
New York........ 10,374 1,150 29,236 -- 563 1,150 29,799 30,949 436 1977
Marriott Tysons
Corner
Tysons Corner,
Virginia........ -- 3,650 64,333 -- 113 3,650 64,446 68,096 956 1981
Marriott Warner
Center
Woodland Hills,
California...... -- 6,250 100,063 -- 10 6,250 100,073 106,323 1,485 1986
Courtyard by
Marriott
Beachwood,
Ohio............ -- 1,510 7,553 -- 190 1,510 7,743 9,253 324 1986
Doubletree Hotel
Anaheim
Orange,
California...... 13,467 2,464 23,297 -- 403 2,464 23,700 26,164 889 1984
Doubletree Hotel
Corporate Woods
Overland Park,
Kansas.......... 21,909 3,317 38,088 -- 318 3,317 38,406 41,723 1,456 1982
Doubletree Hotel
Post Oak
Houston, Texas.. 29,748 4,441 43,672 -- 1,059 4,441 44,731 49,172 1,689 1982
Doubletree Hotel
St. Louis
St. Louis,
Missouri........ 13,366 2,160 18,300 -- 453 2,160 18,753 20,913 701 1984
Doubletree Hotel
Allen Center
Houston, Texas.. 11,156 2,280 24,707 -- 1,810 2,280 26,517 28,797 1,530 1978
Doubletree Guest
Suites
Glenview,
Illinois........ 20,500 3,237 19,709 -- 181 3,237 19,890 23,127 759 1988
Doubletree Hotel
Westminster
Westminster
(Denver),
Colorado........ -- 1,454 9,973 15 1,099 1,469 11,072 12,541 768 1980
Doubletree Hotel
Tallahassee,
Florida......... -- 2,127 7,779 -- 2,792 2,127 10,571 12,698 637 1977
Doubletree Hotel
Des Plaines
Des Plaines
(Chicago),
Illinois........ -- 1,903 5,555 -- 3,211 1,903 8,766 10,669 530 1969
Doubletree Hotel
Minneapolis,
Minnesota....... -- 1,650 15,895 -- 1,269 1,650 17,164 18,814 861 1986
Doubletree Hotel
Tulsa,
Oklahoma........ 9,246 1,428 18,596 -- 39 1,428 18,635 20,063 1,071 1982
Doubletree Park
Place
Minneapolis,
Minnesota....... -- 2,188 13,531 -- 3,466 2,188 16,997 19,185 745 1981
Doubletree Miami
Airport
Miami, Florida.. -- 3,808 7,052 -- 2,644 3,808 9,696 13,504 572 1975
<CAPTION>
Date of
Description Acquisition
----------- -----------
<S> <C>
Full Service
Hotels:
Marriott St.
Louis West
St. Louis,
Missouri........ 1998
Marriott
Syracuse
East Syracuse,
New York........ 1998
Marriott Tysons
Corner
Tysons Corner,
Virginia........ 1998
Marriott Warner
Center
Woodland Hills,
California...... 1998
Courtyard by
Marriott
Beachwood,
Ohio............ 1997
Doubletree Hotel
Anaheim
Orange,
California...... 1997
Doubletree Hotel
Corporate Woods
Overland Park,
Kansas.......... 1997
Doubletree Hotel
Post Oak
Houston, Texas.. 1997
Doubletree Hotel
St. Louis
St. Louis,
Missouri........ 1997
Doubletree Hotel
Allen Center
Houston, Texas.. 1996
Doubletree Guest
Suites
Glenview,
Illinois........ 1997
Doubletree Hotel
Westminster
Westminster
(Denver),
Colorado........ 1996
Doubletree Hotel
Tallahassee,
Florida......... 1996
Doubletree Hotel
Des Plaines
Des Plaines
(Chicago),
Illinois........ 1996
Doubletree Hotel
Minneapolis,
Minnesota....... 1997
Doubletree Hotel
Tulsa,
Oklahoma........ 1996
Doubletree Park
Place
Minneapolis,
Minnesota....... 1997
Doubletree Miami
Airport
Miami, Florida.. 1996
</TABLE>
F-65
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full Service
Hotels:
Embassy Suites
Chicago,
Illinois........ 41,329 -- 82,017 -- -- -- 82,017 82,017 1,269
Embassy Suites
Schaumburg,
Illinois........ -- 2,001 29,350 -- 185 2,001 29,535 31,536 438
Embassy Suites
Hunt Valley,
Maryland........ -- 529 13,872 6 314 535 14,186 14,721 1,257
Embassy Suites
Phoenix North
Phoenix,
Arizona......... -- 2,028 40,160 -- 40 2,028 40,200 42,229 622
Hyatt Newporter
Newport Beach,
California...... -- -- 15,611 -- 1,685 -- 17,296 17,296 1,293
Hyatt Regency
Lexington,
Kentucky........ -- -- 11,958 -- 1,280 -- 13,238 13,238 964
Hilton Cleveland
South
Independence,
Ohio............ -- 2,760 12,264 29 1,280 2,789 13,544 16,333 1,212
Hilton Gateway
Newark
Newark, New
Jersey.......... -- 1,740 31,262 -- 32 1,740 31,294 33,035 484
Hilton Columbus
Columbus,
Georgia......... -- 570 13,132 -- -- 570 13,132 13,702 203
Hilton Del Mar
Del Mar (San
Diego),
California...... -- 1,900 11,435 20 539 1,920 11,974 13,894 934
Hilton Greenwood
Village (Denver
South)
Greenwood
Village,
Colorado........ -- 1,800 42,003 -- -- 1,800 42,003 43,803 650
Hilton Dania
Dania, Florida.. -- 2,651 24,748 -- -- 2,651 24,748 27,399 367
Hilton
Huntington
Melville, New
York............ -- 3,000 49,435 -- -- 3,000 49,435 52,435 765
Hilton
Parsipanny
Parsippanny, New
Jersey.......... -- 5,350 87,775 -- 36 5,350 87,811 93,161 1,359
Hilton Melbourne
Airport
Melbourne,
Florida......... -- 1,502 6,391 -- 145 1,502 6,536 8,038 234
Holiday Inn
Sebring,
Florida......... -- 626 2,387 7 420 633 2,807 3,440 242
Holiday Inn
San Angelo,
Texas........... -- 428 3,982 11 197 439 4,179 4,618 383
Holiday Inn--YO
Ranch
Kerrville,
Texas........... -- 410 6,099 -- 119 410 6,218 6,628 230
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Full Service
Hotels:
Embassy Suites
Chicago,
Illinois........ 1991 1998
Embassy Suites
Schaumburg,
Illinois........ 1984 1998
Embassy Suites
Hunt Valley,
Maryland........ 1985 1995
Embassy Suites
Phoenix North
Phoenix,
Arizona......... 1985 1998
Hyatt Newporter
Newport Beach,
California...... 1962 1996
Hyatt Regency
Lexington,
Kentucky........ 1977 1996
Hilton Cleveland
South
Independence,
Ohio............ 1980 1995
Hilton Gateway
Newark
Newark, New
Jersey.......... 1971 1998
Hilton Columbus
Columbus,
Georgia......... 1982 1998
Hilton Del Mar
Del Mar (San
Diego),
California...... 1989 1996
Hilton Greenwood
Village (Denver
South)
Greenwood
Village,
Colorado........ 1982 1998
Hilton Dania
Dania, Florida.. 1988 1998
Hilton
Huntington
Melville, New
York............ 1988 1998
Hilton
Parsipanny
Parsippanny, New
Jersey.......... 1981 1998
Hilton Melbourne
Airport
Melbourne,
Florida......... 1986 1997
Holiday Inn
Sebring,
Florida......... 1983 1995
Holiday Inn
San Angelo,
Texas........... 1984 1995
Holiday Inn--YO
Ranch
Kerrville,
Texas........... 1984 1997
</TABLE>
F-66
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full Service
Hotels:
Holiday Inn
Aristocrat
Dallas, Texas... -- 144 7,806 2 244 146 8,050 8,196 734
Holiday Inn
Beachwood
Beachwood,
Ohio............ -- 307 13,519 -- 315 307 13,834 14,141 375
Holiday Inn
Crockett
San Antonio,
Texas (d) ...... -- 1,936 12,130 21 1,224 1,957 13,354 15,311 1,212
Holiday Inn
Lenox
Atlanta,
Georgia......... -- -- 10,090 -- 318 -- 10,408 10,408 832
Holiday Inn
Northwest
Houston, Texas.. -- 333 2,324 4 378 337 2,702 3,039 234
Holiday Inn
Northwest Plaza
Austin, Texas... -- 1,424 9,323 15 181 1,439 9,504 10,943 876
Holiday Inn
Select - Farmers
Branch
Farmers Branch
(Dallas),
Texas........... -- 3,045 15,786 33 1,830 3,078 17,616 20,694 1,548
Holiday Inn
Westlake
Beachwood,
Ohio............ -- 2,843 14,218 -- 798 2,843 15,016 17,859 617
Holiday Inn
Brentwood
Brentwood,
Tennessee....... -- 1,080 22,342 -- 4 1,080 22,346 23,425 346
Holiday Inn
San Francisco,
California...... -- -- 18,807 -- 54 -- 18,861 18,861 762
Redmont Hotel
Birmingham,
Alabama -- 227 2,151 2 78 229 2,229 2,458 115
Omni Inner
Harbour Hotel
Baltimore,
Maryland........ -- 1,129 49,491 -- 453 1,129 49,944 51,073 2,082
Radisson
Burlington
Burlington,
Vermont......... -- 935 28,453 -- 4 935 28,457 29,392 440
Radisson Hotel &
Suites
Dallas, Texas... -- 1,011 8,276 10 302 1,021 8,578 9,599 781
Radisson
Englewood
Englewood, New
Jersey.......... -- -- 26,320 -- -- -- 26,320 26,320 407
Radisson Suite
Hotel
Kansas City,
Kansas.......... -- 914 10,341 -- 318 914 10,659 11,573 395
Radisson Hotel
Lisle,
Illinois........ -- 1,995 24,726 -- -- 1,995 24,726 26,721 383
Radisson New
Orleans Hotel
New Orleans,
Louisiana....... -- 2,463 23,630 43 987 2,506 24,617 27,123 2,198
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Full Service
Hotels:
Holiday Inn
Aristocrat
Dallas, Texas... 1925 1995
Holiday Inn
Beachwood
Beachwood,
Ohio............ 1974 1998
Holiday Inn
Crockett
San Antonio,
Texas (d) ...... 1909 1995
Holiday Inn
Lenox
Atlanta,
Georgia......... 1987 1996
Holiday Inn
Northwest
Houston, Texas.. 1982 1995
Holiday Inn
Northwest Plaza
Austin, Texas... 1984 1995
Holiday Inn
Select - Farmers
Branch
Farmers Branch
(Dallas),
Texas........... 1979 1995
Holiday Inn
Westlake
Beachwood,
Ohio............ 1980 1997
Holiday Inn
Brentwood
Brentwood,
Tennessee....... 1989 1998
Holiday Inn
San Francisco,
California...... 1964 1997
Redmont Hotel
Birmingham,
Alabama 1925 1997
Omni Inner
Harbour Hotel
Baltimore,
Maryland........ 1968 1997
Radisson
Burlington
Burlington,
Vermont......... 1975 1998
Radisson Hotel &
Suites
Dallas, Texas... 1986 1995
Radisson
Englewood
Englewood, New
Jersey.......... 1989 1998
Radisson Suite
Hotel
Kansas City,
Kansas.......... 1931 1995
Radisson Hotel
Lisle,
Illinois........ 1987 1998
Radisson New
Orleans Hotel
New Orleans,
Louisiana....... 1924 1997
</TABLE>
F-67
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ------------------ ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Radisson
Northbrook
Northbrook,
Illinois........ -- 1,437 10,968 16 305 1,453 11,273 12,726 626
Radisson
Overland Park
Overland Park,
Kansas.......... -- 1,296 5,377 14 578 1,310 5,955 7,265 312
Radisson
Riverwalk
Jacksonville,
Florida......... -- 2,400 16,965 (388) 486 2,012 17,451 19,463 661
Radisson Plaza
Hotel San Jose
Airport
San Jose,
California...... -- 1,438 40,474 -- -- 1,438 40,474 41,912 626
Radisson Suites
Town & Country
Houston, Texas.. -- 655 9,725 7 195 662 9,920 10,582 917
Radisson Hotel
Beachwood,
Ohio............ 5,593 2,226 11,129 -- 313 2,226 11,442 13,668 477
Radisson Hotel
Akron, Ohio..... -- 1,136 5,678 -- 131 1,136 5,809 6,945 244
Ramada Hotel
San Francisco,
California...... -- -- 15,853 -- 146 -- 15,999 15,999 646
Sheraton Four
Points
Blacksburg,
Virginia........ -- 470 16,651 -- 10 470 16,661 17,131 258
Sheraton Four
Points
Saginaw,
Michigan........ -- 773 6,451 8 310 781 6,761 7,542 617
WestCoast Hotel
& Marina
Long Beach,
California...... -- -- 3,145 -- 1,544 -- 4,689 4,689 332
WestCoast Valley
River Inn
Eugene, Oregon.. -- 1,754 15,839 19 1,055 1,773 16,894 18,667 1,097
Fort Magruder
Inn and
Conference
Center
Williamsburg,
Virginia........ -- 2,192 22,499 -- 4 2,192 22,503 24,695 348
Pickwick Hotel
San Francisco,
California...... -- 2,000 11,922 22 5,314 2,022 17,236 19,258 824
Park Shore
Honolulu
Honolulu,
Hawaii.......... -- -- 24,339 -- 560 -- 24,899 24,899 941
Limited Service
Hotels:
Hampton Inn
Canton, Ohio.... -- 350 4,315 3 351 353 4,666 5,019 422
Hampton Inn
Rochester, New
York............ -- 104 7,829 2 340 106 8,169 8,275 743
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Radisson
Northbrook
Northbrook,
Illinois........ 1976 1995
Radisson
Overland Park
Overland Park,
Kansas.......... 1974 1997
Radisson
Riverwalk
Jacksonville,
Florida......... 1979 1997
Radisson Plaza
Hotel San Jose
Airport
San Jose,
California...... 1985 1998
Radisson Suites
Town & Country
Houston, Texas.. 1986 1995
Radisson Hotel
Beachwood,
Ohio............ 1968 1997
Radisson Hotel
Akron, Ohio..... 1989 1997
Ramada Hotel
San Francisco,
California...... 1962 1997
Sheraton Four
Points
Blacksburg,
Virginia........ 1971 1998
Sheraton Four
Points
Saginaw,
Michigan........ 1984 1995
WestCoast Hotel
& Marina
Long Beach,
California...... 1978 1996
WestCoast Valley
River Inn
Eugene, Oregon.. 1973 1996
Fort Magruder
Inn and
Conference
Center
Williamsburg,
Virginia........ 1975 1998
Pickwick Hotel
San Francisco,
California...... 1928 1996
Park Shore
Honolulu
Honolulu,
Hawaii.......... 1968 1997
Limited Service
Hotels:
Hampton Inn
Canton, Ohio.... 1985 1995
Hampton Inn
Rochester, New
York............ 1986 1995
</TABLE>
F-68
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
---------------------- -------------------- ---------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ -------- ------------- ------- ------------ -------- ------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn
Cleveland
Airport
North Olmsted,
Ohio............ -- 236 5,483 2 412 238 5,895 6,133 531
Hampton Inn
Jacksonville
Airport
Jacksonville,
Florida......... -- 285 4,355 4 159 289 4,514 4,803 415
Arcadian Hotels:
Arcadian--
Brandschatch
Brandschatch-
Place, United
Kingdom......... (j) 830 6,907 2 56 832 6,963 7,795 165
Arcadian--
Chilston Park
Chilston Park,
United Kingdom.. (j) 581 7,701 1 135 582 7,836 8,418 184
Arcadian--
Ettington Park
Ettington Park,
United Kingdom.. (j) 1,411 10,782 3 41 1,414 10,823 12,237 256
Arcadian--
Haycock
Haycock, United
Kingdom......... (j) 1,660 9,937 4 86 1,664 10,023 11,687 237
Arcadian--
L'Horizon
L'Horizon,
United Kingdom.. (j) 3,320 18,678 7 47 3,327 18,725 22,052 443
Arcadian--
Mollington
Banastre
Mollington
Banastre, United
Kingdom......... (j) 1,245 9,504 3 113 1,248 9,617 10,865 227
Arcadian--
Nutfield Priory
Nutfield Priory,
United Kingdom.. (j) 2,075 18,900 5 125 2,080 19,025 21,105 450
Arcadian--Priest
House
Priest House,
United Kingdom.. (j) 664 6,559 1 23 665 6,582 7,247 156
Arcadian--
Rookery Hall
Rookery Hall,
United Kingdom.. (j) 830 4,777 2 30 832 4,807 5,639 114
Arcadian--Wood
Hall
Wood Hall,
United Kingdom.. (j) 747 4,364 2 10 749 4,374 5,123 103
Arcadian--
Woodlands Park
Woodlands Park,
United Kingdom.. (j) 2,075 11,437 5 91 2,080 11,528 13,608 272
Other:
Bay Meadows
Racecourse
San Mateo
California (g).. -- -- 15,052 2,340 6,813 2,340 21,865 24,205 3,497
Golden Door Spa
Escondido,
California...... 6,000 5,800 3,000 -- -- 5,800 3,000 8,800 46
-------- -------- ---------- ------- -------- -------- ---------- ---------- --------
$609,048 $375,209 $3,961,539 $ 3,925 $124,073 $379,134 $4,085,612 $4,464,746 $130,211
======== ======== ========== ======= ======== ======== ========== ========== ========
<CAPTION>
Year Date of
Description Built Acquisition
----------- -------- -----------
<S> <C> <C>
Hampton Inn
Cleveland
Airport
North Olmsted,
Ohio............ 1986 1995
Hampton Inn
Jacksonville
Airport
Jacksonville,
Florida......... 1985 1995
Arcadian Hotels:
Arcadian--
Brandschatch
Brandschatch-
Place, United
Kingdom......... 1980 (f) 1998
Arcadian--
Chilston Park
Chilston Park,
United Kingdom.. 1985 (f) 1998
Arcadian--
Ettington Park
Ettington Park,
United Kingdom.. 1984 (f) 1998
Arcadian--
Haycock
Haycock, United
Kingdom......... 1632 (f) 1998
Arcadian--
L'Horizon
L'Horizon,
United Kingdom.. 1954 (f) 1998
Arcadian--
Mollington
Banastre
Mollington
Banastre, United
Kingdom......... 1953 (f) 1998
Arcadian--
Nutfield Priory
Nutfield Priory,
United Kingdom.. 1988 (f) 1998
Arcadian--Priest
House
Priest House,
United Kingdom.. (f) 1998
Arcadian--
Rookery Hall
Rookery Hall,
United Kingdom.. 1960 (f) 1998
Arcadian--Wood
Hall
Wood Hall,
United Kingdom.. 1988 (f) 1998
Arcadian--
Woodlands Park
Woodlands Park,
United Kingdom.. 1988 (f) 1998
Other:
Bay Meadows
Racecourse
San Mateo
California (g).. 1934 1997
Golden Door Spa
Escondido,
California...... 1954 1998
</TABLE>
F-69
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO SCHEDULE III
(in thousands)
<TABLE>
<CAPTION>
Period
October 2,
Year Ended Year Ended Year Ended 1995 through
December 31, December 31, December 31, December 31,
1998 1997 1997 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(a) Reconciliation of Real
Estate
Balance at beginning of
period................. $1,863,568 $ 597,494 $242,132 $ --
Additions during this
period:
Acquisitions.......... 2,473,180 1,209,052 342,557 242,132
Improvements.......... 127,998 57,022 12,805 --
---------- ---------- -------- --------
Balance at end of
period................. $4,464,746 $1,863,568 $597,494 $242,132
========== ========== ======== ========
(b)Reconciliation of
Accumulated
Depreciation:
Balance at beginning of
period................. $ 41,041 $ 12,048 $ 1,508 $ --
Depreciation for
period............... 89,170 28,993 10,540 1,508
---------- ---------- -------- --------
Balance at end of
period................. $ 130,211 $ 41,041 $ 12,048 $ 1,508
========== ========== ======== ========
</TABLE>
(c) Depreciation is computed on buildings and improvements based upon a useful
life of 35 years.
(d) Hotel sold in March 1999.
(e) Hotel under development expected to open in 1999.
(f) Year built represents first date operated as a hotel.
(g) Racetrack sold February 1999.
(h) Hotel is encumbered by a capital lease obligation of $4,531.
(i) Hotels encumbered by debt obligations of $27,037 which is secured by 4
hotels and one under development.
(j) Hotels encumbered by obligations totaling $97,140 which is secured by 11
hotels an one under development.
F-70
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
As of December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Principal
Amount of
Loans
Subject to
Face Carrying Delinquent
Interest Periodic Payment Prior Amount of Amount of Principal or
Description Rate Maturity Date Terms Liens Mortgages Mortgages (a) Interest
----------- -------- --------------- ------------------------ ------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Promissory note,
collateralized by a 10.25% January 1, 2000 Monthly payments of None $36,000 $36,000 None
first lien deed of trust interest only are
on the Crown Plaza required. Principal
Ravinia Hotel........... payable in full at
maturity
Promissory note,
collateralized by a
second lien deed of 12.5% January 1, 2000 Monthly payments of $36,000 4,500 4,500 None
trust on the Crowne interest only are
Plaza Ravinia Hotel..... required. Principal
payable in full at
maturity
Promissory note,
collateralized by a 9.0% August 31, 1999 Monthly payments of None 31,400 31,102 None
first lien deed of trust interest only are
on the Wyndham Wind required. Principal
Watch Hotel............. payable in full at
maturity
------- -------
$71,900 $71,602
======= =======
</TABLE>
- ----
(a)Reconciliation of Mortgage Loans on Real Estate:
<TABLE>
<CAPTION>
Period
October 2, 1995
Year Ended Year Ended Year Ended Through
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Balance at beginning of
period.................. $71,602 $71,602 $40,500 $ --
New mortgage loans...... -- -- 31,400 40,500
Principal payments re-
ceived.................. -- -- (298) --
------- ------- ------- -------
Balance at end of peri-
od...................... $71,602 $71,602 $71,602 $40,500
======= ======= ======= =======
</TABLE>
For federal income tax purposes, the aggregate cost of investments in
mortgage loans on real estate is the carrying amount as disclosed in the
schedule.
F-71
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
(in thousands)
<TABLE>
<CAPTION>
Year Year Year Inception
Ended Ended Ended Through
12/31/98 12/31/97 12/31/96 12/31/95
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Earnings:
Income before minority interest........ (112,508) $ 4,142 $44,813 $7,064
Add back: fixed charges................ 272,215 53,093 7,471 89
--------- ------- ------- ------
$ 159,707 $57,235 $52,284 $7,153
========= ======= ======= ======
Fixed Charges:
Interest expense, including
amortization of deferred loan costs... 260,103 $50,531 $ 7,380 $ 89
Capitalized interest................... 12,112 2,562 91 --
--------- ------- ------- ------
$ 272,215 $53,093 $ 7,471 $ 89
========= ======= ======= ======
Ratio: 0.59 1.08 7.00 80.37
========= ======= ======= ======
</TABLE>
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of Patriot American Hospitality, Inc.
1500 Canal Street Investors II, L.P. DE
Al Jarafe Golf SA Spain
Albuquerque C.I. Associates, L.P. KS
Ambassador Hotels, Ltd. England & Wales
Arcadian Group/Services, Ltd. England & Wales
Arcadian (UK) Developments Ltd. England & Wales
Arcadian Hotels (Italy) Limited England & Wales
Arcadian Hotels (UK) Limited England & Wales
Arcadian International Limited England & Wales
Arcadian International Resorts, Ltd. England & Wales
Atlanta C. I. Associates II, L.P. KS
Boulders Joint Venture AZ
Bourbon Orleans Investors II, L.P. DE
C.I. General, L.L.C. KS
C.I. Holding, L.L.C. KS
C.I. Wichita General, L.L.C. KS
Cambridge Hotel Associates PA
Casa Marina Realty Corporation DE
Casa Marina Realty Partnership, L.P. DE
Chicago-ES Holding Corp. DE
Chicago-ES, LLC DE
Chicago-ES Member Corp. DE
Chilston Park Hotel Limited England & Wales
CHMB, Inc. TX
CHR Consulting Company, L.L.C. DE
CHR Services Company, L.L.C. DE
Clipper Hotels, Ltd. England & Wales
Clubhouse Inns of America, Inc. KS
Colony de Mexico, S.A. de C.V. Mexico
Colony Hotels and Resorts Company DE
Colony International Management Company, L.L.C. DE
Continental Design & Supplies Company, L.L.C. DE
Crossroads Development Company DE
Crossroads Future Company, L.L.C. DE
Crossroads Hospitality Company, L.L.C. DE
Crossroads Hospitality Tenant Company, L.L.C. DE
Crossroads/Memphis Company, L.L.C. DE
Crossroads/Memphis Financing Company, L.L.C. DE
Crossroads/Memphis Financing Corporation DE
Crossroads/Memphis Partnership, L.P. DE
CV Ranch L.P. DE
DFW/H&R, Inc. TX
Don CeSar Holdings, LLC DE
Equity Bluefield, Inc. WV
Ettington Park Group Ltd. England & Wales
Ettington Park Ltd England & Wales
European New Timeshare Limited England & Wales
Fattoria Villa Saletta Srl. Italy
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GHALP GP, Inc. DE
GHMB, Inc. TX
Glenview Hospitality, L.P. DE
Hilltop Equipment Leasing Company, L.P. DE
HMG Beverage, Inc. TX
Host/Interstate Partnership, L.P. DE
Hotel Del Coronado Management Corporation DE
Hotel L'Horison Limited Jersey
IHC/Capital Corporation DE
IHC/Chaz Corporation DE
IHC/Conshohocken Partnership, L.P. DE
IHC/Denver Partnership, L.P. DE
IHC II, LLC DE
IHC/Jacksonville Corporation DE
IHC/Maryville Hotel Corporation DE
IHC Member Corporation DE
IHC/Miami Beach Corporation DE
IHC Miami Mortgage Corporation DE
IHC/Moscow Corporation DE
IHC/Park West Corporation DE
IHC/Pittsburgh Partnership, L.P. DE
IHC/Reach Corporation DE
IHC Realty Corporation DE
IHC Realty Partnership, L.P. DE
IHC/Santa Maria Corporation DE
IHC Services Company, L.L.C. DE
IHC/Texas Corporation DE
IHP/Class B Partnership, L.P. DE
IHP Investment Company, L.L.C. DE
Interstate Hotels, LLC DE
Interstate Hotels Management, Inc. MD
INTMB, Inc. DE
Kansas City Hospitality, L.P. DE
Knoxville C.I. Associates, L.P. TN
Malmaison (ELL) Limited Scotland
Malmaison Brand Ltd. Scotland
Malmaison Limited England & Wales
Malmaison Management Ltd. England & Wales
Marina Hospitality, L.P. DE
Marquis Hotel Associates (joint venture) PA
Maryville Centre CBM Joint Venture MO
MBAH, Inc. TX
Melbourne Hospitality, L.P. DE
Mentomore Golf & Country Club Plc England & Wales
Mollington Banastre Hotel Limited England & Wales
Northridge Holdings, Inc. DE
Northridge Insurance Company Cayman Islands
O-H Acquisition, Inc. DE
Oak Hill Catering Company, Inc. WV
Omaha C.I. Associates, L.P. KS
Orange Hotel Development Limited Partnership DE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Overland Park C.I. Associates, L.P. KS
PA Hunt Valley Investors, L.P. VA
PA Troy Hospitality Investors, L.P. DE
Pagle Limited England & Wales
PAH Acquisition Corporation DE
PAH Allen Operating Corporation DE
PAH Batterymarch Realty Company, LLC DE
PAH Deuce GP, LLC DE
PAH GP, Inc. DE
PAH LP, Inc. DE
PAH River House, L.P. DE
PAH Ventana Canyon, L.P. DE
PAH-Buttes L.L.C. DE
PAH-BV Holding Corp. DE
PAH-BV Palace Corp. DE
PAH-BV Palace, L.P. DE
PAH-Carefree, L.P. DE
PAH-CI Holding, LLC DE
PAH-Columbus Holding, Inc. DE
PAH-Crossroads Holdings, Inc. DE
PAH-DT Chicago O'Hare Partners, L.P. DE
PAH-Franchise Holding, Inc. DE
PAH FF&E Holding, Inc. DE
PAHG FF&E Holding, Inc. DE
PAH-GBM, LLC DE
PAH-GP Allen Partners, L.P. DE
PAH-Grand Bay Miami, L.P. DE
PAH-HVP General Partner Corp. DE
PAH-HVP Holding Corp. DE
PAH-Interest Holding, Inc. DE
PAH-Interstate Holdings, Inc. DE
PAH-Interstate Member, Inc. DE
PAH-IP Holding, Inc. DE
PAHP FF&E Holding, Inc. DE
PAH-Pittsburgh CI Holding, Inc. DE
PAH-Real Estate Member, Inc. DE
PAH-RH, LLC DE
PAH-Summerfield Holding Corp. DE
PAH-T, LLC DE
PAH-Tampa, L.P. DE
PAH-Westmont CI Holding, Inc. DE
PAH-WMC Holding, Inc. DE
PAH-Xerxes Holding, Inc. DE
Patriot American UK Limited England & Wales
Patriot Bougainvillea, LLC DE
Patriot Land Holding LLC DE
Patriot Miami Note Holder, L.P. DE
Patriot Racetrack Land LLC DE
Pittsburgh C.I., Inc. KS
PSMB, Inc. CA
PW Land Associates Limited Partnership PA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Resorts Limited Partnership DE
Resorts Limited Partnership II DE
Richardson C.I. Associates, L.P. TX
Rose Hall Associates Limited Partnership TX
Santa Maria Joint Venture DE
Savannah C.I. Associates, L.P. GA
St. Louis C.I. Associates, L.P. MO
State College BBQ/Concord Joint Venture DE
Summerfield Hotel Leasing Corporation KS
Syracuse Associates Corporation DE
Telluride Resort and Spa L.P. DE
The Malmaison Company (Edinburgh) Ltd. England & Wales
The Malmaison Hotel (Glasgow) Ltd Scotland
The Malmaison Hotel (Leeds) Ltd. England & Wales
The Malmaison Hotel (Manchester) Ltd. England & Wales
The Malmaison Hotel (Newcastle) Ltd. England & Wales
Tillian Limited England & Wales
Toledo Hotel Investors, L.P. DE
Topeka C. I. Associates, L.P. KS
W-Greenspoint Holding Corp. DE
W-Greenspoint, L.P. DE
W-Greenspoint Member Corp. DE
W&C Estates Ltd. England & Wales
Water Street Hotel, Ltd. DE
Waterfront Management Corporation DE
WG Member, LLC DE
WH Garden Albuquerque Inc. TX
WH Interest, Inc. TX
WHC Atlanta GP, LLC DE
WHC Caribbean, Ltd. Jamaica
WHC Chicago, LLC DE
WHC Columbus Corporation DE
WHC Finance, L.P. DE
WHC Franchise Corporation DE
WHCMB, Inc. DE
WHCMB Overland Park, Inc. KS
WHCMB Toronto, Inc. Canada
WHCMB Utah Private Club Corporation (Utah non-profit corporation) UT
Wichita C.I. Associates III, L.P. KS
Wyndham Hotels & Resorts (Aruba) N.V. Aruba
Wyndham Hotels & Resorts Management, Ltd. Bermuda
Wyndham HPT Lessee, L.P. DE
Wyndham HPT Lessee LLC DE
Wyndham IP Corporation DE
Wyndham Management Corporation DE
Wyndham Peachtree Holding Corp. DE
Wyndham Peachtree LLC DE
Wyndham Peachtree Member Corp. DE
Wyndham Peachtree Member, LLC DE
Xerxes Limited Jamaica
YO Hotel Investors, L.P. DE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PAH-Crossroads Lessee, Inc. DE
W& CP (Exeter) Limited England & Wales
</TABLE>
<PAGE>
Subsidiaries of Wyndham International, Inc.
<TABLE>
<CAPTION>
<S> <C>
Arcadian Groups Services Limited England & Wales
Arcadian Hotels Limited England & Wales
Bay Meadows Catering, Inc. CA
Bay Meadows Operating Company LLC DE
BJV Realty, Inc. AZ
Boulders Carefree Sewer Corporation AZ
Burrllen Enterprises of Maryland MD
CFMB, Inc. DE
C.I. Albuquerque Lessee GP, LLC DE
C.I. Albuquerque Lessee, L.P. DE
C.I. Atlanta Lessee, L.P. DE
C.I. Knoxville Lessee, L.P. DE
C.I. Lessee GP, Inc. DE
C.I. Omaha Lessee, L.P. DE
C.I. Overland Park Lessee, L.P. DE
C.I. Wichita Lessee, L.P. DE
Carefree Management LLC DE
Carnicon Holdings Corp. FL
Carnicon Puerto La Cruz Venezuela
Carnicon Venezuela Hotel Consultants LC Venezuela
Centralized Operations, Inc. AZ
CHC Biscayne Blvd. Inc. FL
CHC Hotels & Resorts Corp. FL
CHC Lease Partners FL
CHC REIT Lessee Corp. FL
Conquistador Holding, Inc. DE
Criterion Hotel Management Corp. FL
Criterion NY Inc. FL
CSMC Kalamazoo, Inc. MI
Deuce Management Company LLC TX
El Conquistador Ferryboat, Inc. Puerto Rico
El Conquistador Partnership L.P. DE
El San Juan Holding, Inc. DE
ESC Greenspoint Holding Corp. DE
ESC Greenspoint Lessee, L.P. DE
ESC Greenspoint Member Corp. DE
ESC Greenspoint Member, LLC DE
ESJ Hotel Corporation DE
Family Suites Corporation DE
Family Suites Limited Partnership DE
Family Suites Management Corporation DE
Family Suites Management Partnership, L.P. DE
FS Development Corporation DE
GAH-II Corporation DE
GAH-II, L.P. DE
GB Hotel Management de Mexico S. de RL de C.V. Mexico
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GH (Cayman) Limited Cayman Islands
GH-Atlanta, LLC MD
GH-Chicago, Inc. IL
GH-Detroit, Inc. MI
GH-Greeneville, Inc. TN
GH-Providence, Inc. RI
GH Trademarks LLC MD
GH-Wichita, Inc. KS
GH-San Diego, Inc. DE
GHALP Operating GP, Inc. DE
GHALP Operating Partnership, L.P. DE
GHV-Colorado, Inc. CO
GHV-Galveston, Inc. TX
Grand Bay Management Company FL
Grand Heritage Hotels (Europe) Limited United Kingdom
Grand Heritage Hotels, Inc. MD
Grand Heritage Leasing, LLC MD
Grand Heritage Real Estate Group LLC MD
Grand Management Services, Inc. FL
IHC/Burlington Corporation VT
IHC/FS Development Corporation DE
IHC/Houston Partnership, L.P. DE
IHC/Interstone Partnership II, L.P. DE
IHC/Jamaica Corporation DE
IHC Title Agency Corporation DE
Interstone Three Partners I L.P. DE
Interstone Three Partners II L.P. DE
Interstone Three Partners III L.P. DE
Interstone Three Partners IV L.P. DE
Isla Verde Tourism Parking Corporation Puerto Rico
Malmaison Hotels Limited England & Wales
Malmaison Resources Limited England & Wales
P.H.G., LLC MD
PAH Batterymarch Operating Company, LLC DE
PAH GAH Holdings, LLC DE
PAH GAH Holdings, L.P. DE
PAH Leasing LLC DE
PAH Stanly Ranch LLC DE
PAH Stanly Holding LLC DE
PAH-Cambridge Holdings, LLC DE
PAH-Hilltop GP, LLC DE
PAH-Interstone, LLC DE
PAH-Management Corporation DE
PAH-Member, Inc. DE
PAH-Pittsburgh, LLC DE
PAH-Summerfield Leasing, Inc. DE
PAH-Summerfield LLC DE
PAHMB, Inc. TX
Patriot Bougainvillea Development Company, LLC DE
Patriot Grand Heritage, LLC DE
Patriot Holding LLC DE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> ` <C>
Posadas de Puerto Rico Associates, Incorporated DE
Posadas de Regency, Inc. DE
Posadas de San Juan Associates (New York joint venture) NY
Posadas Finance Corporation DE
PWMB, Inc. DE
PWMB of Maryland, Inc. MD
Salt Lake City Operating GP, Inc. DE
Salt Lake City Operating Partnership, L.P. DE
SFMB, Inc. DE
Sierra Suites Marketing Association KS
Summerfield Hotel Corporation DE
Summerfield Hotel Leasing Company, L.P. KS
Summerfield HPT Lease Company, L.L.C. DE
Summerfield HPT Lease Company, L.P. KS
Summerfield Suites Marketing Association DE
TCC Maturin, C.A. Venezuela
TCC Venezuela, L.C. Venezuela
The Reserve Collection Boulders LLC DE
The Reserve Collection Peaks LLC DE
W-SSH, LLC DE
WHG El Con Corp. DE
WHG Resorts & Casinos Inc. DE
Williams Hospitality Group Inc. DE
WKA Development S.E. Puerto Rico
WKA El Con Associates NY
WMC II, LLC DE
Wyndham Management II, LLC DE
Wyndham Peachtree Lessee Holding Corp. DE
Wyndham Peachtree Lessee LLC DE
Wyndham Peachtree Lessee Member, LLC DE
Wyndham Peachtree Lessee Member Corp. DE
Wyndham SN Lessee Corp. DE
Wyndham SN Lessee, L.P. DE
Wyndham Summerfield Lessee, L.P. DE
Wyndham Summerfield Lessee, LLC DE
Clipper Inns Limited England & Wales
CHC REIT Management Corp. FL
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the (a) Joint Registration
Statement on Form S-4 (File No. 333-39875 and No. 333-39875-01) of Patriot
American Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot
American Hospitality Operating Company), (b) Joint Registration Statement on
Form S-4 (File No. 333-40041 and No. 333-40041-01) of Patriot American
Hospitality, Inc. and Wyndham International Inc. (formerly Patriot American
Hospitality Operating Company), (c) Joint Registration Statement on Form S-3
(File No. 333-46353 and No. 333-46353-01) and related Prospectus of Patriot
American Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot
American Hospitality Operating Company), (d) Joint Registration Statement on
Form S-3 (File No. 333-51289 and No. 333-51289-01) and related Prospectus of
Patriot American Hospitality, Inc. and Wyndham International, Inc., (e) Joint
Registration Statement on Form S-3 (File No. 333-51779 and No. 333-51779-01)
and related Prospectus of Patriot American Hospitality, Inc. and Wyndham
International, Inc., (f) Joint Registration Statement on Form S-8 (File No.
333-56315 and No. 333-56315-01) of Patriot American Hospitality, Inc. and
Wyndham International, Inc., (g) Joint Registration Statement on Form S-3
(File No. 333-58705 and No. 333-58705-01) and related Prospectus of Patriot
American Hospitality, Inc. and Wyndham International, Inc., (h) Joint
Registration Statement on Form S-3 (File No. 333-64357 and No. 333-64357-01)
and related Prospectus of Patriot American Hospitality, Inc. and Wyndham
International, Inc., and (i) Joint Registration Statement on Form S-3 (File
No. 333-65339 and No. 333-65339-01) and related Prospectus of Patriot American
Hospitality, Inc. and Wyndham International, Inc. of our report dated March 1,
1999, with respect to the financial statements and schedules of Patriot
American Hospitality, Inc. and Wyndham International, Inc. included in this
Form 10-K for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Dallas, Texas
March 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0000016343
<NAME> PATRIOT AMERICAN HOSPITALITY, INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 89,885 20,360
<SECURITIES> 0 0
<RECEIVABLES> 8,589 14,458
<ALLOWANCES> 0 0
<INVENTORY> 0 1,306
<CURRENT-ASSETS> 0 0
<PP&E> 5,176,977 2,083,768
<DEPRECIATION> 216,548 67,501
<TOTAL-ASSETS> 6,749,206 2,321,105
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
54 0
<COMMON> 2,135 733
<OTHER-SE> 2,466,670 908,294
<TOTAL-LIABILITY-AND-EQUITY> 6,749,206 2,321,105
<SALES> 0 0
<TOTAL-REVENUES> 595,410 185,554
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 390,335 136,800
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 245,205 51,000
<INCOME-PRETAX> (3,404) 3,769
<INCOME-TAX> (2,742) 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> (30,560) (2,534)
<CHANGES> 0 0
<NET-INCOME> (44,888) (2,152)
<EPS-PRIMARY> (.52) (.03)
<EPS-DILUTED> (1.73) (.03)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0000715273
<NAME> Wyndham International, Inc.
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JUL-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 69,069 27,076
<SECURITIES> 0 0
<RECEIVABLES> 185,994 46,340
<ALLOWANCES> 0 0
<INVENTORY> 23,583 9,144
<CURRENT-ASSETS> 325,950 100,662
<PP&E> 662,135 29,686
<DEPRECIATION> 36,032 1,304
<TOTAL-ASSETS> 2,006,821 252,088
<CURRENT-LIABILITIES> 602,494 115,656
<BONDS> 0 0
0 0
36 0
<COMMON> 2,135 733
<OTHER-SE> 132,923 80,132
<TOTAL-LIABILITY-AND-EQUITY> 2,006,821 252,088
<SALES> 1,842,682 167,727
<TOTAL-REVENUES> 2,002,227 204,134
<CGS> 0 0
<TOTAL-COSTS> 1,294,746 142,562
<OTHER-EXPENSES> 752,751 60,266
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 35,690 933
<INCOME-PRETAX> 77,826 373
<INCOME-TAX> (14,381) (481)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> (1,257) 0
<CHANGES> 0 0
<NET-INCOME> (112,419) (20)
<EPS-PRIMARY> (.84) 0
<EPS-DILUTED> (.84) 0
</TABLE>
<PAGE>
EXHIBIT 99.1
February 28, 1999
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn.: William W. Evans III
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75201
Attn.: Leslie Ng
Ladies and Gentlemen:
Reference is made to (i) that certain letter agreement (the "Standstill
Agreement") dated December 14, 1998 between Patriot American Hospitality, Inc.
and Wyndham International, Inc. (collectively, the "Companies") and UBS AG,
London Branch (acting through its agent Warburg Dillon Read LLC, "UBS-LB"), (ii)
that certain letter agreement dated December 22, 1998 between the Companies and
UBS-LB (the "Initial Standstill Period Implementation Letter"), (iii) that
certain letter agreement dated January 4, 1999 delivered to the Companies by
UBS-LB (the "Standstill Period Acknowledgment Letter"), (iv) that certain
letter agreement dated December January 29, 1999 between the Companies and
UBS-LB (the "Standstill Period Extension Letter") and (v) the Forward Agreement
and the Purchase Agreement (each as defined in the Standstill Agreement).
Capitalized terms not otherwise defined herein shall have the respective
meanings ascribed to them under the Forward Agreement or the Standstill
Agreement, as the context shall require.
In consideration of the mutual covenants contained herein and in the agreements
referred to above and other good and valuable consideration, the parties hereto
agree as follows:
1. Subject to the satisfaction of the Standstill Extension Conditions as set
forth and defined in paragraph 2 below, Section 7 of the Standstill Agreement is
amended such that the term "February 15, 1999" is replaced by the term "June 30,
1999" (the "Second Standstill Period Extension").
2. The Second Standstill Period Extension contemplated herein shall not be
effective unless on or before March 1, 1999, all of the following conditions are
satisfied (the "Standstill Extension Conditions"):
<PAGE>
a) An Acceptable Definitive Agreement shall have been entered into and shall
be in full force and effect as of February 28, 1999. The Companies represent
and covenant on a continuing basis that none of the transactions contemplated by
(i) the Securities Purchase Agreement dated February 18, 1999 by and among the
Investors named therein (the "Definitive Agreement"), (ii) the $1,800,000,000
Senior Credit Facilities Commitment Letter dated February 19, 1999 between the
Companies and Chase Securities Inc. or (iii) the $650,000,000 Increasing Rate
Loan Facility Commitment Letter by and among the Companies and Chase Securities
Inc. and Bear, Stearns & Co. Inc., or any transactions similar to any of such
transactions (including without limitation any transactions identified on a
schedule or exhibit to the Definitive Agreement), will be consummated, and that
the Companies do not intend to consummate any of such transactions, without
completing, on or before June 30, 1999, Item #14 of Exhibit A to the SPA (which
provides that a final settlement of the Forward Agreement will be immediately
effected with the proceeds from the sale of Shares on the Closing Date upon the
receipt of such proceeds, all as contemplated therein). In addition to all of
the provisions relating to the termination of the Standstill Period, including
without limitation the provisions contained in paragraph (4) herein, the
amendment contemplated by paragraph (1) herein shall be void and without effect
if at any time such representation and covenant is or becomes untrue or is
otherwise breached. In reliance thereon, UBS-LB hereby acknowledges on the date
hereof that the Securities Purchase Agreement, dated as of February 18, 1999
(the "Definitive Agreement"), is an Acceptable Definitive Agreement.
b) The Lenders shall have acknowledged that the Subsequent Maturity Extension
Conditions have been satisfied, all within the meaning and for the purposes of
the Amendment and Restatement as such was set forth in the 8-K issued by the
Companies dated January 29, 1999 (the "Amendment and Restatement") and a waiver
of the failure of the Companies to have met such Subsequent Maturity Extension
Conditions on or prior to February 15, 1999 shall be in full force and effect on
the date hereof.
c) Both NationsBank and PaineWebber, in their respective capacities as
counterparties to the Companies with respect to the Companies' other forward
equity transactions, shall have executed standstill agreements (or amendments
thereto) in form and substance reasonably satisfactory to UBS covering the
period beginning February 15, 1999, and ending on June 30, 1999 (both dates
inclusive), and such agreements shall be in full force and effect on the date
hereof.
"Acceptable Definitive Agreement" means a definitive agreement subject only to
customary closing conditions, reasonably satisfactory to UBS-LB, between the
Companies and one or more parties (the "Other Parties") to consummate a
transaction that specifically provides for a Timely Forward Take-Out. A Timely
Forward Take-Out means a complete Physical Settlement of all of the Underlying
Shares (i.e., cash in an amount equal to the Settlement Amount plus any other
amounts that may be owed under the Forward Agreement) with the proceeds of such
transaction in a manner reasonably satisfactory to UBS-LB, not later than the
earlier of (a) June 30, 1999 or (b) the closing of such transaction.
3. For the avoidance of doubt, the Standstill Period will continue to be
subject to immediate termination under the terms and conditions of the
Standstill Agreement, including without
-2-
<PAGE>
limitation the termination provisions contained in Section 8 therein. Such
termination provisions include Defaults under the Credit Agreement, so that any
termination of the Waiver Period under Section 9 of the Amendment and
Restatement shall immediately cause a termination of the Standstill Period.
4. In addition to the termination events referred to in paragraph 3 above, the
Standstill Period shall immediately terminate:
(i) upon the termination of the Definitive Agreement described in
Section 2(a) hereof or if the Companies or any Other Parties shall have publicly
announced an intention not to proceed with the transaction contemplated therein
or have publicly announced an intention to pursue a substitute transaction that
does not provide for a Timely Forward Take-Out, unless the Companies shall at
the time of such termination or announcement have already entered into a new
agreement meeting the requirements of an Acceptable Definitive Agreement (a
"Replacement Definitive Agreement").
(ii) if at any time the Definitive Agreement or any Replacement
Definitive Agreement no longer meets, whether by amendment, waiver or otherwise,
the requirements of an Acceptable Definitive Agreement (including without
limitation any amendments or waivers that make it less than certain that the
Forward Agreement will be completely cash settled with the proceeds of the
transaction concurrently with the closing of the transaction or are otherwise
materially adverse to UBS-LB),
(iii) if the Companies fail to obtain shareholder approval for the
Definitive Agreement or any Replacement Definitive Agreement at a meeting called
for that purpose or
(iv) either (a) when it has become reasonably certain and, in addition, 2
Business Days have elapsed since UBS-LB has provided written notice to the
Companies that it believes that it has become reasonably certain or (b) upon
written notice from the Companies to UBS-LB of any event that makes it
reasonably certain (which notice the Companies shall be obligated to provide),
in both cases that one or more of the conditions precedent to the closing of the
Definitive Agreement (or the Replacement Definitive Agreement, as the case may
be) will not be satisfied on or prior to June 30, 1999 (unless such condition
precedent or condition precedents have already been waived).
5. For the avoidance of doubt, the Companies acknowledge that they are
obligated to reimburse UBS-LB for all reasonable fees and expenses of legal
counsel arising from the transaction contemplated by the Forward Agreement
(including without limitation the preparation and negotiation of all of the
letters and agreements referred to in the first paragraph of this letter
agreement and all of the letters and agreements referred to in such letters and
agreements), whenever incurred, other than the preparation, negotiation and
closing of the Purchase Agreement and the Forward Agreement.
6. For the avoidance of doubt, the Companies acknowledge that (i) they will
continue to deliver Paired Shares to UBS-LB as required under the Forward
Agreement so that the value of all of the Paired Shares held as collateral on
any Interim Settlement Date (as measured by the
-3-
<PAGE>
closing price on such date) shall be no less than 125% of the Settlement Amount
on such date, (ii) every Wednesday shall be an Interim Settlement Date and that
the Companies shall deliver the requisite number of Paired Shares on the Friday
immediately following such Wednesday, (iii) the Companies shall cure any
discrepancy no later than the Business Day immediately following receipt of
written notification of such discrepancy by UBS-LB and (iv) failure to meet any
of the requirements of this paragraph shall result in an immediate termination
of the Standstill Period.
7. For the avoidance of doubt, at any time that the Standstill Period or a
successor standstill period is not in effect (whether by termination or by
expiration or otherwise), the Companies will pay a penalty for each Exchange
Trading Day that UBS-LB is prevented from selling Paired Shares either because a
black-out has been imposed by the Companies or because such Paired Shares are
not the subject of an effective registration statement (such penalty, a "Daily
Black-Out Penalty" and any such Exchange Trading Day, a "Penalty Day"). The
amount of such Daily Black-Out Penalty shall vary, depending the number of
consecutive Exchange Trading Days that such Daily Black-Out Penalty has been
applicable. The amount of the Daily Black-Out Penalty shall be (i) zero for
each of the first three consecutive Penalty Days, (ii) $15,000 for each of the
next 10 consecutive Penalty Days and (iii) $25,000 for each consecutive Penalty
Day thereafter. The amount of any Daily Black-Out Penalty shall be due within 2
Business Days after written notification by UBS-LB of any amounts that are due
(the timing of such notification to be any time at UBS-LB's sole discretion on
or after the Penalty Day or Penalty Days to which such amount or amounts
relate).
-4-
<PAGE>
This letter agreement shall be governed by and construed in accordance
with laws of the State of New York without reference to choice of law doctrine.
Sincerely,
UBS AG, London Branch
By: /s/ Robert Morgan By: /s/ Karen Hayes
------------------------------ ------------------------------
Name: Robert Morgan Name: Karen Hayes
Title: Managing Director Equities Title: Associate Director
Date: Date: Feb. 26, 99
AGREED TO AND ACCEPTED
Patriot American Hospitality, Inc.
By: /s/ William W. Evans III
------------------------------
Name: William W. Evans
Title: President, Chief
Operating Officer
Date:
Wyndham International, Inc.
By: /s/ William W. Evans III
------------------------------
Name: William W. Evans
Title: President, Chief
Operating Officer
Date:
-5-
<PAGE>
EXHIBIT 99.2
February 28, 1999
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn.: William W. Evans III
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn.: Leslie Ng
Ladies and Gentlemen:
Reference is made to (i) the Purchase Price Adjustment Mechanism Agreement
(the "Forward Agreement") dated April 6, 1998 among Patriot American
Hospitality, Inc. ("Patriot"), Wyndham International, Inc. (collectively, the
"Companies") and PaineWebber Financial Products, Inc. ("PaineWebber") and (ii)
the letter agreement (the "Standstill Agreement") dated as of February 1, 1999,
by and among the Companies and PaineWebber.
We hereby acknowledge and agree that the Securities Purchase Agreement,
dated as of February 18, 1999, by and among the Companies and the investors
named therein, together with the commitment letters dated as of February 19,
1999 among The Chase Manhattan Bank, Chase Securities, Inc. and Patriot and the
commitment letter dated as of February 19, 1999 among The Chase Manhattan Bank,
Chase Securities, Inc., Bear, Stearns & Co. Inc. and Patriot, is an "Acceptable
Transaction Agreement" within the meaning of the Standstill Agreement.
You hereby represent to us that, on the date hereof, there is no
Cross-Default (as defined in the Forward Agreement but without giving effect to
any 5 or 15-day cure period provided in Section 4.2(a) of the Forward
Agreement).
Assuming the accuracy of the above representation, we acknowledge and agree
that the Extended Standstill Period (as defined in the Standstill Agreement) is
in effect.
In addition, the parties agree that paragraph 4(a)(iv) of the Standstill
Agreement shall be amended by adding at the end thereof the following:
<PAGE>
"the provisions of any Acceptable Transaction Agreement calling for the
settlement of the Companies' obligations under the Forward Agreement shall be
modified without the written consent of PaineWebber, or the Companies shall,
without PaineWebber's prior written consent, have publicly announced an
intention to modify such provisions, in each such case where such Acceptable
Transaction Agreement, as so modified, would not constitute an Acceptable
Transaction Agreement, or"
The parties hereto agree that the Standstill Agreement, as hereby
supplemented, remains in full force and effect.
This letter agreement may be executed in several counterparts, all of
which shall be identical, and all of which counterparts together shall
constitute one and the same instrument.
2
<PAGE>
Sincerely,
PaineWebber Financial Products, Inc.
By: /s/ DARREN DRAKE
------------------------------
Name: Darren Drake for Terrence Farmer
Title: Vice President
AGREED TO AND ACCEPTED:
Patriot American Hospitality, Inc. Wyndham International, Inc.
By: /s/ WILLIAM W. EVANS III By: /s/ WILLIAM W. EVANS III
------------------------------ ------------------------------
Name: William W. Evans Name: William W. Evans
Title: President and Chief Title: President and Chief
Operating Officer Operating Officer
3
<PAGE>
EXHIBIT 99.3
February [28], 1999
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: William W. Evans III
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: Leslie Ng
Ladies and Gentlemen:
Reference is made to the Purchase Agreement dated as of February 26, 1998
among Patriot American Hospitality, Inc. ("Patriot"), Wyndham International,
Inc. (together with Patriot, the "Companies") and NationsBanc Mortgage Capital
Corporation (the "Purchaser"), as assignee of NMS Services, Inc., and the
Purchase Price Adjustment Mechanism dated as of February 26, 1998 among the
Companies and the Purchaser (including the ISDA Master Agreement and Schedule
thereto incorporated by reference therein), each as amended on August 14, 1998,
November 23, 1998, December 10, 1998, January 4, 1999 and February 1, 1999 (the
"Agreements"). Capitalized terms are used herein as in the Agreements.
We hereby acknowledge and agree that the Securities Purchase Agreement,
dated as of February 18, 1999, by and among the Companies, Patriot American
Hospitality Partnership, L.P., Wyndham International Operating Partnership, L.P.
and the investors named therein (the "Purchase Agreement"), as in effect on the
date hereof, is an "Acceptable Transaction Agreement" within the meaning of the
Agreements. If the Purchase Agreement is amended or modified by the parties
thereto so that it ceases to be subject to customary closing conditions
reasonably satisfactory to the Purchaser or so that it ceases to provide for a
Physical Settlement of the entire Transaction on or prior to June 30, 1999 in a
manner reasonably satisfactory to the Purchaser, or if the commitment letter
dated as of February 18, 1999 among The Chase Manhattan Bank ("Chase"), Chase
Securities, Inc. ("CSI") and Patriot or the commitment letter dated as of
February 18, 1999 among Chase, CSI, Bear, Stearns & Co. Inc. and Patriot, or any
definitive agreement entered into pursuant to either such commitment letter, is
amended or modified by the parties thereto so that the use of proceeds set forth
in such commitment letters or definitive agreements, as the case may be, and the
Purchase Agreement ceases to provide for a Physical Settlement of the entire
Transaction on or prior to June 30, 1999 in a manner reasonably satisfactory to
the Purchaser, then the Purchase Agreement shall cease to be an Acceptable
<PAGE>
Transaction Agreement and the Extended Standstill Period shall cease to be in
effect.
You hereby represent to us that, on the date hereof, there is no Default or
Event of Default (each as defined in the Credit Agreement), other than Waived
Defaults.
Assuming the accuracy of the above representation, we acknowledge that the
Extended Standstill Period is currently in effect. The parties hereto agree that
the Agreements remain in full force and effect.
This letter agreement may be executed in several counterparts, all of which
shall be identical, and all of which counterparts together shall constitute one
and the same instrument.
Sincerely,
NationsBanc Mortgage Capital Corporation
By: /s/ [ILLEGIBLE]
------------------------------
Name:
Title:
AGREED TO AND ACCEPTED:
Patriot American Hospitality, Inc. Wyndham International, Inc.
By: /s/ WILLIAM W. EVANS By: /s/ WILLIAM W. EVANS
------------------------------ ------------------------------
Name: William W. Evans Name: William W. Evans
Title: President, Chief Title: President, Chief
Operating Officer Operating Officer
