<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9320
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WYNDHAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
94-2878485
(I.R.S. Employer Identification No.)
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
(Address of principal executive offices) (Zip Code)
(214) 863-1000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
The number of shares outstanding of the registrant's class of common stock,
par value $.01 per share, as of the close of business on November 10, 1999,
was 167,661,671.
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<PAGE>
WYNDHAM INTERNATIONAL, INC.
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements.............................................. 2
Wyndham International, Inc.:
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998...................................... 3
Condensed Consolidated Statements of Operations for the three and nine
month periods ended September 30, 1999 and 1998 (unaudited)............ 4
Condensed Consolidated Statements of Cash Flows for the nine month
periods ended September 30, 1999 and 1998 (unaudited).................. 5
Notes to Condensed Consolidated Financial Statements as of September 30,
1999 (unaudited)....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 23
Item 3. Qualitative and Quantitative Disclosures about Market Risks....... 39
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................................. 40
Item 2. Changes in Securities and Use of Proceeds......................... 43
Item 4. Submission of Matters to Vote of Security Holders................. 43
Item 6. Exhibits and Reports on Form 8-K:
Exhibits.............................................................. 43
Reports on Form 8-K................................................... 43
Signatures................................................................ 44
</TABLE>
2
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 113,763 $ 123,085
Restricted cash.................................... 102,321 35,869
Accounts and lease revenue receivable.............. 192,813 194,583
Inventories........................................ 23,832 23,583
Prepaid expenses and other assets.................. 32,526 35,346
----------- ----------
Total current assets.............................. 465,255 412,466
----------- ----------
Investment in real estate and related improvements
net of accumulated depreciation of $438,644 in 1999
and $252,580 in 1998............................... 5,498,237 5,585,616
Investment in unconsolidated subsidiaries........... 177,164 146,912
Mortgage notes and other receivables from
unconsolidated subsidiaries........................ 1,982 78,403
Notes and other receivables......................... 37,456 41,334
Management contract costs, net of accumulated
amortization $23,649 in 1999 and $11,258 in 1998... 124,610 194,014
Leasehold costs, net of accumulated amortization of
$12,976 in 1999 and $5,989 in 1998................. 135,431 179,922
Trade names and franchise costs, net of accumulated
amortization of $9,882 in 1999 and $6,670 in 1998.. 104,722 125,974
Deferred acquisition costs.......................... 17,234 16,144
Goodwill and intangibles, net of accumulated
amortization of $27,778 in 1999 and $20,895 in
1998............................................... 364,733 553,889
Deferred expenses, net of accumulated amortization
of $41,318 in 1999 and $29,136 in 1998............. 97,925 37,998
Other assets........................................ 46,760 42,998
----------- ----------
Total assets...................................... $ 7,071,509 $7,415,670
=========== ==========
LIABILITES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 237,521 $ 313,657
Deposits........................................... 35,663 26,392
Current portion of borrowings credit facility, term
loans, mortgage notes and capital lease
obligations....................................... 131,499 1,274,918
----------- ----------
Total current liabilities......................... 404,683 1,614,967
----------- ----------
Borrowings under credit facility, term loans,
mortgage notes and capital lease obligations....... 3,418,041 2,582,603
Deferred income taxes............................... 730,946 123,463
Due to unconsolidated subsidiaries.................. 374 7,919
Deferred income..................................... 15,956 174
Minority interest in the Operating Partnerships..... 23,590 253,970
Minority interest in other consolidated
subsidiaries....................................... 167,203 229,537
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
150,000,000 shares; shares issued and outstanding:
10,170,599 in 1999................................ 102 --
Preferred stock, $0.01 par value; authorized:
100,000,000 shares; shares issued and outstanding:
8,981,886 in 1998................................. -- 90
Excess stock, $0.01 par value; authorized:
750,000,000 shares; no shares issued and
outstanding....................................... -- --
Common stock, $0.01 par value; authorized:
750,000,000 shares; shares issued and outstanding:
167,240,510 in 1999 and 213,521,647 in 1998....... 1,672 4,270
Additional paid in capital......................... 3,737,252 3,024,540
Receivable from shareholders and affiliates........ (16,984) (16,364)
Unearned stock compensation, net of accumulated
amortization of $19,144 in 1999 and $13,447 in
1998.............................................. (409) (5,494)
Unrealized loss on securities available for sale... (1,060) (1,245)
Unrealized foreign exchange gain................... 294 2,749
Accumulated deficit................................ (1,410,151) (405,509)
----------- ----------
Total shareholders' equity........................ 2,310,716 2,603,037
----------- ----------
Total liabilities and shareholders' equity....... $ 7,071,509 $7,415,670
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ----------------------
1999 1998 1999 1998
-------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Hotel revenue................... $562,720 $ 554,331 $1,829,882 $1,266,985
Participating and land lease
revenue........................ 341 8,932 929 49,627
Racecourse facility............. -- 9,955 4,561 34,945
Management fee and service fee
income......................... 13,968 24,358 57,186 61,574
Interest and other income....... 2,252 6,274 8,951 12,949
-------- --------- ---------- ----------
Total revenue................... 579,281 603,850 1,901,509 1,426,080
-------- --------- ---------- ----------
Expenses:
Hotel expenses.................. 429,370 417,814 1,325,646 924,471
Racing facility operations...... -- 8,810 3,867 29,667
General and administrative...... 32,238 26,571 143,596 64,558
Cost of acquiring leaseholds and
license agreements............. -- 3,940 803 61,000
Restructuring costs............. 3,906 -- 189,288 --
Interest expense................ 85,478 82,739 266,678 172,191
Depreciation and amortization... 75,653 68,236 232,558 155,165
Net (gain) loss on sale of
assets......................... (1,104) -- 4,223 --
Treasury lock settlement........ -- 49,225 -- 49,225
-------- --------- ---------- ----------
Total expenses.................. 625,541 657,335 2,166,659 1,456,277
-------- --------- ---------- ----------
Operating loss................... (46,260) (53,485) (265,150) (30,197)
Equity in (losses) earnings of
unconsolidated subsidiaries.... (931) 1,888 3,000 7,375
-------- --------- ---------- ----------
Loss before income tax provision,
minority interests and
extraordinary item.............. (47,191) (51,597) (262,150) (22,822)
Income tax benefit (provision)... 3,386 (6,783) (651,053) (11,273)
-------- --------- ---------- ----------
Loss before minority interests
and extraordinary item.......... (43,805) (58,380) (913,203) (34,095)
Minority interest in the
Operating Partnerships.......... -- 4,722 6,642 6,169
Minority interest in other
consolidated subsidiaries....... (760) (4,500) (4,824) (7,514)
-------- --------- ---------- ----------
Loss before extraordinary item... (44,565) (58,158) (911,385) (35,440)
Extraordinary loss from early
extinguishment of debt, net of
minority interest and income
taxes........................... -- (1,257) (9,838) (31,817)
-------- --------- ---------- ----------
Net loss........................ $(44,565) $ (59,415) $ (921,223) $ (67,257)
======== ========= ========== ==========
Basic loss attributable to common
shareholders:
Net loss........................ (44,565) (59,415) (921,223) (67,257)
Adjustment for equity forwards.. -- -- (19,372) --
Preferred stock dividends....... (24,375) (2,695) (25,276) (4,250)
-------- --------- ---------- ----------
Basic net loss.................. $(68,940) $ (62,110) $ (965,871) $ (71,507)
======== ========= ========== ==========
Basic loss per common share:
Loss before extraordinary item.. $ (0.41) $ (0.39) $ (6.00) $ (0.30)
Extraordinary loss.............. -- (0.01) (0.06) (0.24)
-------- --------- ---------- ----------
Net loss per common share....... $ (0.41) $ (0.40) $ (6.06) $ (0.54)
======== ========= ========== ==========
Diluted loss to common
shareholders:
Net loss........................ $(44,565) $ (59,415) $ (921,223) $ (67,257)
Adjustment for equity forwards.. -- (95,063) (39,322) (122,431)
Preferred stock dividends....... (24,375) (2,695) (25,276) (4,250)
-------- --------- ---------- ----------
Diluted net loss................ $(68,940) $(157,173) $ (985,821) $ (193,938)
======== ========= ========== ==========
Diluted loss per common share:
Loss before extraordinary item.. $ (0.41) $ (1.01) $ (6.13) $ (1.22)
Extraordinary loss.............. -- (0.01) (0.06) (0.24)
-------- --------- ---------- ----------
Net loss per common share....... $ (0.41) $ (1.02) $ (6.19) $ (1.46)
======== ========= ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (921,223) $ (67,257)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation....................................... 190,714 120,864
Amortization of unearned stock compensation........ 5,697 4,818
Amortization of deferred loan costs................ 29,633 18,075
Amortization of management contracts and trade
names............................................. 15,498 15,523
Amortization of goodwill and other assets.......... 26,346 18,778
Cost of acquiring leaseholds....................... -- 55,638
Treasury lock settlement........................... -- 49,225
Net loss on sale of assets......................... 4,223 --
Issuance of stock for bonuses and directors' fee... 174 --
Equity in earnings of unconsolidated
subsidiaries...................................... (3,000) 880
Minority interest in Operating Partnerships........ (6,642) (7,375)
Minority interest in other consolidated
subsidiaries...................................... 4,824 (6,169)
Deferred income taxes.............................. 622,025 7,514
Write-down of real estate assets................... 53,524 (5,352)
Write-off of intangible assets..................... 119,751 --
Bad debt expense................................... 5,495 --
Extraordinary loss from early extinguishment of
debt.............................................. 9,838 32,235
Other.............................................. 428 --
Changes in assets and liabilities:
Accounts and lease revenue receivable and other
assets............................................ (14,207) (25,272)
Inventories........................................ 184 (1,137)
Accounts payable and accrued expenses.............. (39,124) 20,282
----------- -----------
Net cash provided by operating activities........ 104,158 231,270
----------- -----------
Cash flows from investing activities:
Acquisition of hotel properties and related working
capital assets..................................... (69,951) (1,349,705)
Improvements and additions to hotel properties...... (146,542) (187,695)
Net proceeds from asset sales....................... 70,108 17,734
Acquisition of management contracts................. (5,695) (32,299)
Cash received in acquisition of real estate and
hotel leases....................................... 1,100 98,312
Collections on other notes receivable............... 2,681 9,563
Advances on other notes receivable.................. (11,229) --
Increase in restricted cash accounts................ (62,973) (8,283)
Investment in unconsolidated subsidiaries........... (13,720) (13,985)
Deferred acquisition costs.......................... (7,230) (34,780)
Net payments collected from unconsolidated
subsidiaries....................................... -- 5,976
Investment in mortgage and other notes receivable... -- (3,688)
Collections on mortgage and other notes receivable.. 1,973 --
Proceeds from termination of management contracts... 16,086 --
Other............................................... 5,065 (1,467)
----------- -----------
Net cash used in investing activities............ (220,327) (1,500,317)
----------- -----------
Cash flows from financing activities:
Borrowings under credit facility, term loans,
mortgage notes and capital lease obligations....... 2,718,430 2,749,394
Net repayments on credit facility and other debt.... (3,036,685) (1,524,481)
Payment of deferred loan costs...................... (107,244) (32,729)
Settlement of forward equity contracts.............. (329,481) --
Proceeds from issuance of preferred stock........... 1,000,000 --
Cost to retire Patriot series B preferred stock..... (13,966) --
Cash settlement with Interstate upon spinoff........ (17,102) --
Proceeds from issuance of common stock.............. -- 277,474
Payment of offering costs........................... (76,942) (3,805)
Contributions received from minority interest in
consolidated subsidiaries.......................... -- 3,440
Collections on notes receivable from shareholders
and affiliates..................................... -- 2,999
Distribution to minority interest holders........... (23,168) --
Dividends and distributions paid.................... (8,211) (131,038)
Foreign currency translation adjustment............. 994 --
Other............................................... 222 3,647
----------- -----------
Net cash provided by financing activities........ 106,847 1,344,901
----------- -----------
Net (decrease) increase in cash and cash
equivalents......................................... (9,322) 75,854
----------- -----------
Cash and cash equivalents at beginning of period..... 123,085 42,431
----------- -----------
Cash and cash equivalents at end of period........... $ 113,763 $ 118,285
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Patriot American Hospitality, Inc. (collectively with its subsidiaries,
"Patriot"), was formed April 17, 1995 as a self-administered real estate
investment trust ("REIT") for the purpose of acquiring equity interests in
hotel properties. Wyndham International, Inc. (collectively with its
subsidiaries, "Old Wyndham") was formed in connection with Patriot's merger
with and into California Jockey Club and Bay Meadows Operating Company on July
1, 1997. Patriot and Old Wyndham are both Delaware corporations.
Prior to June 30, 1999, the shares of common stock of Patriot were paired
and traded together with the shares of Old Wyndham, on a one for one basis, as
a single unit pursuant to a stock pairing arrangement, and were referred to as
a paired share.
Effective June 30, 1999, Patriot and Old Wyndham completed a series of
transactions (See Note 4) which included a restructuring of their existing
organizational structure. As a result of this restructuring, a wholly-owned
subsidiary of Old Wyndham was merged with and into Patriot, with Patriot being
the surviving entity. As such, Patriot is now a wholly-owned subsidiary of Old
Wyndham, and this combined entity, together with all subsidiaries, is
hereafter referred to as Wyndham. When the term Wyndham is used relating to a
period prior to June 30, 1999, such term refers to the combined entity of Old
Wyndham and Patriot. In connection with this restructuring, the pairing
agreement between Patriot and Old Wyndham was terminated, Patriot's status as
a real estate investment trust terminated effective January 1, 1999, and
Patriot became a taxable corporation as of that date.
The restructuring was reflected as a reorganization of two companies under
common control and was accounted for in a manner similar to that used in
pooling of interests accounting. As such, there was no revaluation of the
assets and liabilities of Old Wyndham or Patriot. The 1999 financial
statements of Wyndham are presented on a consolidated basis, representing the
operations of the corporation and its subsidiaries, including Patriot. The
1998 financial statements of Wyndham are presented on a combined basis,
representing the combined results of both Old Wyndham and Patriot.
Unless otherwise stated herein, all information with respect to shares
refers to Wyndham common stock since June 30, 1999 and to paired shares for
periods before June 30, 1999.
Patriot, through its wholly-owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1% general partnership interest in Patriot
American Hospitality Partnership, L.P. (the "Patriot Partnership"). In
addition, Patriot, through its wholly-owned subsidiary, PAH LP, Inc., owns an
approximate 99% limited partnership interest in the Patriot Partnership.
Wyndham owns a 1% general partnership interest and an approximate 99% interest
in Wyndham International Operating Partnership, L.P. (the "Wyndham
Partnership") as of September 30, 1999. The Patriot Partnership and the
Wyndham Partnership are collectively referred to as the Operating
Partnerships.
The Patriot Partnership principally owns, directly or indirectly, interests
in hotel properties and third party leaseholds. The Wyndham Partnership,
directly or indirectly, principally leases hotel properties from the Patriot
Partnership, owns interests in other hotel properties, and manages and
franchises hotels for third parties.
As of September 30, 1999, Wyndham, through the Operating Partnerships and
other subsidiaries, owned interests in 175 hotels with an aggregate of over
43,000 guest rooms and leased 39 hotels from third parties with over 5,700
rooms. In addition, Wyndham manages 89 hotels for third party owners with over
21,000 guest rooms and franchises 11 hotels with over 2,600 guest rooms.
6
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Principles of consolidation and combination
The unaudited consolidated financial statements for 1999 include the
accounts of Wyndham, its wholly-owned subsidiaries, including Patriot, and the
partnerships, corporations and limited liability companies in which Wyndham
owns a controlling interest.
The 1998 financial statements of Wyndham are presented on a combined basis,
representing the combined results of both Old Wyndham and Patriot. All
significant intercompany accounts and transactions have been eliminated.
Partnerships--control is determined in accordance with generally accepted
accounting principles ("GAAP"). The condition for control is the ownership of
a majority voting interest and the ownership of the general partnership
interest.
Corporations and Limited Liability Companies--control is determined in
accordance with GAAP. The condition for control is the ownership of a majority
voting interest.
These financial statements have been prepared in accordance with GAAP for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30,
1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. For further information, refer to the
combined financial statements and footnotes thereto included in Patriot's and
Old Wyndham's Joint Annual Report on Form 10-K, as amended, for the year ended
December 31, 1998. Certain prior period amounts have been reclassified to
conform to current period presentation with no effect to previously reported
net income or retained earnings.
2. ACQUISITIONS AND DISPOSALS
Disposals
In February 1999, Patriot and Old Wyndham sold their interest in the Bay
Meadows Racecourse located in San Mateo, California. Patriot and Old Wyndham
received cash proceeds of approximately $3,446 after payment of legal costs
and other closing costs. Patriot and Old Wyndham recognized an estimated
impairment loss on assets held for sale of $42,278 related to the racecourse
facility in 1998. The actual loss on the sale of the racecourse facility was
$42,766.
In March 1999, Patriot sold the Holiday Inn Crockett, realizing net cash
proceeds of approximately $18,000 and recognized a gain of approximately
$2,586.
On April 30, 1999, Patriot sold the following hotels; Hampton Inn Rochester,
Hampton Inn Jacksonville, Hampton Inn Cleveland, and the Hampton Inn Canton,
for net proceeds of approximately $23,469 and recognized a loss of
approximately $1,353.
On May 11, 1999, Patriot sold the Holiday Inn Sebring for net proceeds of
approximately $4,100 and recognized a gain of approximately $570.
On July 30, 1999, Wyndham sold the Holiday Inn Redmont for net cash proceeds
of $1,830 and recognized a loss of approximately $191.
7
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
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 these interests was
financed through additional mortgage indebtedness totaling $49,800 and the
sale of an additional 10% interest in the Marriott Warner Center.
In April 1999, Patriot acquired the remaining 10% minority interests in each
of the four following hotels; the Radisson Akron; the Courtyard Beachwood; the
Holiday Inn Westlake; the Radisson Beachwood from IAH Snavely L.L.C.
("Snavely"). In addition, Patriot sold the Holiday Inn Beachwood to Snavely.
The transaction generated net proceeds of approximately $8,770. Patriot
recorded a loss of approximately $6,625.
On May 7, 1999, Patriot exercised its option to purchase ISIS 2000, formerly
owned by certain related parties and Old Wyndham senior executive officers,
for a cash payment of $3,073. Subsequent to the exercise of the option,
Wyndham owns 100% of this entity which provides reservations and other
services to Wyndham.
On May 18, 1999, Patriot purchased the Billerica hotel for a total purchase
price of approximately $23,775 including assumed indebtedness of approximately
$16,411.
On July 30, 1999, a wholly-owned subsidiary of Wyndham merged with Gencom
Interest, Inc. As a result of the merger, Wyndham acquired the remaining
34.52% interest in the Omni Baltimore hotel, and 421,161 shares of Wyndham
Class A common stock owned by Gencom Interest, Inc. The total purchase
consideration for the merger was approximately $6,043 which consisted of
1,336,276 shares of Wyndham Class A common stock.
On September 10, 1999, Wyndham acquired the remaining 75% interest in Le
Manoir de Gressey, an 86 room hotel located near Paris, France for a total
purchase price of approximately FRF 41,500 (approximately $6,658 based on
exchange rates at the time of closing) and assumed debt of approximately FRF
51,000 (approximately $8,182 based on exchange rates at the date of closing).
Like-Kind Exchange of Properties
On September 3, 1999, Wyndham sold certain land located in San Mateo,
California, to the Susan W. Lakatos Separate Property Trust Agreement, the Rot
Family Trust, and Ernest Weil Family Trust U.T.A. for a gross purchase price
of $3,500, and recognized a gain of approximately $985. These funds were
placed in a restricted trust account in order to facilitate a tax-deferred,
like-kind exchange through the acquisition of a suitable hotel property.
3. INTERSTATE'S THIRD-PARTY HOTEL MANAGEMENT BUSINESS
On May 27, 1998, Old Wyndham and Interstate Hotels Company ("Old
Interstate") entered into a settlement agreement, as amended, with Marriott
International, Inc. ("Marriott"), which addressed certain claims asserted by
Marriott in connection with Old Wyndham's then proposed merger with Old
Interstate. The settlement agreement provided for the dismissal of litigation
brought by Marriott, and allowed Old Wyndham's merger with Old Interstate to
close. In addition to dismissal of the Marriott litigation, the settlement
agreement provides for the re-branding of ten Marriott hotels under the
Wyndham name, the assumption by Marriott of the management of ten Marriott
hotels formerly managed by Old Interstate for the remaining term of the
Marriott franchise agreement, and the spin-off by Wyndham of the third-party
management business.
8
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Effective June 18, 1999, Old Wyndham distributed approximately 92% of
Interstate Hotels Corporation ("Interstate") in the form of a dividend to
shareholders. Shareholders of record on June 7, 1999 received one share of
newly issued Interstate stock for every thirty paired shares owned of Patriot
and Old Wyndham. The remaining 8% is owned equally by Wyndham and Marriott.
As a result of the spin-off, Wyndham now also owns an approximate 55% non-
controlling interest in the subsidiary of Interstate which now operates the
existing third-party management business that Wyndham acquired from Old
Interstate. As of September 30, 1999, Wyndham's investment in the entity was
$52,837 and is reflected in investment in unconsolidated subsidiaries.
4. RESTRUCTURING AND NEW FINANCING TRANSACTIONS
Effective June 30, 1999, Wyndham entered into a series of transactions as
follows; 1) a $1 billion equity investment, 2) an organizational
restructuring, 3) closing of a $2,450,000 credit facility, and 4) closing of
new mortgage notes totaling $581,000, as follows:
Equity investment
Effective June 30, 1999, Wyndham completed a $1 billion equity investment
with a group of investors. Pursuant to the terms of this investment, Wyndham
issued 9.55 million shares of series B convertible preferred stock in exchange
for gross proceeds of $955,000. On July 1, 1999, the remaining $45,000 was
funded through the transfer of one of the investor's loan receivable from PAH
Realty Company, LLC which is secured by a mortgage on the Battery March Hotel,
to Wyndham International Inc. for the purchase of 450,000 shares of series B
convertible preferred stock. Wyndham has incurred approximately $77,479 in
costs attributable to the equity investment. This series B convertible
preferred stock has the following terms, among others:
. dividends payable quarterly, on a cumulative basis, at a rate of 9.75%
per year;
. for the first six years, the dividends are structured to ensure an
aggregate fixed cash dividend payment of $29,250 per year, so long as
there is no redemption or conversion of the investors' series B
convertible preferred stock; therefore, for that period, dividends are
payable partly in cash and partly in additional shares of series B
convertible preferred stock, with the cash component initially equal to
30% for the first dividend and declining over the period to approximately
19.8% for the final dividend in year six;
. for the next four years, dividends are payable in cash or additional
shares of series B convertible preferred stock as determined by the Board
of Directors; and, after year 10, dividends are payable solely in cash;
. if any dividends are paid on the Wyndham common stock, additional
dividends will be paid in the amount that would have been paid on the
shares of Wyndham common stock into which the series B preferred stock is
then convertible;
. if a change in control or a liquidation of Wyndham occurs within six
years following the investment, any dividends remaining for the six years
will be accelerated and paid;
. not redeemable by Wyndham for six years, except that up to $300 million
of the series B convertible preferred stock may be redeemed during the
170 day period following the closing of the investment;
. voting with the Wyndham common stock on an as-converted basis on matters
submitted to the common stockholders and voting as a separate class on
specified matters, with special rules applying to the election of
directors; and
. convertible, at the holder's option, into a number of shares of Wyndham
common stock equal to $100.00 divided by the conversion price, initially
equal to $8.59 but subject to potential downward adjustments.
9
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
The investors will also have preemptive rights for the first five years
following their investment as long as they own more than 15% of the Wyndham
common stock.
As noted above, for a period of 170 days following the completion of the
investment, Wyndham may redeem up to $300 million of the series B convertible
preferred stock at a redemption price of $102.00 per share (102% of the stated
amount) plus all accrued dividends. In connection with the settlement of the
class action litigation related to its restructuring discussed below, Wyndham
intends to fund this redemption with the proceeds of its offering to its
stockholders and the limited partners in the Operating Partnerships of rights
to purchase up to three million shares of its series A convertible preferred
stock, which generally has the same economic terms as the series B convertible
preferred stock, but has no voting rights, except as required by law and
except for a limited right to elect two directors if dividends are in arrears
for six quarterly periods. The record date for the rights offering is
September 30, 1999. The registration statement for the rights offering was
declared effective on November 8, 1999, and the rights offering is scheduled
to expire on December 8, 1999.
Organizational restructuring
As a condition of this investment, Old Wyndham was required to terminate the
pairing agreement with Patriot and restructure the existing organization. As
such, a subsidiary of Old Wyndham was merged with and into Patriot and Patriot
became a wholly-owned subsidiary of Wyndham. Patriot's status as a real estate
investment trust terminated effective January 1, 1999, and Patriot became a
taxable corporation as of that date.
Wyndham recorded a one-time charge of $675,000 to establish a deferred tax
liability that resulted from Patriot's change in tax status from a REIT to a C
corporation, as required by Statement of Financial Accounting Standard No.
109. This charge is included in income tax expense in the accompanying 1999
condensed consolidated statement of operations.
Wyndham also recorded a restructuring charge of $189,288 as a result of the
termination of the paired share structure, and management's decision to exit
out of certain activities resulting in the write-down of certain non-strategic
assets, and costs to sever certain employees.
Wyndham recorded a charge of approximately $83,094 for the write off of the
unamortized intangible asset associated with the paired share structure which
was abandoned June 30, 1999. In addition, Wyndham incurred approximately
$4,675, in severance and employee related costs for seven employees in the New
York corporate office and two employees in the Dallas corporate office. The
New York office was closed on June 30, 1999 and its employees were terminated
at that time. Wyndham paid $4,175 in the form of cash and forgiveness of debt;
the remaining unpaid portion of $500 has been included in accrued liabilities
at September 30, 1999. Wyndham has also paid $573 in professional fees
associated with the restructuring.
Wyndham recorded a charge of $82,957 for the write-down of assets to
estimated fair value, including goodwill of $28,394 as a result of
management's strategy to exit from the European market for their non-branded
assets which will be sold. In addition, Wyndham recorded costs of $7,226
associated with staffing reductions and other exit costs necessary to reduce
Wyndham's infrastructure in Arcadian International, Wyndham's management
division in Europe. Included in accounts payable and accrued expenses at
September 30, 1999 was $3,345 related to severance costs to terminate 67
employees in the European office and $2,783 related to other exit costs for
those actions, primarily lease cancellations, that have not yet been completed
as of September 30, 1999. Wyndham expects these actions to be completed by
December 31, 1999.
10
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
In addition, a charge of $8,263 for the tradename intangibles attributable
to the Carefree brand was recorded, as management has decided that none of the
owned or managed assets will carry the Carefree brand now or in the future.
On August 11, 1999, Wyndham announced its plan to realign its luxury
division, in its continuing efforts to streamline its organization. As a
result, the Phoenix division office was closed on September 10, 1999. Wyndham
recorded costs of $2,006 associated with severance payments for staffing
reductions of 19 employees, and $494 for other exit costs. As of September 30,
1999, included in accounts payable and accrued expenses was $2,251 related to
severance costs and other exit costs that have not yet been completed as of
September 30, 1999. Wyndham expects these actions to be completed by March 31,
2000.
Also as a part of the restructuring, the preferred stockholders of Old
Wyndham were offered an opportunity to exchange their preferred stock for
Wyndham class A common stock. Each of the 1,781,173 shares of Old Wyndham
series A preferred stock and each of the 1,781,181 shares of Old Wyndham
series B preferred stock were exchanged for one share of Wyndham class A
common stock.
Pursuant to the merger of a wholly-owned subsidiary of Old Wyndham with
Patriot, each outstanding paired share and share of Patriot series A preferred
stock was converted into a single share of Wyndham class A common stock, and
each outstanding share of Patriot series B preferred stock was converted into
$25 per share and $1.61 of accrued dividends, or an aggregate of $14,862 in
cash.
Additionally, the third party limited partners in both the Patriot
Partnership, and the Wyndham Partnership were offered an opportunity to
exchange their limited partnership interests for Wyndham class A common stock.
As a result, an additional 15,097,354 shares of Wyndham class A common stock
were issued in exchange for limited partnership units in the Operating
Partnerships. The effect of the exchange of certain limited partners interests
for Wyndham class A common stock, resulted in an adjustment to the basis of
certain assets in accordance with Emerging Issues Task Force ("EITF") 95-7.
This adjustment is reflected in the accompanying balance sheet as a reduction
in the basis of Wyndham's investment in real estate and related improvements
of $37,150, investment in unconsolidated subsidiaries of $2,562 and goodwill
and intangibles of $78,433.
Generally, the assets of Old Wyndham, Patriot and the Operating Partnerships
remained in the entity that owned them prior to restructuring, except that the
non-voting stock of the non-controlled subsidiaries was transferred from the
Patriot Partnership to Patriot.
New credit facility
Concurrent with the closing of the $1 billion equity investment described
above, Wyndham closed on a new $2,450,000 credit facility which consists of: a
$1.3 billion term loan with a seven year term, a $500,000 revolving credit
facility with a five year term, and a $650,000 increasing rate loan facility
with a five year term. Proceeds, net of closing costs and fees of
approximately $41,125 from the term loan and the revolving credit facility,
and proceeds, net of closing costs and fees of approximately $17,875 from the
increasing rate loan facility, were used to retire existing indebtedness. At
September 30, 1999, $100,000 was drawn on the new revolving credit facility.
Interest rates are based upon LIBOR plus spreads varying from 2.75% to 3.50%
per annum for the term loan, and 1.25% to 2.75% per annum for the revolving
credit facility, based both on Wyndham's leverage ratio, as defined, and
whether any increasing rate loans are outstanding. If any of the increasing
rate loan facility remains outstanding, the applicable margins shall be
increased by 0.25%. The term loan, and the revolving credit facility are
guaranteed by the domestic subsidiaries of Wyndham, and are secured by pledges
of equity interests
11
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
held by Wyndham and its subsidiaries. Wyndham's ability to borrow under its
revolving credit facility is subject to Wyndham's compliance with a number of
customary financial and other covenants, including total leverage and interest
coverage ratios.
Interest rates for the increasing rate loans are based on LIBOR rates (less
statutory reserves), plus 3.50% through September 30, 1999, and increasing
0.50% every three months, with a cap of LIBOR plus 4.75%. The lender under the
increasing rate loans receives the benefit of the same guarantees and pledges
of security provided under the new term loan, and revolving credit facility.
New mortgage debt
Effective June 30, 1999, Wyndham also closed on a $346 million mortgage loan
with Bear, Stearns Funding, Inc., which is secured by twenty-five properties.
The loan matures on July 1, 2004 and bears interest at the LIBOR rate plus
3.25% per annum. Proceeds from the mortgage debt were used to retire existing
mortgage indebtedness.
Additionally, effective June 30, 1999, Wyndham closed on a $235 million
mortgage loan with Lehman Brothers Holdings Inc. which is secured by ten
properties. The mortgage loan has a three-year term, with a one year extension
option, and bears interest at the LIBOR rate plus 3.50% per annum, plus an
additional 1.75% on the principal amount payable at maturity. Proceeds from
this mortgage loan were used to retire existing mortgage indebtedness.
At September 30, 1999, the LIBOR rate was 5.4% and averaged 5.1% during the
nine month period ended September 30, 1999.
5. CREDIT FACILITY, TERM LOANS, MORTGAGES AND OTHER NOTES
Credit facility and term loans
Prior to June 30, 1999, Wyndham's credit facilities were led by Chase
Manhattan Bank, Chase Securities, Inc. and Paine Webber Real Estate
Securities, Inc. and included a $900,000 revolving credit facility (the
"Credit Facility") and a series of term loans in the aggregate amount of up to
$1,800,000 (the "Term Loans"). Proceeds from the Credit Facility were used to
fund certain of Wyndham's mergers, as well as to refinance certain outstanding
indebtedness. Interest rates were based on Wyndham's leverage ratio and varied
from 1.5% to 3.0% over LIBOR.
The Term Loans and the Credit Facility, along with accrued interest and
fees, were repaid in full on June 30, 1999 with proceeds from the new credit
facility and the $1 billion equity investment. As a result of this repayment,
Wyndham incurred an extraordinary loss on early extinguishment of debt of
$9,838, net of minority interest and income tax effects.
Paine Webber Mortgage Financing
Effective June 30, 1999, a loan with an affiliate of Paine Webber Real
Estate Securities, Inc. ("Paine Webber Real Estate") for $103,000, including
accrued interest, was repaid with proceeds from the new financings described
above.
12
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Effective June 30, 1999, Wyndham repaid two loans with Paine Webber Real
Estate of $35,000 and $160,000 which were entered into in connection with the
acquisition of the Wyndham Emerald Plaza Hotel located in San Diego California
and the Arcadian acquisition, respectively, with proceeds from the new
financings described above.
Other mortgage debt
During 1999, Beacon Capital Partners, L.P. ("Beacon") loaned $45,000 to
Wyndham. The loan, which bore interest at LIBOR plus 2.5% was to mature on
July 1, 1999. The loan was secured by a first mortgage on the Wyndham Boston
hotel, a property under construction in Boston, Massachusetts. Wyndham paid
Beacon a financing fee of 2.5% of the loan principal in May 1999. On July 1,
1999 the loan was transferred from Beacon to Wyndham International, Inc. for
the purchase of 450,000 shares of Series B convertible preferred stock.
In connection with the acquisition of Billerica, Wyndham assumed a
construction note totaling $16,411. The loan bears interest at 9.5%, and
matures May 17, 2000.
In connection with the acquisition of Le Manoir de Gressey, Wyndham assumed
mortgage debt of approximately $8,282; the loan bears interest at the French
interbank base rate plus 1.5% and matures April 30, 2007.
El Conquistador and Condado Hotel & Casino Financing
On June 25, 1999, Wyndham entered into an agreement with Citicorp Real
Estate, Inc. to extend $90,000 of mortgage debt related to the El Conquistador
Partnership, L.P., which was set to mature on June 30, 1999. Per the terms of
the extension agreement, the interest rate was amended such that the loan
bears interest at the LIBOR rate plus 2.75% through December 31, 1999 and then
LIBOR plus 3.25% through maturity on June 30, 2000.
Additionally, on June 29, 1999, Wyndham refinanced $55,000 of debt on the
Condado Hotel & Casino with The Bank of Nova Scotia. Principal payments on the
loan are due in monthly amounts of $306 beginning on July 22, 1999 through
maturity on July 22, 2004 at which time a balloon payment of $36,972 is due.
The interest rate on the first $50,000 is based upon LIBOR spreads varying
from 2.50% to 3.25% per annum, and on amounts over $50,000 is based upon LIBOR
spreads varying from 3.00% to 3.75% per annum, based on a ratio of earnings to
total debt service, as defined.
Royal Bank of Scotland and Coutts & Company
On August 12, 1999, Wyndham renegotiated its debt obligations to both the
Royal Bank of Scotland and Coutts & Company. The debt with the Royal Bank of
Scotland of approximately $63,870 at September 30, 1999 bears interest at the
UK Base Rate plus 1.3% and matures August 2000 with an option to extend for an
additional six months. The debt is secured by first lien mortgages encumbering
11 hotels of Arcadia. The agreement provides that 75% of the gross sale
proceeds from each of the first eight hotels that are sold should be used to
repay the outstanding obligation. To the extent that any amount of the debt
remains outstanding, then 100% of the gross sales proceeds of the remaining
three hotels should be applied to the outstanding balance. The debt with the
Coutts & Company of approximately $32,256 at September 30, 1999 bears interest
at Sterling Libor plus 2.5% and matures December 31, 2003. The debt is secured
by first lien mortgages encumbering 5 Malmaison hotels.
13
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
6. FINANCIAL DERIVATIVES
Interest rate swaps and caps
Wyndham enters into interest rate swap and cap agreements to modify the
interest characteristics of its outstanding debt. These agreements involve the
exchange of amounts based on a variable interest rate for amounts based on
fixed interest rates over the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an
adjustment of interest expense related to the debt using a method which
approximates the effective interest method (the accrual accounting method).
The related amount payable to or receivable from counterparties is included in
accrued expenses or other assets.
Wyndham also enters into interest rate cap agreements that are designed to
limit its exposure to increasing interest rates and are designated as hedges
of its outstanding debt. An interest rate cap entitles Wyndham to receive a
payment from the counterparty equal to the excess, if any, of the hypothetical
interest expense (strike price) on a specified notional amount at a current
market interest rate over an amount specified in the agreement. The only
amount Wyndham is obligated to pay the counterparty is an initial premium. The
cost of the agreements (the initial premium) is included in other assets and
amortized to interest expense ratably during the life of the agreement.
As of September 30, 1999, Wyndham had entered into three additional interest
rate swap arrangements. The arrangements 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, and $400,000 of
other indebtedness. The interest rate swap fixes the LIBOR portion of the debt
interest rate at 5.31% per annum through January 2000 ($19,987), 5.42% per
annum through March 2001 ($31,000) and 5.91% per annum through February 2000
(400,000). At September 30, 1999, Wyndham has various interest rate swap
arrangements as a hedge against $1,272.1 of the outstanding balance of certain
floating rate debt.
Additionally during 1999, Wyndham 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 rate cap that
limits LIBOR to 6.75% on up to $19,475 of indebtedness through March 2001.
The fair value of interest rate swap and cap agreements and changes in the
fair value as a result of changes in market interest rates are not recognized
in the financial statements. The unrealized gain on these derivative
instruments was approximately $5,699 at September 30, 1999, which represents
the net proceeds Wyndham would receive if the derivatives were sold.
7. COMPREHENSIVE LOSS
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
reporting and displaying comprehensive loss and its components. Wyndham
adopted SFAS No. 130 beginning with their interim financial statements for the
first quarter of 1998. Total comprehensive loss for the periods is as follows:
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1999 1998 1999 1998
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net loss.......................... $(44,565) $(59,415) $(921,223) $(67,257)
Unrealized (loss) gain on
securities available for sale.... (676) (767) 185 (1,388)
Unrealized foreign exchange gain
(loss)........................... 9,935 4,313 (2,455) 4,323
-------- -------- --------- --------
Total comprehensive loss........ $(35,306) $(55,869) $(923,493) $(64,322)
======== ======== ========= ========
</TABLE>
14
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
8. COMPUTATION OF EARNINGS PER SHARE
Earnings per share have been computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
-------------------- --------------------
Basic Diluted(1) Basic Diluted(1)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Loss before extraordinary item... $(44,565) $(44,565) $(58,158) $ (58,158)
Adjustment for equity
forwards(2)..................... -- -- -- (95,063)
Preferred stock dividends........ (24,375) (24,375) (2,695) (2,695)
-------- -------- -------- ---------
Loss attributable to common
shareholders before
extraordinary item.............. (68,940) (68,940) (60,853) (155,916)
Extraordinary loss............... -- -- (1,257) (1,257)
-------- -------- -------- ---------
Net loss attributable to common
shareholders.................... $(68,940) $(68,940) $(62,110) $(157,173)
======== ======== ======== =========
Weighted average number of common
shares outstanding.............. 166,954 166,954 154,510 154,510
======== ======== ======== =========
Loss per share:
Loss before extraordinary
item.......................... $ (0.41) $ (0.41) $ (0.39) $ (1.01)
Extraordinary loss............. -- -- (0.01) (0.01)
-------- -------- -------- ---------
Net loss..................... $ (0.41) $ (0.41) $ (0.40) $ (1.02)
======== ======== ======== =========
</TABLE>
- --------
(1) For the three months ended September 30, 1999, the dilutive effect of
unvested stock grants of 733, the option to purchase common stock of 19
and preferred stock of 116,414 were not included in the computation of
diluted earnings per share because they are anti-dilutive. For the three
months ended September 30, 1998, the dilutive effect of unvested stock
grants of 798, the option to purchase common stock of 494, preferred stock
of 8,423 and common stock of 2,981 in connection with the forward equity
contracts were not included in the computation of diluted earnings per
share because they were anti-dilutive.
(2) The adjustment relates to the mark-to-market and yield adjustment for the
forward equity contracts which could be settled in cash or stock, at
Wyndham's option.
15
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
--------------------- ---------------------
Basic Diluted(1) Basic Diluted(1)
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Loss before extraordinary
item......................... $(911,385) $(911,385) $ (35,440) $ (35,440)
Adjustment for equity forwards
(2).......................... (19,372) (39,322) -- (122,431)
Preferred stock dividends..... (25,276) (25,276) (4,250) (4,250)
--------- --------- --------- ---------
Loss attributable to common
shareholders before
extraordinary item........... (956,033) (975,983) (39,690) (162,121)
Extraordinary loss............ (9,838) (9,838) (31,817) (31,817)
--------- --------- --------- ---------
Net loss attributable to
common shareholders.......... $(965,871) $(985,821) $ (71,507) $(193,938)
========= ========= ========= =========
Weighted average number of
common shares outstanding.... 159,254 159,254 132,450 132,450
========= ========= ========= =========
Loss per share:
Loss before extraordinary
item....................... $ (6.00) $ (6.13) $ (0.30) $ (1.22)
Extraordinary loss.......... (0.06) (0.06) (0.24) (0.24)
========= ========= ========= =========
Net loss.................. $ (6.06) $ (6.19) $ (0.54) $ (1.46)
========= ========= ========= =========
</TABLE>
- --------
(1) For the nine months ended September 30, 1999, the dilutive effect of
unvested stock grants of 795, the option to purchase common stock of 32
and preferred stock of 44,785 were not included in the computation of
diluted earnings per shares because they are anti-dilutive. For the nine
months ended September 30, 1998, the dilutive effect of unvested stock
grants of 837, the option to purchase common stock of 1,175, preferred
stock of 6,003 and common stock of 1,551 issued in connection with
forward equity were not included in the computation of diluted earnings
per share because they are anti-dilutive.
(2) The adjustment relates to the mark-to-market and yield adjustment for the
forward equity contracts which could be settled in cash or stock, at
Wyndham's option.
9. COMMITMENTS AND CONTINGENCIES
Forward equity contracts
Wyndham's aggregate obligation under the forward equity transactions was
approximately $335.8 million at June 30, 1999. Effective June 30, 1999,
Wyndham settled in full all of the forward equity transactions in cash, with
part of the proceeds of the $1 billion equity investment. The 100.7 million
shares owned or held by the counterparties were retired effective June 30,
1999.
Contingencies
On June 29, 1992 an action for trademark infringement was filed in the New
York Supreme County of New York, Index No. 17474/92 titled Wyndham Hotel
Company, John Mados, and Suzanne Mados et al v. Wyndham Hotel Company, Ltd. It
is based upon the Madoses' alleged use of the mark WYNDHAM in connection with
the Wyndham Hotel located in Manhattan, New York City, and operated by the
Madoses since 1966 pursuant to a lease agreement entered into by the Madoses
on June 1, 1957. The case was tried in May 1996, and an order and partial
judgement was entered in March 1998. The order enjoins us from using the name
and mark "Wyndham" in connection with the advertising, promoting, managing or
operating a hotel in Manhattan, New York City, and places restrictions on
Wyndham's use of the name and mark "Wyndham" in all other areas of New York
outside
16
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
of Manhattan. In November 1998, an order was issued clarifying the original
order and a final judgment was entered. In December 1998, Wyndham appealed
that judgment to the New York Supreme Court, Appellate Division, First
Department. In January 1999, Wyndham moved for a stay of the injunction
pending appeal which motion was granted by the Appellate Division, First
Department on February 4, 1999. On May 18, 1999 the Appellate Division, First
Department rendered a decision and order affirming the final judgment. On May
24, 1999, Wyndham filed a motion for permission to appeal that decision to the
Court of Appeals of the State of New York. In July 1999, Wyndham received
notice that the Court of Appeals of the State of New York would not hear the
appeal.
Patriot and Old Wyndham have received two letters dated November 11, 1998
and December 2, 1998 (the "Letters") from the counsel for the Koffman family
and its affiliates (collectively, "Koffman") in connection with a Registration
Rights Agreement entered into as of March 31, 1998 (the "Agreement") among
Patriot, Old Wyndham and the Holders as defined therein, which such Holders
include Koffman. Counsel has asserted in the Letters that, in connection with
Patriot's and Old Wyndham's exercise of their "black-out" rights under the
Agreement, on October 8, 1998 Patriot and Old Wyndham are in breach of their
obligations to Koffman under the Agreement. Counsel has stated in the Letters
that Koffman will seek relief from Patriot and Old Wyndham for any losses that
Koffman may have sustained in connection with Patriot's and Old Wyndham's
alleged breach of the Agreement and also have implied that Koffman may file
against Patriot and Old Wyndham unspecified claims allegedly arising under the
federal securities laws. If Patriot and Old Wyndham are sued, they plan to
vigorously defend this lawsuit.
Patriot and Old Wyndham have disclosed various matters relating to Patriot
and Old Wyndham in their Form 8-K filed with the Securities and Exchange
Commission on November 9, 1998 including, without limitation, an assertion by
UBS AG, London Branch ("UBS") that Patriot and Old Wyndham are in default
under the terms of a forward contract by and among Patriot, Old Wyndham and
UBS. Patriot and Old Wyndham also have disclosed various matters in their
Joint Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 26, 1999, and in registration statements on Form S-3
(filed on April 28, 1999) and Form S-4 (filed on April 14, 1999).
On January 12, 1999, a putative class action lawsuit was filed on behalf of
the shareholders of Patriot and Old Wyndham in the Delaware Chancery Court.
This lawsuit, captioned Charles Fraschilla v. Paul A. Nussbaum, et al., No.
16895-NC, names as defendants Patriot, the then Patriot directors ("Patriot
Directors"), and Apollo Real Estate Advisors, L.P., Apollo Management, L.P.,
The Thomas H. Lee Company, Beacon Capital Partners, Inc. and Rosen Consulting
Group (collectively, the "Investors"). This lawsuit alleges, among other
things, that the Patriot Directors breached their fiduciary duties to
Patriot's then shareholders with respect to Patriot's financial condition and
by "effectively selling control" of Patriot to the Investors for inadequate
consideration and without having adequately considered or explored all other
alternatives to the sale or having taken steps to maximize shareholder value;
and the Investors aided and abetted the Patriot Directors in their purported
breaches of fiduciary duty. In the complaint, the plaintiff seeks an
injunction preventing the consummation of the deal with the Investors (which
Investment now has been consummated) and monetary damages.
On January 19, 1999, three additional and similar putative class action
lawsuits were filed in the same court by different purported class
representatives: Sybil R. Meisel and Steven Langsam, Trustees v. Paul A.
Nussbaum, et al., No 16905-NC; Crandon Capital Partners v. Paul A. Nussbaum,
et al., No. 16906-NC; and Robert A. Staub v. Paul A. Nussbaum, et al., No.
16907-NC. The four suits since have been consolidated under the Fraschilla
caption.
17
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
The parties have negotiated and entered into a stipulation of settlement to
settle these four putative consolidated class action lawsuits, dated September
17, 1999. The stipulation of settlement sets forth the principal bases for the
settlement, which include, among other things, the modification of Wyndham's
obligations to make the optional $300 million rights offering (the "Rights
Offering") specified in Section 6.13 of the Securities Purchase Agreement, as
follows: (a) Wyndham shall make the Rights Offering; (b) the Rights Offering
shall be made no earlier than 60 days after the Closing Date, as defined in
the Securities Purchase Agreement (the "Closing Date"), and shall be held open
for a period of not less than 30 days, and Wyndham shall use its good faith
efforts to commence the Rights Offering no later than 120 days after the
Closing Date; provided, however, that Wyndham will not be required to make the
Rights Offering if: (i) the SEC does not declare effective any registration
statement with regard to securities of Wyndham to be offered in the Rights
Offering; (ii) there is a pending court order, motion, legal proceeding or
other action to enjoin, prevent or delay the Rights Offering; or (iii) the
Rights Offering cannot be completed, despite Wyndham's good faith efforts,
within 170 days of the Closing Date. The stipulation of settlement has been
approved by order of the Delaware Chancery Court dated November 1, 1999.
In the court's order, the Court certified, for purposes of settlement, a
non-opt out, binding class of all persons and entities (exclusive of
defendants and their affiliates) who owned shares of Wyndham common stock
beneficially or of record, as of September 30, 1999 and/or sold shares of
Patriot or Wyndham common stock during the period from January 12, 1999 to and
including September 30, 1999 (the "Class"). The Court approved the settlement,
including dismissing with prejudice all claims of the plaintiffs and the Class
against the Defendants and others and approved an award of attorneys' fees to
counsel for the plaintiffs in the amount of $1.125 million. The Court order
has not yet become final.
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. On March 26, 1999, Patriot filed an answer to the
complaint in which it denied all liability. Wyndham plans to vigorously defend
this lawsuit.
On May 7, 1999, a putative class action lawsuit was filed in the United
States District Court for the Northern District of California on behalf of
former shareholders of California Jockey Club and Bay Meadows Operating
Company (collectively, "Bay Meadows") who subsequently became shareholders of
Patriot, Patriot American Hospitality Operating Company and Wyndham as a
result of the merger (the "Merger") of the above companies on or about July 1,
1997 (the "Class"). This lawsuit, captioned Johnson, et al. v. Patriot
American Hospitality, Inc. et al., C-99-2153-SI, names as defendants Patriot
American Hospitality, Inc., Wyndham International, Inc., PAH GP, Inc. PAH LP,
Inc., Patriot American Hospitality Partnership, L.P., Wyndham International
Operating Partnership, L.P. and PaineWebber Group, Inc. This action was
commenced on behalf of all former holders of Bay Meadows stock during a class
period from June 2, 1997 to the date of filing (May 7, 1999). This action
asserts securities fraud claims and alleges that the purported class members
wrongfully were induced to tender their Bay Meadows shares as part of the
Patriot/Bay Meadows merger based on a fraudulent prospectus. This action
further alleges that defendants continued to defraud shareholders about their
intentions to acquire numerous hotels and saddle Wyndham with massive debt
during the class period. Three other actions against the same defendants
subsequently were filed in the Northern District of California: (i) Ansell v.
Patriot American Hospitality, Inc., et al., No. C-99-2239 (filed May 14,
1999), (ii) Sola v. Paine Webber Group, Inc., et al., No. C-99-2770 (filed
June 11, 1999), and (iii) Gunderson v. Patriot American Hospitality, Inc., et
al., No. C 99-3040 (filed June 23, 1999). Another action with substantially
identical allegations, Susnow v. Patriot
18
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
American Hospitality, Inc., et al., No. 3-99-CV1354-T (filed June 15, 1999),
also subsequently was filed in the Northern District of Texas. By order of the
Judicial Panel on Multi-district litigation, the California actions have been
consolidated with the Susnow action and certain other actions listed below for
consolidated pretrial purposes in the Northern District of California. To
date, none of the defendants have been required to answer, move or otherwise
respond to the complaints and no discovery has been taken. Wyndham plans to
vigorously defend those lawsuits.
On or about June 22, 1999, a putative class action lawsuit captioned Levitch
v. Patriot American Hospitality, Inc., et al., No. 3-99-CV1416-D, was filed in
the Northern District of Texas against Patriot, Wyndham, James D. Carreker and
Paul A. Nussbaum. This action asserts securities fraud claims and alleges
that, during the period from January 5, 1998 to December 17, 1998, the
defendants defrauded shareholders by issuing false statements about Wyndham.
The complaint was filed on behalf of all shareholders who purchased Patriot
American and Wyndham stock during that period. Two other actions, Gallagher v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV1429-L, filed on June
23, 1999, and Szekely v. Patriot American Hospitality, Inc., 3-99-CV1866-D
filed August 23, 1999, allege substantially the same allegations and claims as
mentioned above. By order of the Judicial Panel on Multi-district litigation,
these actions have been consolidated with the Susnow action for consolidated
pretrial purposes in the Northern District of California. To date, none of the
defendants have been required to answer, move or otherwise respond to the
complaints and no discovery has been taken. Wyndham plans to vigorously defend
those lawsuits.
On May 18, 1999, Patriot received correspondence from Deborah Szekely
("Szekely"), one of the sellers of Golden Door Spa, which Patriot purchased on
May 28, 1998. In that correspondence, Szekely threatened to file a complaint
sounding in securities fraud based upon allegedly misleading financial
information provided to Szekely by Patriot. On May 21, 1999, Patriot received
correspondence from counsel for Szekely stating that Szekely would prosecute a
civil action against Patriot and related entities. Counsel enclosed a draft
Tolling Agreement with that letter. Patriot and potential litigants entered
into a Tolling Agreement on May 26, 1999, which extended the period for the
sellers to file a complaint to June 29, 1999. The Tolling Agreement
subsequently was extended to July 15, 1999 and then to August 2, 1999. Counsel
has provided Patriot with a draft complaint which purports to assert claims
under California state law for securities fraud, fraud in the inducement,
common law fraud, breach of fiduciary duty and deceit. To the best of
Patriot's knowledge, Szekely has not yet commenced that action but instead has
commenced the action listed above. If a complaint is filed and served on
Patriot, Patriot plans to vigorously defend this lawsuit.
Patriot, a subsidiary of Patriot (the "Subsidiary"), which is the general
partner of a partnership (the "Partnership") and an affiliate of the
Subsidiary, which is a limited partner of the Partnership, are parties to a
dispute with another limited partner of the Partnership relating to a proposed
hotel development in Jacksonville, Florida. The case is captioned C&M
Investors Limited v. Patriot American Hospitality, Inc. et al., originally
filed in the Florida Circuit Court, Fourth Judicial Circuit, in and for Duval
County, Florida, but later removed and now pending in the United States
District Court, Middle District of Florida, Jacksonville Division, Civil
Action No. 98-1236-Civ. J 20B. Wyndham plans to vigorously defend this
lawsuit.
On September 17, 1999, Starwood Hotels & Resorts Worldwide Inc. ("Starwood")
filed a lawsuit against Fred J. Kleisner, Richard Mahoney and Wyndham in the
United States District Court for the Southern District of New York. In the
lawsuit, captioned Starwood Hotels & Resorts Worldwide Inc. v. Fred J.
Kleisner et al, No. 99 Civ. 9811. The plaintiff alleged that Wyndham
tortiously interfered with alleged employment contracts between Starwood and
Kleisner and Mahoney, that the defendants misapproriated trade secrets
belonging to Starwood, that the defendants tortiously interfered with
Starwood's prospective business relationships and that the defendants are
unfairly competing with Starwood. The complaint sought injunctive relief and
other damages.
19
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
On November 12, 1999, Starwood and Wyndham, Kleisner and Mahoney (the
"Wyndham Defendants") entered into a Settlement Agreement and Mutual Release
(the "Settlement Agreement") under the terms of which all claims against the
Wyndham Defendants were dismissed with prejudice and the Wyndham Defendants
paid no damages. Under the Settlement Agreement, Wyndham agreed to
restrictions on its ability to hire and solicit for employment certain
Starwood employees until July 2000.
10. RELATED PARTY TRANSACTIONS
Consulting agreements
On February 26, 1999, 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 will remain as a
Director of Wyndham.
In accordance with terms of the Separation Agreement, Wyndham shall pay
severance of $3,200 reduced by any interest payments made by Wyndham on the
NationsBank Loan through June 30, 1999.
On August 13, 1999, in accordance with the terms of the separation
agreement, Wyndham repaid the outstanding balance of the NationsBank Loan, and
executed a promissory note and security agreement ("Promissory Note") with Mr.
Nussbaum in an amount of $7,846. The Promissory Note is secured by 449,818
shares of common stock ("Collateral Shares") and any and all distributions and
dividends which may from time to time be paid or payable on the Collateral
Shares. The Promissory Note bears interest at 5.5% per annum compounded
annually, and matures on August 13, 2005.
Additionally, Mr. Nussbaum's outstanding unvested options to purchase
Wyndham shares vested and will remain fully exercisable for the period of
their respective terms. Mr. Nussbaum elected to exchange his options on a
Black Scholes neutral basis for new options with an exercise price equal to
the fair market value of a share on the election date. On June 1, 1999, Mr.
Nussbaum exchanged 3,078,406 options at varying prices from $11.18 to $33.58
for 1,154,448 options at $5.1875. Mr. Nussbaum will also receive 250,000
shares equally over a three year period, of which 83,334 have vested as of
September 30, 1999. Additionally any restrictions were lifted from existing
shares held by Mr. Nussbaum.
As a condition to receiving the second and third installments of the shares,
Mr. Nussbaum has agreed to provide non-exclusive consulting services to
Wyndham for a period of two years following the resignation date.
Additionally, Mr. Nussbaum will receive other amounts as provided for in the
Separation Agreement.
Other related party transactions
In 1999, Wyndham amended its management contract for the Wyndham Anatole
Hotel to provide that the owners of the hotel may terminate the management
contract following the first annual meeting of Wyndham stockholders after the
completion of the $1 billion equity investment if Mr. Nussbaum continues on
the Board of Directors of Wyndham. Mr. Nussbaum has delivered a letter to
Wyndham stating that he would not stand for re-election to the Board of
Directors if it would result in a termination of the management contract.
Additionally, the owners of the Wyndham Anatole Hotel may terminate the
management contract if James D. Carreker ceases to be an executive officer of
Wyndham.
On April 30, 1999, Wyndham's option to purchase certain interests in Kinetic
Group Limited Partnership, which provides management information services to
Wyndham, expired without being exercised. Kinetic Group Limited Partnership is
owned 50% by Trammell Crow Company and 50% by an entity owned by Crow family
members and certain of Wyndham's senior executive officers.
In connection with the merger with Gencom Interests, Inc., Mr. Karim
Alibhai, an independent director, received 400,883 shares of Wyndham Class A
common stock. These shares were issued in consideration of Mr. Alibhai's
ownership interests in Gencom Interests, Inc. and valued at approximately
$1,813 on the date of merger.
20
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
11. DIVIDENDS
On May 4, 1998, Patriot declared a dividend of $0.298 per share for the
first quarter of 1998. The dividend was paid on May 29, 1998 to shareholders
of record on May 20, 1998.
On January 25, 1999, Patriot paid a stock dividend of $.44 per share of
common stock for the fourth quarter of 1998 to shareholders of record on
December 30, 1998. Earnings per common share, weighted average shares
outstanding and all stock option activity have been restated to reflect the
stock dividend.
On September 30, 1999, Wyndham paid a 9.75% dividend on the series B
convertible preferred stock. The dividend was paid partly in cash, and partly
in additional shares of series B preferred stock. Wyndham paid a total of
$7,315 in cash, representing approximately 30% of the dividend and issued
170,599 shares of series B convertible preferred shares representing
approximately 70% of the dividend.
12. SEGMENT REPORTING
Wyndham classifies its business into proprietary owned brands and non-
proprietary brand hotel divisions, under which it manages the business.
Among its proprietary branded hotels, Wyndham is positioned in the luxury
segment under the Grand Bay Hotel & Resorts(R) brand; in the upscale segment
under WyndhamTM; and in the mid-priced segment under the ClubHouse brand.
Additionally, Wyndham 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 Wyndham include
Malmaison and Grand Heritage(R).
Description of reportable segments
Wyndham has six reportable segments: Wyndham hotel properties, resort
properties, all suite properties, non-proprietary branded properties, 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.
. 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 designated 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), 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.
21
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
(unaudited)
. 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
Wyndham evaluates 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 Note 1.
Factors management used to identify the reportable segments
Wyndham's reportable segments are determined by brand affiliation and type
of property. The reportable segments are each managed separately due to the
specified characteristics of each segment.
<TABLE>
<CAPTION>
Non- Other
Wyndham Suite proprietary Proprietary
Hotels Resorts Properties Branded Branded Other Total
-------- -------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended
September 30, 1999
Total revenue........... $127,636 $111,827 $ 37,128 $258,978 $27,150 $ 16,562 $ 579,281
Operating income
(loss)................. $ 31,916 $ 11,667 $ 8,253 $ 61,492 $ 8,317 $(167,905) $ (46,260)
Three Months Ended
September 30, 1998
Total revenue........... $119,200 $ 93,344 $ 34,295 $281,066 $26,426 $ 49,519 $ 603,850
Operating income
(loss)................. $ 26,264 $ 7,886 $ 9,499 $ 57,403 $ 8,885 $(163,422) $ (53,485)
Nine Months Ended
September 30, 1999
Total revenue........... $417,572 $397,482 $105,433 $835,535 $73,860 $ 71,627 $1,901,509
Operating income
(loss)................. $114,762 $ 98,824 $ 22,663 $197,971 $21,794 $(721,164) $ (265,150)
Nine Months Ended
September 30, 1998
Total revenue........... $388,847 $293,570 $ 44,470 $484,406 $55,691 $ 159,096 $1,426,080
Operating income
(loss)................. $ 99,045 $ 67,058 $ 10,313 $118,424 $18,945 $(343,982) $ (30,197)
</TABLE>
The following table represents revenue information by geographic area for
the three and nine month periods ending September 30, 1999 and 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. Prior to this date, all of Wyndham's business was attributed
to hotel properties located in the United States and its territories.
<TABLE>
<CAPTION>
United States Europe Total
------------- ------- ----------
Three months ended September 30, 1999
- -------------------------------------
<S> <C> <C> <C>
Revenues....................................... $ 556,918 $22,363 $ 579,281
<CAPTION>
Three months ended September 30, 1998
- -------------------------------------
<S> <C> <C> <C>
Revenues....................................... $ 583,025 $20,825 $ 603,850
<CAPTION>
Nine months ended September 30, 1999
- ------------------------------------
<S> <C> <C> <C>
Revenues....................................... $1,841,991 $59,518 $1,901,509
<CAPTION>
Nine months ended September 30, 1998
- ------------------------------------
<S> <C> <C> <C>
Revenues....................................... $1,387,027 $39,053 $1,426,080
</TABLE>
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Patriot's and Wyndham's Joint Annual Report on Form 10-
K, as amended, for the year ended December 31, 1998.
Certain statements in this Form 10-Q constitute "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act of
1995 (the "Act"). The words "believe," "expect," "anticipate," "intend,"
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements. Although forward-looking statements
reflect management's good faith beliefs, forward-looking statements involve
known and unknown risks, uncertainties and other factors, which may cause the
actual results, performance or achievement of Wyndham to differ materially
from anticipated future results, performance or achievements expressed or
implied by such forward-looking statements. Wyndham undertakes 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 Wyndham, Wyndham's ability to integrate new acquisitions into its
operations and management; risks associated with the course of litigation;
Wyndham's ability to effect sales of assets on favorable terms and conditions;
risks associated with the hotel industry and real estate markets in general;
competition within the lodging industry; the ability of the Company, owners of
properties it manages or franchises and others to address the Year 2000 issue;
the impact of general economic conditions in the United States; risks
associated with debt financing; and other risks and uncertainties set forth in
the Company's annual, quarterly and current reports and proxy statements.
THE COMPANY
Effective June 30, 1999, Patriot and Old Wyndham completed a series of
transactions which included a restructuring of their existing organizational
structure. As a result of this restructuring, a wholly-owned subsidiary of Old
Wyndham was merged with and into Patriot, with Patriot being the surviving
entity. As such, Patriot is now a wholly-owned subsidiary of Old Wyndham, and
this combined entity, together with all subsidiaries, is hereafter referred to
as Wyndham. In connection with this restructuring, the pairing agreement
between Patriot and Old Wyndham was terminated. Patriot's status as a real
estate investment trust terminated effective January 1, 1999, and Patriot
became a taxable corporation as of that date.
The restructuring was reflected as a reorganization of two companies under
common control and was accounted for in a manner similar to that used in
pooling of interests accounting. As such, there was no revaluation of the
assets and liabilities of Old Wyndham or Patriot. The 1999 financial
statements of Wyndham are presented on a consolidated basis, representing the
operations of the corporation and its subsidiaries, including Patriot. The
1998 financial statements of Wyndham are presented on a combined basis,
representing the combined results of both Old Wyndham and Patriot. All
significant intercompany accounts and transactions have been eliminated.
At September 30, 1999, Wyndham, directly or through its subsidiaries, owned
interests in 175 hotels totaling over 43,000 rooms and leased 39 hotels from
third parties totaling over 5,700 rooms. In addition, Wyndham managed 89
hotels with over 21,000 rooms for third party owners and franchised 11 hotels
under the Wyndham, Summerfield or ClubHouse brands with over 2,600 rooms. The
hotels are diversified by franchise or brand affiliation and serve primarily
major U.S. business centers. In addition to hotels catering primarily to
business travelers, Wyndham's portfolio includes world-class resort hotels and
prominent hotels in major tourist destinations.
23
<PAGE>
Asset sales and 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 sale of an additional 10% interest in the Marriott Warner Center.
In February 1999, Patriot and Old Wyndham sold their interest in the Bay
Meadows Racecourse located in San Mateo, California. Patriot and Old Wyndham
received cash proceeds of approximately $3.4 million after payment of legal
costs and other closing costs. Patriot and Old Wyndham recognized an estimated
impairment loss on assets held for sale of $42.2 million 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 the sale of the asset was $42.8 million.
In March 1999, Patriot sold the Holiday Inn Crockett, realizing net cash
proceeds of approximately $18.0 million and recognized a gain of approximately
$2.6 million.
In April 1999, Patriot acquired the remaining 10% minority interests in each
of the four following hotels; the Radisson Akron; the Courtyard Beachwood; the
Holiday Inn Westlake; the Radisson Beachwood from IAH Snavely L.L.C.
("Snavely"). In addition, Patriot sold the Holiday Inn Beachwood to Snavely.
The transaction generated net proceeds of approximately $8.8 million. Patriot
recorded a loss on the sale of approximately $6.6 million.
On April 30, 1999, Patriot sold the following hotels: Hampton Inn Rochester,
Hampton Inn Jacksonville, Hampton Inn Cleveland, and the Hampton Inn Canton,
for net proceeds of approximately $23.5 million and recognized a loss of
approximately $1.4 million.
On May 7, 1999, Patriot exercised its option to purchase the interest in
ISIS 2000, formerly owned by certain related parties and Old Wyndham senior
executive officers, for a cash payment of $3.1 million. Subsequent to the
exercise of the option, Wyndham owns 100% of this entity which provides
reservations and other services to Wyndham.
On May 11, 1999, Wyndham sold the Holiday Inn Sebring for net proceeds of
approximately $4.1 million, and recognized a gain of approximately $0.6
million.
On May 18, 1999, Wyndham purchased the Billerica hotel for a total purchase
price of approximately $23.8 million including the assumption of debt of $16.4
million.
On July 30, 1999, Wyndham sold the Holiday Inn Redmont for net cash proceeds
of $1.8 million and recognized a loss of approximately $191,000.
On July 30, 1999, a wholly-owned subsidiary of Wyndham merged with Gencom
Interest, Inc. As a result of the merger, Wyndham acquired the remaining
34.52% interest in the Omni Baltimore hotel, and 421,161 shares of Wyndham
class A common stock owned by Gencom Interest Inc. The total purchase
consideration for the merger was approximately $6.0 million which consisted of
1,336,276 shares of Wyndham class A common stock.
On September 3, 1999, Wyndham sold certain land located in San Mateo,
California, to the Susan W. Lakatos Separate Property Trust Agreement, the Rot
Family Trust, and Ernest Weil Family Trust U.T.A. for a gross purchase price
of $3.5 million and recognized a gain of approximately $1.0 million.
On September 10, 1999, Wyndham acquired the remaining 75% interest in Le
Manoir de Gressey, an 86 room hotel located near Paris, France for a total
purchase price of approximately FRF 41.5 million,
24
<PAGE>
(approximately $6.7 million based on exchange rates at the time of closing)
and assumed debt of approximately FRF 51 million (approximately $8.2 million
based on exchange rates at the date of the closing).
Equity investment
Effective June 30, 1999, Wyndham completed a $1 billion equity investment
with a group of investors. Pursuant to the terms of this investment Wyndham
issued 9.55 million shares of series B convertible preferred stock in exchange
for gross proceeds of $955 million, representing an approximate 41% voting
control of Wyndham. The remaining $45 million of this investment was funded
through the transfer of one of the investor's loan receivable from PAH Realty
Company, LLC. to Wyndham International Inc. for the purchase of 450,000 shares
of series B convertible preferred stock. Wyndham incurred approximately $77.5
million in costs directly attributable to the equity investment. Among other
terms, this series B preferred stock pays quarterly dividends on a cumulative
basis, at a rate of 9.75% per year, and is convertible at the holders option
into Wyndham class B common stock.
For a period of 170 days following the completion of the investment, Wyndham
may redeem up to $300 million of the series B convertible preferred stock at a
redemption price of $102.00 per share (102% of the stated amount) plus all
accrued dividends. Wyndham intends to fund this redemption with the proceeds
of its offering to its stockholders and to the limited partners in the
Operating Partnerships of rights to purchase up to three million shares of its
series A convertible preferred stock, which generally has the same economic
terms as the series B convertible preferred stock, but has no voting rights,
except as required by law and except for a limited right to elect two
directors if dividends are in arrears for six quarterly periods. The record
date for the rights offering is September 30, 1999. The registration statement
for the rights offering was declared effective on November 8, 1999, and the
rights offering will expire on December 8, 1999.
Organizational restructuring
As a condition of the above investment, Old Wyndham was required to
terminate its pairing agreement with Patriot and restructured its existing
organization such that Patriot became a wholly-owned subsidiary of Wyndham.
Patriot's status as a real estate investment trust terminated effective
January 1, 1999, and Patriot became a taxable corporation as of that date.
Wyndham recorded a one-time charge of $675 million as required by SFAS No.
109 to establish a deferred tax liability that resulted from Patriot's change
in tax status from a REIT to a C corporation. This charge is included in
income tax expense in the accompanying 1999 condensed consolidated statement
of operations.
Wyndham also recorded a restructuring charge of $189.3 million as a result
of the termination of the paired share structure, and management's decision to
exit out of certain activities, resulting in the write-down of certain
nonstrategic assets, and costs to sever certain employees.
Wyndham recorded a charge of approximately $83.1 million for the write off
of the unamortized intangible asset associated with the paired share structure
which was abandoned on June 30, 1999. In addition, Wyndham incurred
approximately $4.7 million in severance and employee related costs for seven
employees in the New York corporate office and two employees in the Dallas
corporate office. The New York office was closed on June 30, 1999 and its
employees were terminated at that time. Wyndham has paid $4.2 million in the
form of cash and forgiveness of debt, the remaining unpaid portion of $0.5
million has been included in accrued liabilities at September 30, 1999.
Wyndham has also paid $0.5 million in professional fees associated with the
restructuring.
Wyndham recorded a charge of $83.0 million for the write-down of assets to
estimated fair value including $28.4 million of goodwill as a result of
management's strategy to exit from the European market for their non-branded
assets which will be sold. In addition, Wyndham recorded costs of $7.2 million
associated with anticipated staffing reductions and other exits costs
necessary to reduce Wyndham's infrastructure in Arcadian International,
Wyndham's management division in Europe. Included in accounts payable and
accrued expenses
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at September 30, 1999 was $3.3 million related to severance costs to terminate
67 employees in the European office and $2.8 million related to other exit
costs, primarily lease cancellations. Wyndham expects these actions to be
completed by December 31, 1999.
In addition, a charge of $8.3 million for the tradename intangibles
attributable to the Carefree brand was recorded, as management has decided
that none of the owned or managed assets will carry the Carefree brand now or
in the future.
On August 11, 1999, Wyndham announced its plan to realign its luxury
division in its continuing efforts to streamline its organization. As a
result, the Phoenix division office was closed on September 10, 1999. Wyndham
recorded costs of $2.0 million associated with severance payments for staffing
reductions of 19 employees, and $0.5 million for other exit costs. As of
September 30, 1999, included in accounts payable and accrued expenses was $2.3
million related to severance costs and other exit costs that have not yet been
completed as of September 30, 1999. Wyndham expects these actions to be
completed by March 31, 2000.
As part of the restructuring, the preferred stockholders of Old Wyndham were
offered an opportunity to exchange their preferred stock for Wyndham class A
common stock. Each of the 1.78 million shares of Old Wyndham series A
preferred stock and each of the 1.78 million shares of Old Wyndham series B
preferred stock were exchanged for one share of Wyndham class A common stock.
Pursuant to the merger of a wholly-owned subsidiary of Old Wyndham with
Patriot, each outstanding paired share and shares of Patriot series A
preferred stock was converted into a single share of Wyndham class A common
stock and each outstanding share of Patriot series B preferred stock was
converted into $25 per share and $1.61 of accrued dividends, or an aggregate
of $14.9 million in cash.
Additionally, the third party limited partners in both the Patriot
Partnership and the Wyndham Partnership were offered an opportunity to
exchange their limited partnership interests for Wyndham class A common stock.
As a result, an additional 15.1 million shares of Wyndham class A common stock
were issued in exchange for limited partnership units in the Operating
Partnerships. The effect of the exchange of certain limited partners'
interests for Wyndham class A common stock, resulted in an adjustment to the
basis of certain assets from the application of EITF 95-7. This adjustment is
reflected in the accompanying condensed consolidated balance sheet as a
reduction in basis of Wyndham's investment in real estate and related
improvements of $37.2 million, investment in unconsolidated subsidiaries of
$2.6 million and goodwill and intangibles of $78.4 million.
Interstate's third-party hotel management business
On May 27, 1998, Old Wyndham and Old Interstate entered into a settlement
agreement, as amended, with Marriott which addressed certain claims asserted
by Marriott in connection with Old Wyndham's then proposed merger with Old
Interstate. The settlement agreement provided for the dismissal of litigation
brought by Marriott, and allowed Old Wyndham's merger with Old Interstate to
close. In addition to dismissal of the Marriott litigation, the settlement
agreement provides for the re-branding of ten Marriott hotels under the
Wyndham name, the assumption by Marriott of the management of ten Marriott
hotels formerly managed by Old Interstate for the remaining term of the
Marriott franchise agreement, and the spin-off by Wyndham of the third-party
management business.
Effective June 18, 1999, Old Wyndham distributed approximately 92% of
Interstate in the form of a dividend to shareholders. Shareholders of record
on June 7, 1999 received one share of newly issued Interstate stock for every
thirty paired shares of Patriot and Old Wyndham. The remaining 8% is owned
equally by Wyndham and Marriott International, Inc.
As a result of the spin-off, Wyndham now also owns an approximate 55% non-
controlling interest in the subsidiary of Interstate which now operates the
third-party management business that Wyndham acquired from Old Interstate.
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Forward equity contracts
Wyndham's aggregate obligation under the forward equity contracts was
approximately $335.8 million at June 30, 1999. Effective June 30, 1999,
Wyndham settled in full all of the forward equity contracts in cash, with part
of the proceeds of the $1 billion equity investment. The 100.7 million shares
owned or held by the counterparties were retired effective June 30, 1999.
WYNDHAM INTERNATIONAL, INC.
Results of operations: quarter ended September 30, 1999 compared with quarter
ended September 30, 1998
For the three months ended September 30, 1999, Wyndham (including its
consolidated subsidiaries) had hotel revenues of $562,720,000 as compared to
$554,331,000 during the three months ended September 30, 1998. The increase of
$8,389,000 or 1.5% was primarily a result of several offsetting factors.
Revenues increased from the acquisition of leaseholds from DTR North Canton
Inc. (the "Doubletree Lessee") and North Coast Hotels, L.L.C. ("North Coast"),
the buyout of the controlling interest of two hotels, Crowne Plaza Ravinia and
Wyndham Windwatch, and by the opening of several hotels which were previously
under development. This increase was offset by a series of assets sales that
have occurred from November 1998 and the spin-off of Interstate's third party
management business, which also included several leased hotels. Hotel expenses
increased $11,556,000 from $417,814,000 to $429,370,000, as with revenues,
this 2.8% difference was a result of the offsetting factors as discussed
above.
Participating lease revenue declined to $341,000 from $8,932,000, in the
third quarter of 1999 as a result of the acquisition of the leaseholds from
third party lessees as discussed above. At September 30, 1999, Wyndham owned
one hotel that was leased to a third party, as compared to fourteen at
September 30, 1998.
Management fee and service fee income was $13,968,000 and $24,358,000 for
the three months ended September 30, 1999 and 1998, respectively. The decrease
is primarily the result of the spin-off of Interstate's third party management
business on June 18, 1999.
Interest and other income decreased from $6,274,000 for the three months
ended September 30, 1998 to $2,252,000 for the three months ended September
30, 1999. This decrease is primarily the result of $2,623,000 of business
interruption insurance proceeds received in the third quarter of 1998 as a
result of hurricane Georges.
Total revenues and expenses from the racecourse facility operations were
$9,955,000 and $8,810,000 respectively, for the three months ended September
30, 1998. There were no revenues or expenses for the same period in 1999, as
the racetrack operations were sold in February of 1999.
General and administrative expenses were $32,238,000 for the three months
ended September 30, 1999 as compared to $26,571,000 for the same period last
year. This increase of $5,667,000 is due in part to increases in salaries and
costs to attract and retain top management in the Company. In addition,
Wyndham has also reflected in general and administrative expenses, costs of
$2,028,000 for the quarter associated with becoming Year 2000 compliant and
$2,000,000 of additional professional fees related to the reorganization of
the Company. The increase was partially offset by the spin-off of Interstate's
third party management business.
As discussed in Note 4, Wyndham recorded a restructuring charge of
$3,906,000 for the third quarter of 1999. Wyndham recorded these costs
primarily due to realignment of the luxury division. This resulted in the
closure of the Phoenix division office, and costs associated with severance
payments for staffing reductions, and office lease cancellation costs.
Depreciation and amortization expense was $75,653,000 for the three months
ended September 30, 1999, compared to $68,236,000 for the three months ended
September 30, 1998. The increase in depreciation was primarily due to the
increase in capital renovations during the year, as well as the placement in
service of additional assets that were previously under development.
Interest expense for the three months ended September 30, 1999 was
$85,478,000 compared to $82,739,000 in 1998 resulting in an increase of
$2,739,000. This increase was primarily a result of lower capitalized interest
27
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for the current period. In the third quarter of 1999, capitalized interest
totaled $575,000 as compared to $3,619,000 for the same period last year. This
decrease was a result of the placement in service of several hotels that were
under development in the third quarter of 1998.
In connection with the acquisition of certain leaseholds and license
agreements, Wyndham recognized an expense of $3,940,000 related to the cost of
acquiring these agreements for the third quarter of 1998; no such expenses
were recognized for the same period in 1999.
In the third quarter of 1998, $525 million in treasury interest rate locks
with specified interest rates of 6.06%, 6.07% and 5.62% were settled resulting
in a charge to earnings of $49,225,000, no such charge was recognized for the
same period in 1999.
Wyndham's share of losses from unconsolidated subsidiaries was $931,000 for
the three months ended September 30, 1999 as compared to income of $1,888,000
in 1998. The decrease is primarily a result of two hotels, Crowne Plaza
Ravinia and Wyndham Windwatch, no longer being accounted for as an equity
investment. In June of 1999, Wyndham acquired the 1% controlling interest in
these hotels, and as a result they are now being accounted for on a
consolidated basis.
Minority interest's share of loss associated with the Operating Partnerships
was $4,722,000 for the nine months ended September 30, 1998. There was no
minority interest's share of loss associated with the Operating Partnerships
for the third quarter of 1999 due to amendments in the partnership agreements
at June 30, 1999, which amended the allocation of profit and loss to the
limited partners.
Minority interest's share of income in Wyndham's other consolidated
subsidiaries was $760,000 in the third quarter 1999 as compared to $4,500,000
in the same period in 1998. This reduction in minority interest is due
primarily to the acquisition of the third party's interests in four hotels
from Snavely, five hotels from CIGNA, and the Omni Baltimore.
The benefit for income taxes was $3,868,000 for the three months ended
September 30, 1999 as compared to a provision of $6,783,000 for the three
months ended September 30, 1998. For federal income tax purposes, the taxable
income from these entities cannot be consolidated with Wyndham's taxable
income or loss, and hence cannot be offset by operating losses created at the
Wyndham Partnership.
The extraordinary loss of $1,257,000 for the three months ended September
30, 1998, was a result of the charge for the write-off of deferred loan costs
associated with debt refinancing of certain mortgage debt; no such expenses
were recognized for the same period in 1999.
Primarily as a result of the foregoing, the Company reported a net loss of
$44,565,000 for the three months ended September 30, 1999 compared to a net
loss of $59,415,000 for the three months ended September 30, 1998.
Results of operations: nine months ended September 30, 1999 compared with
nine months ended September 30, 1998
For the nine months ended September 30, 1999, hotel revenues were
$1,829,882,000 as compared to $1,266,985,000 during the nine months ended
September 30, 1998. Of the approximate $562,897,000 increase, approximately
$376,451,000 was attributable to the 1998 acquisitions including Interstate,
Summerfield, Arcadian International and WHG, net of the leases which were
included in the Interstate spin-off. In addition, the purchase of the
remaining third party leaseholds interests, primarily CHC Lease Partners,
NorthCoast Hotels, and Doubletree Lessee, in June 1998, December 1998 and
January 1999 led to increases of hotel revenue of $110,934,000 as the
operations of the hotels during 1999 were consolidated in the statement of
operations, whereas in 1998, Wyndham was receiving a participating rent
payment. Additionally, $20,421,000 can be attributed to the hotels now in
operation which were previously under development, and the consolidation of
two hotels which were previously accounted on as an equity investment. Hotel
expenses increased from $924,471,000
28
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in 1998 to $1,325,646,000 in 1999. As with revenues, the vast majority of this
increase is a result of these acquisitions and the acquisition of the third
party leaseholds. As a percentage of revenue, gross operating profits remained
relatively constant between periods rising from 27.0% in 1998 to 27.6% in
1999.
The contributing factor of the decline in participating lease revenue from
$49,627,000 during the nine months ended September 30, 1998, to $929,000 for
the same period in 1999 was the acquisition of the third party leaseholds as
discussed above.
Management fee and service fee income was $57,186,000 and $61,574,000 for
the nine months ended September 30, 1999 and 1998, respectively. The decrease
is primarily the result of a decrease in incentive fee income associated with
seventeen management contracts which were renewed in 1998 with no provision to
earn incentive fees, and management contracts lost during the period. This was
partially offset by the acquisition of third party management contracts
acquired through the Summerfield acquisition in June 1998, and the Interstate
management contracts also acquired in June 1998, but were included in the
Interstate spin-off on June 18, 1999.
Interest and other income was $12,949,000 in 1998 as compared to $8,951,000
in 1999. The decrease of $3,998,000 resulted from a termination fee of
$2,950,000 and $2,623,000 of business interruption insurance proceeds received
in 1998.
Total revenues from the racecourse facility operations (including interest
and other income) were $4,561,000 for the nine months ended September 30, 1999
compared to $34,945,000 for the same period last year. Total costs and
expenses associated with the racecourse operations (included marketing costs,
and general and administrative expenses) were $3,867,000 for the nine months
ended September 30, 1999 compared to $29,667,000 for the same period last
year. These decreases are due to the sale of Bay Meadows racecourse effective
February 1999.
General and administrative expenses were $143,596,000 for the 1999 period
compared to $64,558,000 for the 1998 period. In part, the increase of
$79,038,000 is due to the increased overhead associated with the growth in the
portfolio of owned managed and leased hotels during 1998. However, the
significant portion of the increase was due to several factors as follows:
As a result of the $1 billion equity investment, Wyndham incurred costs
of $6,737,000 due to the acceleration of vesting of certain employees'
stock awards and Wyndham incurred $3,818,000 of expenses in reviewing
different strategic alternatives. The reorganization resulted in work
associated with a high yield bond offering and a bond offering in Puerto
Rico to cease, resulting in a write-off of costs associated with the
offerings totaling $3,710,000 and $5,228,000 in other abandoned transaction
costs.
Wyndham also incurred $4,681,000 in legal and unwind fees in order to
settle the forward equity contracts at September 30, 1999 and $5,095,000 of
costs associated with the spin-off on Intestate's third-party management
business.
In addition, Wyndham has also reflected in general and administrative
expenses, costs associated with becoming Year 2000 compliant of $5,703,000
during 1999.
Wyndham also recorded $4,695,000 in bad debt expense for the write-off of
receivables from a hotel that Wyndham no longer intends to manage and has
terminated the management contract.
Cost of acquiring license agreements and leaseholds was $803,000 for the
nine months ended September 30, 1999 as compared to $61,000,000 for the same
period in 1998. This decrease is primarily due to the prior year amount
including the purchase of 17 leasehold interest acquired in connection with
the CHCI merger.
As discussed in Note 4, Wyndham recorded $189,288,000 of costs associated
with the restructuring. The costs primarily consisted of the following:
$83,094,000 for the write off of an intangible asset associated with the
paired share structure which was abandoned on June 30, 1999, and $4,675,000
associated with severance payments due to the elimination of job
responsibilities. In addition, Wyndham reflected $82,957,000 in costs to
write-down assets to estimated fair values, including goodwill of $28,394,000
as a result of management's strategy to exit from the European market for non-
branded assets which will be sold, and $7,226,000 in staffing
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<PAGE>
reductions and other exit costs, primarily lease cancellations, necessary to
reduce Wyndham's infrastructure in Arcadian International, Wyndham's
management division in Europe. Wyndham also recorded a charge of $8,263,000
for the write-off of the Carefree trade name that will no longer be used with
any existing or future hotels. In the third quarter, Wyndham decided to close
its Phoenix division office and recorded $2,500,000 of costs associated with
severance, lease cancellations, and other exit costs, and $573,000 of
additional professional fees.
Interest expense for the nine months ended September 30, 1999 was
$266,678,000 as compared to $172,191,000 for the same period last year. The
increase is due in part to the closing of $1.45 billion in debt in June 1998
for the merger with Old Interstate. Secondly, as a result of extending certain
maturities of the credit facilities, Wyndham paid $11,700,000 in fees which
has been reflected in interest expense. Finally, Wyndham assumed, and incurred
additional debt in order to finance the Summerfield, Interstate and Arcadian
transactions during 1998.
In 1998, $525 million in treasury rate locks with specified interest rates
of 6.06%, 6.07%, and 5.62% were settled resulting in a charge to earnings of
$49,225,000. No such charge was recognized for the same period in 1999.
Depreciation and amortization expense was $232,558,000 for the nine months
ended September 30, 1999 compared to $155,165,000 for the nine months ended
September 30, 1998. Of the $77,393,000 increase, $47,700,000 was attributable
to the significant transactions which occurred during the first nine months of
1998, which included Arcadian International in April 1998, and Summerfield,
CHCI, and Interstate in June 1998. The remaining increase is due to
depreciation on renovations at the hotels and amortization of goodwill.
Wyndham's share of income from unconsolidated subsidiaries was $3,000,000
for the nine months ended September 30, 1999 as compared to $7,375,000 for the
nine months ended September 30, 1998. The decrease is primarily a result of
two hotels, Crowne Plaza Ravinia, and Wyndham Windwatch no longer being
accounted for as an equity investment. In June of 1999, Wyndham acquired the
1% controlling interest in these hotels, and thus are now being accounted for
on a consolidated basis. In addition, the decrease is due to the allocation of
losses from the company's approximate 55% investment in Interstate.
The provision for income taxes increased from $11,273,000 for the nine
months ended September 30, 1998 to $651,053,000 for the nine months ended
September 30, 1999. The increase is primarily due to the $675,000,000 charge
recorded during June 1999 due to Patriot converting from a REIT to a C
corporation, and the operations of certain special purpose controlled
subsidiaries, which separately report and pay taxes on their taxable income.
For federal income tax purposes, the taxable income from these subsidiaries
cannot be consolidated with Wyndham's taxable income or loss and hence can not
be offset by operating losses created at the Wyndham Partnership.
Minority interest's share of loss associated with the Operating Partnerships
was $6,642,000 for the nine months ended September 30, 1999 as compared to
$6,169,000 for the same period last year due to increased losses in the
Operating Partnerships prior to the amendments in the partnership agreements.
Minority interest's share of income in Wyndham's other consolidated
subsidiaries was $4,824,000 in 1999 as compared to $7,514,000 in 1998. This
reduction in minority interest's share of income is due primarily to the
acquisition of the outside interests in four hotels from Snavely, five hotels
from CIGNA, and the Omni Baltimore.
For the nine months ended 1998, certain debt obligations of Old Wyndham,
Interstate and Summerfield were repaid upon the merger and acquisition of
these entities. In addition, certain debt of WHG was refinanced in 1998. As a
result, Wyndham incurred certain prepayment penalties and wrote off the
remaining balance of unamortized deferred financing costs associated with such
debt resulting in an extraordinary loss of $31,817,000, net of minority
interest and income taxes. In connection with the new debt financing in 1999,
Wyndham wrote off the remaining balance of unamortized deferred financing
costs associated with the Old Credit facility resulting in an extraordinary
loss of $9,838,000, net of minority interest and income taxes.
As a result, the net loss was $921,223,000 for the nine months ended
September 30, 1999 and $67,257,000 for the nine months ended September 30,
1998.
30
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Results of reporting segments: Quarter ended September 30, 1999 compared with
quarter ended September 30, 1998
Wyndham's results of operations are classified into six reportable segments.
Those segments include Wyndham hotels, resort properties, all suite
properties, other proprietary branded properties, non-proprietary branded
properties and other.
Wyndham hotel properties include Wyndham Hotels, Wyndham Gardens and Wyndham
Grand Heritage and represent approximately 22.0% and 19.7% of total revenue
for the three months ended September 30, 1999 and 1998, respectively. Total
revenue was $127,636,000 compared to $119,200,000 for the quarters ended
September 30, 1999 and 1998, respectively. Operating income for the Wyndham
hotels was $31,916,000 compared to $26,264,000 for the quarters ended
September 30, 1999 and 1998, respectively. The increases in both revenue and
operating income is primarily attributed to the opening of several Wyndham
branded hotels subsequent to the third quarter of 1998, such as Wyndham Dallas
Park Central, Wyndham Boston, Wyndham Downtown Atlanta, Wyndham Billerica, and
the acquisition of the controlling interest in the Wyndham Windwatch.
Resort hotel properties, including Grand Bay and Wyndham represent
approximately 19.3% and 15.5% of total revenue for the quarters ended
September 30, 1999 and 1998, respectively. Total revenue was $111,827,000
compared to $93,344,000 for the quarters ended September 30, 1999 and 1998,
respectively. The increase of $18,483,000 is attributable in large part to
increased revenues at three resorts in Puerto Rico. These three hotels
experienced an increase in revenues of $16,372,000, primarily because their
revenues for the third quarter of 1998 were significantly affected by
hurricane Georges. Operating income for the resort properties was $11,667,000
compared to $7,886,000 for the quarters ended September 30, 1999 and 1998,
respectively. As with revenues, the increase in operating income of $3,781,000
can be attributed to the three resorts in Puerto Rico. These resorts reflected
a $3,745,000 increase from the prior quarter, as again the third quarter of
1998 was impacted by hurricane Georges.
All suite properties, including Summerfield and Sierra, represent
approximately 6.4% and 5.7% of total revenue for the three months ended
September 30, 1999 and September 30, 1998. Total revenue and operating income
were $37,128,000 and $8,253,000, respectively, for the three months ended
September 30, 1999, compared to $34,295,000 and $9,499,000, respectively, for
the three months ended September 30, 1998. The increase in revenues can
primarily be attributed to the branding of the Plaza Park hotel as a
Summerfield Suites. In the third quarter of 1998, this hotel was leased to a
third party, NorthCoast hotels.
Other proprietary branded properties, including Malmaison, Grand Heritage,
Clubhouse and hotels acquired in the Arcadian acquisition, represent
approximately 4.7% and 4.4% of total revenue for the quarters ended September
30, 1999 and 1998, respectively. Total revenue was $27,150,000 compared to
$26,426,000 for the quarters ended September 30, 1999 and 1998, respectively.
Operating income for these properties was $8,317,000 and $8,885,000 for the
quarters ended September 30, 1999 and 1998, respectively.
Non-proprietary branded properties, including Hilton, Holiday Inn, Marriott,
Ramada, Radisson, Hampton and other major hotel franchises, represent
approximately 44.6% and 46.5% of total revenue for the quarters ended
September 30, 1999 and 1998, respectively. Total revenue was $258,978,000
compared to $281,066,000 for the quarters ended September 30, 1999 and 1998,
respectively. The decrease is due primarily to the spin-off of several leases
in connection with the Interstate spin-off on June 18, 1999, as well as the
sale of non-proprietary branded assets throughout the year. This decrease was
partially offset by the acquisitions of leaseholds from North Coast and the
Doubletree Lessee in November 1998 and January 1999. Operating income for
these properties was $61,492,000 and $57,403,000 for the quarters ended
September 30, 1999 and 1998, respectively. The increase in operating income is
primarily attributable to the acquisition of leaseholds from NorthCoast and
the Doubletree Lessee.
Other represents revenue from various operating businesses including
management and other service companies, and participating lease revenue for
one hotel and a parcel of land. Expenses in this segment are primarily
interest, depreciation, amortization and corporate general and administrative
expenses. Wyndham recorded restructuring expenses that have also been included
in this segment. Total revenue for the other segment
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was $16,562,000 and $49,519,000 for the quarters ended September 30, 1999 and
1998, respectively. The overall $31,488,000 decrease in this segment's revenue
was caused by several factors including, the sale of the Bay Meadows Race
Track operations and leasehold effective February 1, 1999 which reduced
revenue by approximately $9,955,000. The purchase of the remaining third party
leasehold interests, North Coast Hotels in June and December of 1998,
respectively, reduced participating lease revenue by $8,591,000 and third
party management fees decreased by $10,390,000 primarily from the spin-off of
Interstate's third party management business. Operating losses for the segment
were $167,905,000 and $163,422,000 for the quarters ended September 30, 1999
and 1998, respectively. In addition to the decrease in revenues, the increase
in the segment's operating loss is a result of increased expenses. Interest
expense increased $2,739,000, depreciation and amortization increased
$7,417,000 and corporate general and administrative expense increased
$5,667,000. The sale of the Bay Meadows Race Track accounted for an
approximate $8,810,000 decrease in expenses. Wyndham also recorded a
restructuring charge of $3,906,000.
Results of reporting segments
Nine months ended September 30, 1999 compared with nine months ended
September 30, 1998
Wyndham hotel properties represent approximately 21.9% and 27.3% of total
revenue for the nine months ended September 30, 1999 and 1998, respectively.
Total revenue was $417,572,000 in 1999 as compared to $388,847,000 in 1998 or
an increase of 7.3%. Operating income was $114,762,000 in 1999 as compared to
$99,045,000 in 1998. The increase in both revenues and operating income is
primarily a result of the rebranding of certain hotels acquired in 1998 from
non-proprietary brand to Wyndham Hotels, as well as the opening of several
Wyndham hotels which were under development now placed in service.
Resort hotel properties represent approximately 20.9% and 20.6% of total
revenue for the nine months ended September 30, 1999 and 1998 respectively.
Total revenue increased from $293,570,000 to $397,482,000 while operating
income increased from $67,058,000 in 1998 to $98,824,000 in 1999. The increase
is primarily due to the acquisition of the remaining partner's interest in
resorts acquired in the merger with WHG Casinos & Resorts Inc. ("WHG") in
March 1998. Prior to the acquisition, Wyndham accounted for its investment in
El Conquistador and El San Juan, on the equity basis of accounting. Subsequent
to the purchase of the partners' interest, the operations were consolidated
into the statement of operations. In addition, hurricane Georges adversely
affected 1998's third quarter revenues and earnings at several Wyndham resort
properties.
All suite properties represent approximately 5.5% and 3.1% of total revenue
for the nine months ended September 1999, as compared to the same period in
1998. Total revenue increased from $44,470,000 to $105,433,000 and operating
income increased from $10,313,000 to $22,663,000 for the nine months ended
1998 to 1999, respectively. Summerfield was not acquired until June of 1998;
the timing of the acquisition is the primary reason for the increase of both
revenues and operating income.
Other proprietary branded properties represent approximately 3.9% and 3.9%
of total revenue for the nine months ended September 1999, as compared to the
same period in 1998. Total revenue increased from $55,691,000 to $73,860,000
and operating income increased from $18,945,000 to $21,794,000 for the nine
months ended 1998 to 1999. The hotels acquired in the Arcadian acquisition
were not acquired until April of 1998, accounting primarily for the increase
of both revenues and operating income.
Non-proprietary branded properties represent approximately 43.9% and 34.0%
of total revenue for the nine months ended September 1999, as compared to
1998. Total revenue increased from $484,406,000 to $835,535,000 and operating
income increased from $118,424,000 to $197,971,000 for the nine months ended
1998 to 1999, respectively. The increase is due primarily to the acquisition
of the owned and leased Interstate properties, and the leasehold interest in
CHC Lease Partners, NorthCoast, and the Doubletree Lessee. The increases were
partially offset by asset sales during the year, as well as the loss of
certain leaseholds in the Interstate spin-off.
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Other represents revenue from various operating businesses including
management and other service companies, and participating lease revenue for
one hotel and a parcel of land. Expenses in the segment are primarily
interest, depreciation and amortization and cooperate general and
administrative expenses. In 1999, Wyndham also recorded restructuring expenses
that have also been included in this segment. Total revenue for the other
segment was $71,627,000 and $159,096,000 for the nine months ended September
30, 1999 and September 30, 1998 respectively. The overall $87,469,000 decrease
in this segment's revenue was caused by several factors. The sale of Bay
Meadows Race Track operations and leasehold effective February 1, 1999 reduced
revenue by $30,384,000. The purchase of the third party leasehold interests,
primarily CHC Lease Partners and NorthCoast Hotels reduced participating lease
revenue by $48,698,000. Operating losses for the segment were $721,164,000 and
$343,982,000 for the nine months ended September 30, 1999 and 1998,
respectively. In addition to the decrease in revenues, the increase in the
segment's operating loss is a result of increased expenses resulting from the
mergers and acquisitions in 1998. Interest expense increased $94,487,000,
depreciation and amortization increased $77,393,000 and corporate and general
and administrative expenses increased $79,038,000. The sale of the Bay Meadows
Racetrack accounted for an approximate $25,800,000 decrease in expenses, and
the cost of acquiring the third party leaseholds in 1998 decreased expenses by
an additional $60,197,000. However, Wyndham recorded a restructuring charge in
1999 of $189,288,000 contributing to the loss in this segment.
Statistical information
During 1999, Wyndham's portfolio of owned and leased hotels experienced
moderate growth in both average daily rate ("ADR") and revenue per available
room ("REVPAR") of approximately 1.2% and 0.8% for the three months ended
September 30, 1999, and 2.0% and 1.2% for the nine months ended September 30,
1999, 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 market conditions in the U.S. lodging industry. The
following table sets forth certain statistical information for Wyndham's owned
and leased hotels for the three and nine month periods ended September 30,
1999 and 1998 as if the hotels were owned at the beginning of the periods
presented.
<TABLE>
<CAPTION>
Three months ended September 30
-------------------------------------------
Occupancy ADR REVPAR
---------- --------------- ---------------
1999 1998 1999 1998 1999 1998
---- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Wyndham Branded Hotels............. 70.6% 70.7% $107.59 $105.17 $ 75.99 $ 74.35
Grand Bay Hotels & Resorts......... 67.2% 64.7% $232.88 $232.99 $156.42 $150.62
Summerfield and Sierra Suites...... 82.4% 85.7% $120.61 $116.98 $ 99.35 $100.21
Malmaison.......................... 84.8% 83.4% $121.65 $123.49 $103.15 $102.99
Clubhouse.......................... 60.5% 69.5% $ 65.90 $ 67.53 $ 39.88 $ 46.95
Arcadian........................... 66.3% 62.4% $143.30 $148.88 $ 94.94 $ 92.80
Non Proprietary Brands............. 72.3% 72.2% $101.88 $101.89 $ 73.66 $ 73.57
Weighted average................... 72.0% 72.3% $107.53 $106.21 $ 77.45 $ 76.83
<CAPTION>
Nine months ended September 30
-------------------------------------------
Occupancy ADR REVPAR
---------- --------------- ---------------
1999 1998 1999 1998 1999 1998
---- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Wyndham Branded Hotels............. 72.2% 72.6% $120.73 $117.71 $ 87.16 $ 85.48
Grand Bay Hotels & Resorts......... 71.3% 69.8% $279.76 $277.65 $199.36 $193.75
Summerfield and Sierra Suites...... 81.6% 83.3% $118.05 $117.12 $ 96.38 $ 97.56
Malmaison.......................... 84.0% 78.1% $124.23 $120.94 $104.30 $ 94.41
Clubhouse.......................... 60.1% 68.5% $ 66.91 $ 68.19 $ 40.21 $ 46.70
Arcadian........................... 65.0% 58.4% $135.09 $139.03 $ 87.81 $ 81.23
Non Proprietary Brands............. 71.7% 72.3% $103.56 $102.25 $ 74.29 $ 74.01
Weighted average................... 72.3% 72.9% $113.95 $111.74 $ 82.42 $ 81.46
</TABLE>
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of September 30, 1999 were $216.1 million,
including restricted cash of $102.3 million. Cash and cash equivalents as of
September 30, 1998 were $147.4 million, including capital improvement reserves
of $29.1 million.
Cash flow provided by operating activities
Wyndham's principal source of cash to fund operating expenses and pay
dividends on its preferred stock is cash flow provided by operating
activities. Wyndham's principal source of cash flow is from the operation of
the hotels that it owns, leases and manages. Cash flows from operating
activities were $104.2 million for the nine months ended September 30, 1999,
and $231.3 million for the nine months ended September 30, 1998. The decrease
is primarily due to increased interest expense and general and administration
expenses related to evaluating strategic alternatives and certain severance
costs.
As a result of the reorganization, Wyndham will pay significantly more in
federal income taxes, but will have the ability to retain significantly more
earnings than was previously the case because Wyndham is not required to
distribute at least 95% or more of its taxable income to its shareholders.
Wyndham anticipates that its enhanced ability to retain earnings will allow it
to utilize cash flow from operating activities to fund maintenance, capital
expenditures and acquisitions. Wyndham does not anticipate paying a dividend
to its common shareholders. However, for the first six years, dividends on the
series B convertible preferred stock are structured to ensure an aggregate
fixed cash dividend payment of $29.25 million per year, so long as there is no
redemption or conversion of the investors' preferred stock; therefore, for
that period, dividends are payable partly in cash and partly in additional
shares of preferred stock. For the following four years, dividends are payable
in cash or additional shares of series B convertible preferred stock as
determined by the Board of Directors. After year ten, dividends are payable
solely in cash. The series A convertible preferred stock, which has the same
economic terms as the series B convertible preferred stock, will also require
dividend payments in cash and additional shares of series A convertible
preferred stock, with the aggregate amounts being dependent upon the number of
shares of series A convertible stock purchased pursuant to the rights
offering.
Cash flows from investing and financing activities
Cash flows used in investing activities of Wyndham were $220.3 million for
the nine months ended September 30, 1999, resulting primarily from the
acquisition of hotel properties, property renovations and improvements, and
cash deposited as escrows and property improvement reserves. Cash flows
provided by financing activities of $106.8 million for the nine months ended
September 30, 1999 were primarily related to the net proceeds from the sale of
the series B preferred stock, the net proceeds from the new credit facility
and the net proceeds from the new mortgage debt, partially offset by the
repayment of the old credit facility, term loans, and the settlement of the
forward equity contracts.
Cash flows used in investing activities of Wyndham were $1.5 billion for the
nine months ended September 30, 1998, resulting primarily from the acquisition
of hotel properties and management companies, renovation expenditures at
certain hotels, as well as cash deposited as collateral under the forward
equity contracts. Cash flows from financing activities of $1.3 billion for the
nine months ended September 30, 1998 were primarily related to borrowings
under the revolving credit facility and mortgage notes, and net proceeds from
private placements of equity securities, net of payments of dividends and
distributions.
As of September 30, 1999, Wyndham had approximately $1.3 billion outstanding
under the term loan, $650 million outstanding under the increasing rate loan
facility, and $100 million outstanding under the revolving credit facility.
Additionally, Wyndham had outstanding letters of credit totaling $24.4
million. As of September 30, 1999, Wyndham also had over $1.5 billion of
mortgage debt outstanding that encumbered 84 hotels and approximately $35.6
million in other debt, resulting in total indebtedness of approximately $3.5
billion. As of September 30, 1999, Wyndham had $375.6 million of additional
availability under the new revolving credit facility.
34
<PAGE>
Forward equity transactions
Wyndham's aggregate obligation under the forward equity transactions was
approximately $335.8 million at June 30, 1999. Effective June 30, 1999,
Wyndham settled in full all of the forward equity transactions in cash, with
part of the proceeds of the $1 billion equity investment. The 100.7 million
shares owned or held by the counterparties were retired effective June 30,
1999.
Credit facility and term loan
Wyndham's old credit facility with The Chase Manhattan Bank, Chase
Securities, Inc. and Paine Webber Real Estate consisted of a $900 million
revolving credit facility and a series of term loans in the aggregate amount
of $1.8 billion. Interest rates were based on Wyndham's leverage ratio and
varied from 1.5% to 3.0% over LIBOR. On June 30, 1999 the credit facility and
term loans were repaid with net proceeds of the $1 billion equity investment
and the new credit facilities.
New credit facility
Concurrent with the closing of the $1 billion equity investment, Wyndham
closed on a new $2.45 billion credit facility which consists of a $1.3 billion
term loan with a seven year term, a $500 million revolving credit facility
with a five year term, and a $650 million increasing rate loan facility with a
five year term. Proceeds, net of closing costs and fees of approximately $41.1
million from the term loan and the revolving credit facility, and proceeds,
net of closing costs and fees of approximately $17.9 million from the
increasing rate loan facilities, were used to retire existing indebtedness.
Interest rates are based upon LIBOR spread varying from 2.75% to 3.50% per
annum for the term loan, and 1.25% to 2.75% per annum for the revolving credit
facility, based both on Wyndham's leverage ratio, as defined, and whether any
increasing rate loans are outstanding. If any of the increasing rate loan
facility remains outstanding, the applicable margins shall be increased by
0.25%. The term loan and the revolving credit facility are guaranteed by the
domestic subsidiaries of Wyndham, and are secured by pledges of equity
interest held by Wyndham and its subsidiaries. Wyndham's ability to borrow
under its revolving credit facility is subject to Wyndham's compliance with a
number of customary financial and other covenants, including total leverage
and interest coverage ratios.
Interest rates for the increasing rate loans are based on LIBOR rates (less
statutory reserves), plus 3.50% through September 30, 1999, and increasing
0.50% every three months, with a cap of LIBOR plus 4.75%. The lender under the
increasing rate loans receive the benefit of the same guarantees and pledges
of security provided under the new term loan, and revolving credit facility.
New mortgage debt
Effective June 30, 1999, Wyndham also closed on a $346 million mortgage loan
with Bear, Stearns Funding, Inc., which is secured by twenty-five properties.
The loan matures on July 1, 2004 and bears interest at the LIBOR rate, plus
3.25% per annum. Proceeds from the mortgage debt were used to retire existing
mortgage indebtedness.
Additionally, effective June 30, 1999, Wyndham closed on a $235 million
mortgage loan with Lehman Brothers Holdings Inc., which is secured by ten
properties. The mortgage loan has a three-year term, with a one year extension
option, and bears interest at the LIBOR rate plus 3.50% per annum, plus an
additional 1.75% on the principal amount payable at maturity. Proceeds from
this mortgage loan were used to retire existing mortgage indebtedness.
Renovations and capital improvements
During the first nine months of 1999, Wyndham invested approximately $146.5
million in capital improvements, development projects and renovations.
Management reserves an average of 4.0% of total hotel
35
<PAGE>
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 hotel revenues in a single year.
Wyndham attempts 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 capital expenditure reserves or with working capital.
Inflation
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit Wyndham's ability to raise
room rates in the face of inflation.
Seasonality
The hotel industry is seasonal in nature. Revenues for certain of Wyndham'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
Wyndham's revenues.
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"). Wyndham recognized the importance of
minimizing the number and seriousness of any disruptions that may occur as a
result of Year 2000 and implemented an extensive compliance program. The
compliance program involved three major program areas:
. corporate information technology infrastructure and reservation systems
. other electronic assets, which include automated time clocks; point-of-
sale systems; non-information technology systems, such as embedded
technologies that operate fire-life safety systems, phone systems, energy
management systems; and other similar systems
. third parties with whom Wyndham conducts business
Wyndham applied a three phase approach to each program area:
. Inventory Phase--identified systems and third parties that may be
affected by Year 2000 issues
. Assessment Phase--prioritized the inventoried systems and third parties,
assessed their Year 2000 readiness, and planned corrective actions
. Remediation Phase--implemented corrective actions, verified
implementation, and formulated contingency plans
Wyndham, working with its consultants, identified various systems that were
not Year 2000 compliant and developed appropriate remediation plans. To
determine which of its systems were not compliant, Wyndham inventoried and
assessed its corporate information technology infrastructure and reservation
systems, and the information technology and other electronic assets located in
Wyndham's hotels (the "Wyndham Compliance Hotels") for which it could
implement independently or was authorized to implement its Year 2000
compliance program. At September 30, 1999, Wyndham could not initiate
independently, nor was it authorized to implement, its compliance program at
72 hotels, of which 31 were either managed, but not owned, by Wyndham and 41
were owned, but not operated, by Wyndham (the "Third Party Compliance
Hotels").
Wyndham believes that it has effected or will effect the necessary
remediation of its systems and other electronic assets that were identified as
failing to be Year 2000 compliant, and thereby will avoid substantial problems
arising from Year 2000 issues. Wyndham continues to monitor and randomly test
its systems to confirm the successful remediation of its systems. As a result
of those efforts, Wyndham may undertake additional
36
<PAGE>
reprogramming, upgrading and systems replacements in limited circumstances in
order to further correct any problems that did not surface during the initial
implementation and testing of those systems. Other than those limited
circumstances, Wyndham has completed its remediation efforts involving its
corporate information technology infrastructure and reservation systems, and
the Wyndham Compliance Hotels other than 16 hotels that are expected to be
completed during November 1999. To avoid any additional Year 2000 induced
conflicts in its systems or introduction of additional non-compliant systems,
Wyndham expects to limit any non-essential changes to its information
technology systems and related equipment until after January 1, 2000.
Of the 41 Third Party Compliance Hotels owned by Wyndham, the managers of 16
of those hotels have completed remediation plans and the managers of the other
25 hotels have recommended remediation plans to Wyndham and are expected to
complete those plans in the fourth quarter of 1999. Of the 31 Third Party
Compliance Hotels owned by third parties the owners of 26 hotels committed to
effecting their own remediation, without Wyndham's involvement, and as of
September 30, 1999, had informed Wyndham that 7 hotels were completed and the
remaining 19 were to be completed during the fourth quarter of 1999. The third
party owners of the remaining 5 Third Party Compliance Hotels have neither
informed Wyndham of whether they have undertaken any remediation nor
authorized Wyndham to effect any remediation on their behalf. At September 30,
1999 the 24 Third Party Compliance Hotels that were not owned by third parties
which had not yet completed or informed Wyndham of their compliance efforts
represent 11 percent of Wyndham's hotels (based on number of rooms).
Wyndham has surveyed the Year 2000 compliance of the owners of the hotels
that are franchised under the Wyndham brand but are not managed by Wyndham.
Wyndham has informed those owners of the appropriate standards to make their
equipment, which operates or interacts with Wyndham's systems, Year 2000
compliant. As of September 30, 1999, 5 of the 11 franchisees had informed
Wyndham that their hotels were Year 2000 compliant. An additional 6
franchisees provided assurances to Wyndham that they would be in compliance
prior to the end of the fourth quarter of 1999. One franchisee has yet to
confirm the status of its hotel. As the systems at the franchised hotels are
not under Wyndham's control, Wyndham must rely on the information provided by
those owners or managers/operators and will not be able to test the assessment
or remediation effected at the franchised hotels.
As of September 30, 1999, Wyndham had expended or committed to expend
approximately $24 million in connection with Year 2000 issues, and expects to
spend an additional $6 million. Wyndham does not expect the anticipated
expenditures to increase materially during the fourth quarter of 1999.
As part of the settlement of litigation arising out of Wyndham's merger with
Old Interstate, Wyndham agreed to contribute to a new company the management
rights that were acquired in that merger, and then dispose of substantially
all of that new company's stock by means of a spin-off to stockholders or
otherwise. That spin-off was completed as of June 18, 1999, and Wyndham does
not expect to bear any of the costs related to the inventory, assessment or
remediation of those hotels.
Wyndham identified the vendors and service providers critical to its
businesses and requested those parties to provide information concerning their
Year 2000 compliance and remediation efforts. Wyndham received responses from
59 percent of those vendors as of September 30, 1999. Based on preliminary
responses, Wyndham believes that its most critical vendors and service
providers will not cause Wyndham's operations to be materially disrupted as a
result of Year 2000 issues. Wyndham continues to seek 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 these requests. More importantly, Wyndham must rely on the
information provided by those third parties and will not be able to test their
compliance to verify the reported state of compliance. Wyndham intends to
continue to evaluate the extent to which it will be able to replace vendors
and service providers that are expected to be non-compliant. Considering the
lack of responses from vendors and due to the lack of alternate sources,
Wyndham expects it will be required to remain with potentially non-compliant
vendors and service providers.
In addition to those systems within Wyndham's control and the control of
Wyndham's vendors and service providers, there are other systems that may
impact Wyndham's business as a result of failing to become 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
37
<PAGE>
addition, the systems at the Third Party Compliance Hotels or the hotels
franchised under Wyndham's brands whose owners and managers/operators are
implementing their own compliance programs may fail to become Year 2000
compliant. The systems that are outside of Wyndham's control or influence
could adversely affect Wyndham's financial condition, results of operations or
its business reputation.
Wyndham believes that the most likely consequences of Year 2000 induced
failures will be local in nature and result in disruptions to utilities,
transportation and food services. Wyndham has developed contingency plans to
address these types of potential Year 2000 induced failures in addition to
contingency plans that anticipate the failure of one or more information
systems. Wyndham's contingency plans are based on existing plans for
operations during storms and other natural disasters resulting in the
disruption of these types of services and are intended to permit a hotel to
continue its operations for a reasonable short-term period without these
services. While Wyndham has developed an individualized contingency plan for
each hotel it manages and operates, any disruption in utilities or other key
local services could have the effect of disrupting operations of several
hotels located in that geographic area, thereby eliminating the potential
back-up services from another hotel and impairing the implementation of the
contingency plans.
Wyndham's financial condition, results of operations and its business
reputation could be affected adversely as a result of Year 2000 issues if:
. Wyndham's remediation efforts were unsuccessful and its contingency plans
were not effective or implemented successfully
. third parties' failure to become Year 2000 compliant disrupts the
operation of Wyndham's hotels or decreases the demand for Wyndham's
services generally
. the Third Party Compliance Hotels' remediation efforts were unsuccessful
. the third-party managers/operators of hotels owned by Wyndham fail to
develop effective contingency plans or to implement them successfully
. demand for hotel services decreases due to travelers' general concerns in
regard to Year 2000 issues
38
<PAGE>
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
Wyndham's primary market risk exposure is to future changes in interest
rates related to its derivative financial instruments and other financial
instruments including debt obligations, interest rate swaps, interest rate
caps, and future debt commitments.
Wyndham manages its debt portfolio by periodically entering into interest
rate swaps and caps to achieve an overall desired position of fixed and
floating rates or to limit its exposure to rising interest rates.
The following table provides information about Wyndham's derivative and
other financial instruments that are sensitive to changes in interest rates.
. For fixed rate debt obligations, the table presents principal cash flows
and related weighted-average interest rates by expected maturity date and
contracted interest rates at September 30, 1999. For variable rate debt
obligations, the table presents principal cash flows by expected maturity
date and contracted interest rates at September 30, 1999.
. For interest rate swaps and caps, the table presents notional amounts and
weighted-average interest rates or strike rates by expected (contractual)
maturity dates. Notional amounts are used to calculate the contractual
cash flows to be exchanged under the contract. Weighted average variable
rates are based on implied forward rates in the yield curve at September
30, 1999.
<TABLE>
<CAPTION>
Face Fair
1999 2000 2001 2002 2003 Thereafter Value Value
-------- ---------- -------- -------- -------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt
Long-term debt
obligations including
Current Portion
Fixed Rate............. $ 1,167 $ 33,790 $ 8,288 $ 46,092 $ 6,726 $ 335,191 $ 431,254 $ 431,254
Average Interest Rate.. 8.59% 8.68% 7.83% 8.89% 8.55% 8.17%
Variable Rate.......... $ 6,588 $ 178,060 $146,102 $280,110 $ 38,078 $2,469,348 $3,118,286 $3,118,286
Average Interest Rate.. 9.09% 7.65% 7.72% 8.50% 8.30% 8.78%
Interest Rate Derivative
Financial Instruments..
Related to Debt........
Interest Rate Swaps
Pay Fixed/Receive
Variable.............. -- $ 491,603 $ 30,453 $500,000 $250,000 -- $1,272,056 $1,277,440
Average Pay Rate....... 5.94% 5.94% 5.98% 6.00% 5.84%
Average Receive Rate... 5.83% 5.88% 6.36% 6.58% 6.67%
Interest Rate Caps
Notional Amount........ $208,750 $1,500,000 $ 57,475 -- -- $ 28,600 $1,794,825 $1,795,140
Strike Rate............ 7.39% 7.04% 7.80% 8.50% 8.50% 8.50%
Forward Rate........... 5.83% 5.88% 6.36% 6.58% 6.67% 6.73%
</TABLE>
39
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 29, 1992 an action for trademark infringement was filed in the New
York Supreme County of New York, Index No. 17474/92 titled Wyndham Hotel
Company, John Mados, and Suzanne Mados et al v. Wyndham Hotel Company. Ltd. It
is based upon the Madoses' alleged use of the mark WYNDHAM in connection with
the Wyndham Hotel located in Manhattan, New York City, and operated by the
Madoses since 1966 pursuant to a lease agreement entered into by the Madoses
on June 1, 1957. The case was tried in May 1996, and an order and partial
judgement was entered in March 1998. The order enjoins us from using the name
and mark "Wyndham" in connection with the advertising, promoting, managing or
operating a hotel in Manhattan, New York City, and places restrictions on
Wyndham's use of the name and mark "Wyndham" in all other areas of New York
outside of Manhattan. In November 1998, an order was issued clarifying the
original order and a final judgment was entered. In December 1998, Wyndham
appealed that judgment to the New York Supreme Court, Appellate Division,
First Department. In January 1999, Wyndham moved for a stay of the injunction
pending appeal which motion was granted by the Appellate Division, First
Department on February 4, 1999. On May 18, 1999 the Appellate Division, First
Department rendered a decision and order affirming the final judgment. On May
24, 1999, Wyndham filed a motion for permission to appeal that decision to the
Court of Appeals of the State of New York. In July 1999, Wyndham received
notice that the Court of Appeals of the State of New York would not hear the
appeal.
Patriot and Old Wyndham have received two letters dated November 11, 1998
and December 2, 1998 (the "Letters") from the counsel for the Koffman family
and its affiliates (collectively, "Koffman") in connection with a Registration
Rights Agreement entered into as of March 31, 1998 (the "Agreement") among
Patriot, Old Wyndham and the Holders as defined therein, which such Holders
include Koffman. Counsel has asserted in the Letters that, in connection with
Patriot's and Old Wyndham's exercise of their "black-out" rights under the
Agreement, on October 8, 1998 Patriot and Old Wyndham are in breach of their
obligations to Koffman under the Agreement. Counsel has stated in the Letters
that Koffman will seek relief from Patriot and Old Wyndham for any losses that
Koffman may have sustained in connection with Patriot's and Old Wyndham's
alleged breach of the Agreement and also have implied that Koffman may file
against Patriot and Old Wyndham unspecified claims allegedly arising under the
federal securities laws. If Patriot and Old Wyndham are sued, they plan to
vigorously defend this lawsuit.
Patriot and Old Wyndham have disclosed various matters relating to Patriot
and Old Wyndham in their Form 8-K filed with the Securities and Exchange
Commission on November 9, 1998 including, without limitation, an assertion by
UBS AG, London Branch ("UBS") that Patriot and Old Wyndham are in default
under the terms of a forward contract by and among Patriot, Old Wyndham and
UBS. Patriot and Old Wyndham also have disclosed various matters in their
Joint Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 26, 1999, and in registration statements on Form S-3
(filed on April 28, 1999) and Form S-4 (filed on April 14, 1999).
On January 12, 1999, a putative class action lawsuit was filed on behalf of
the shareholders of Patriot and Old Wyndham in the Delaware Chancery Court.
This lawsuit, captioned Charles Fraschilla v. Paul A. Nussbaum, et al., No.
16895-NC, names as defendants Patriot, the then Patriot directors ("Patriot
Directors"), and Apollo Real Estate Advisors, L.P., Apollo Management, L.P.,
The Thomas H. Lee Company, Beacon Capital Partners, Inc. and Rosen Consulting
Group (collectively, the "Investors"). This lawsuit alleges, among other
things, that the Patriot Directors breached their fiduciary duties to
Patriot's then shareholders with respect to Patriot's financial condition and
by "effectively selling control" of Patriot to the Investors for inadequate
consideration and without having adequately considered or explored all other
alternatives to the sale or having taken steps to maximize shareholder value;
and the Investors aided and abetted the Patriot Directors in their purported
breaches of fiduciary duty. In the complaint, the plaintiff seeks an
injunction preventing the consummation of the deal with the Investors (which
Investment now has been consummated) and monetary damages.
40
<PAGE>
On January 19, 1999, three additional and similar putative class action
lawsuits were filed in the same court by different purported class
representatives: Sybil R. Meisel and Steven Langsam, Trustees v. Paul A.
Nussbaum, et al., No 16905-NC; Crandon Capital Partners v. Paul A. Nussbaum,
et al., No. 16906-NC; and Robert A. Staub v. Paul A. Nussbaum, et al., No.
16907-NC. The four suits since have been consolidated under the Fraschilla
caption.
The parties have negotiated and entered into a stipulation of settlement to
settle these four putative consolidated class action lawsuits, dated on or
about September 17, 1999. The Stipulation of settlement sets forth the
principal bases for the settlement, which include, among other things, the
modification of Wyndham's obligations to make the optional $300 million rights
offering (the "Rights Offering") specified in Section 6.13 of the Securities
Purchase Agreement, as follows: (a) Wyndham shall make the Rights Offering;
(b) the Rights Offering shall be made no earlier than 60 days after the
Closing Date, as defined in the Securities Purchase Agreement (the "Closing
Date"), and shall be held open for a period of not less than 30 days, and
Wyndham shall use its good faith efforts to commence the Rights Offering no
later than 120 days after the Closing Date; provided, however, that Wyndham
will not be required to make the Rights Offering if: (i) the SEC does not
declare effective any registration statement with regard to securities of
Wyndham to be offered in the Rights Offering; (ii) there is a pending court
order, motion, legal proceeding or other action to enjoin, prevent or delay
the Rights Offering; or (iii) the Rights Offering cannot be completed, despite
Wyndham's good faith efforts, within 170 days of the Closing Date. The
Stipulation of Settlement has been approved by order of the Delaware Chancery
Court dated November 1, 1999.
In the courts order, the Court certified, for purposes of settlement, a non-
opt out, binding class of all persons and entities (exclusive of defendants
and their affiliates) who owned shares of Wyndham common stock beneficially or
of record, as of September 30, 1999 and/or sold shares of Patriot or Wyndham
common stock during the period from January 12, 1999 to and including
September 30, 1999 (the "Class"). The Court approved the settlement, including
dismissing with prejudice all claims of the plaintiffs and the Class against
the Defendants and others and approved an award of attorneys' fees to counsel
for the plaintiffs in the amount of $1.125 million. The court order has not
yet become final.
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. On March 26, 1999, Patriot filed an answer to the
complaint in which it denied all liability. Wyndham plans to vigorously defend
this lawsuit.
On May 7, 1999, a putative class action lawsuit was filed in the United
States District Court for the Northern District of California on behalf of
former shareholders of California Jockey Club and Bay Meadows Operating
Company (collectively, "Bay Meadows") who subsequently became shareholders of
Patriot, Patriot American Hospitality Operating Company and Wyndham as a
result of the merger (the "Merger") of the above companies on or about July 1,
1997 (the "Class"). This lawsuit, captioned Johnson, et al. v. Patriot
American Hospitality, Inc. et al., C-99-2153-SI, names as defendants Patriot
American Hospitality, Inc., Wyndham International, Inc., PAH GP, Inc. PAH LP,
Inc., Patriot American Hospitality Partnership, L.P., Wyndham International
Operating Partnership, L.P. and PaineWebber Group, Inc. This action was
commenced on behalf of all former holders of Bay Meadows stock during a class
period from June 2, 1997 to the date of filing (May 7, 1999). This action
asserts securities fraud claims and alleges that the purported class members
wrongfully were induced to tender their Bay Meadows shares as part of the
Patriot/Bay Meadows merger based on a fraudulent prospectus. This action
further alleges that defendants continued to defraud shareholders about their
intentions to acquire numerous hotels and saddle Wyndham with massive debt
during the class period. Three other actions against the same defendants
subsequently were filed in the Northern District of California: (i) Ansell v.
Patriot American Hospitality, Inc., et al., No. C-99-2239 (filed May 14,
1999), (ii) Sola v. Paine Webber Group, Inc., et al., No. C-99-2770 (filed
June 11, 1999), and (iii) Gunderson v. Patriot American Hospitality, Inc., et
al., No. C 99-3040 (filed June 23, 1999). Another action with substantially
identical allegations, Susnow v. Patriot American
41
<PAGE>
Hospitality, Inc., et al., No. 3-99-CV1354-T (filed June 15, 1999), also
subsequently was filed in the Northern District of Texas. By order of the
Judicial Panel on Multi-district litigation the California actions have been
consolidated with the Susnow action and certain other actions listed below for
consolidated pretrial purposes in the Northern District of California. To
date, none of the defendants have been required to answer, move or otherwise
respond to the complaints and no discovery has been taken. Wyndham plans to
vigorously defend those lawsuits.
On or about June 22, 1999, a putative class action lawsuit captioned Levitch
v. Patriot American Hospitality, Inc., et al., No. 3-99-CV1416-D, was filed in
the Northern District of Texas against Patriot, Wyndham, James D. Carreker and
Paul A. Nussbaum. This action asserts securities fraud claims and alleges
that, during the period from January 5, 1998 to December 17, 1998, the
defendants defrauded shareholders by issuing false statements about Wyndham.
The complaint was filed on behalf of all shareholders who purchased Patriot
American and Wyndham stock during that period. Two actions, Gallagher v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV1429-L, filed on June
23, 1999, and Szekely v. Patriot American Hospitality Inc., 3-99CY1866-D filed
August 23, 1999 allege substantially the same allegations and claims as
mentioned above. By order of the Judicial Panel on Multi-district litigation,
these actions have been consolidated with the Susnow action for consolidated
pretrial purposes in the Northern District of California. To date, none of the
defendants have been required to answer, move or otherwise respond to the
complaints and no discovery has been taken. Wyndham plans to vigorously defend
those lawsuits.
On May 18, 1999, Patriot received correspondence from Deborah Szekely
("Szekely"), one of the sellers of Golden Door Spa, which Patriot purchased on
May 28, 1998. In that correspondence, Szekely threatened to file a complaint
sounding in securities fraud based upon allegedly misleading financial
information provided to Szekely by Patriot. On May 21, 1999, Patriot received
correspondence from counsel for Szekely stating that Szekely would prosecute a
civil action against Patriot and related entities. Counsel enclosed a draft
Tolling Agreement with that letter. Patriot and potential litigants entered
into a Tolling Agreement on May 26, 1999, which extended the period for the
sellers to file a complaint to June 29, 1999. The Tolling Agreement
subsequently was extended to July 15, 1999 and then to August 2, 1999. Counsel
has provided Patriot with a draft complaint which purports to assert claims
under California state law for securities fraud, fraud in the inducement,
common law fraud, breach of fiduciary duty and deceit. To the best of
Patriot's knowledge, Szekely has not yet commenced that action but instead has
commenced the action listed above. If a complaint is filed and served on
Patriot, Patriot plans to vigorously defend this lawsuit.
Patriot, a subsidiary of Patriot (the "Subsidiary"), which is the general
partner of a partnership (the "Partnership") and an affiliate of the
Subsidiary, which is a limited partner of the Partnership, are parties to a
dispute with another limited partner of the Partnership relating to a proposed
hotel development in Jacksonville, Florida. The case is captioned C&M
Investors Limited v. Patriot American Hospitality, Inc. et al., originally
filed in the Florida Circuit Court, Fourth Judicial Circuit, in and for Duval
County, Florida, but later removed and now pending in the United States
District Court, Middle District of Florida, Jacksonville Division, Civil
Action No. 98-1236-Civ. J 20B. Wyndham plans to vigorously defend this
lawsuit.
On September 17, 1999, Starwood Hotels & Resorts Worldwide Inc. ("Starwood")
filed a lawsuit against Fred J. Kleisner, Richard Mahoney and Wyndham in the
United States District Court for the Southern District of New York. In the
lawsuit, captioned Starwood Hotels & Resorts Worldwide Inc. v. Fred J.
Kleisner et al., No. 99 Civ. 9811. The plaintiff alleged that Wyndham
tortiously interfered with alleged employment contracts between Starwood and
Kleisner and Mahoney, that the defendants misappropriated trade secrets
belonging to Starwood, that the defendants tortiously interfered with
Starwood's prospective business relationships and that the defendants are
unfairly competing with Starwood. The complaint sought injunctive relief and
other damages.
On November 12, 1999, Starwood and Wyndham, Kleisner and Mahoney (the
"Wyndham Defendants") entered into a Settlement Agreement and Mutual Release
(the "Settlement Agreement") under the terms of which all claims against the
Wyndham Defendants were dismissed with prejudice and the Wyndham Defendants
paid no damages. Under the Settlement Agreement, Wyndham agreed to
restrictions on its ability to hire and solicit for employment certain
Starwood employees until July 2000.
42
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since June 30, 1999, Wyndham International, Inc. ("Wyndham") has issued
securities in private placements in reliance on an exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended, in the following
amounts and for the consideration set forth below.
On July 1, 1999, Wyndham issued 450,000 shares of Series B convertible
preferred stock to Beacon Capital Partners, L.P. ("Beacon") for $45 million.
Beacon transferred its loan receivable from PAH Realty Company, LLC to Wyndham
International, Inc. for the purchase of these 450,000 shares of Series B
preferred stock. For the series B preferred stock, dividends are payable
quarterly, on a cumulative basis, at a rate of 9.75% per year. For the first
six years, the dividends are structured to ensure an aggregate fixed cash
dividend payment of $29.25 million per year, so long as there is no redemption
or conversion of the investors' series B preferred stock; therefore, for that
period, dividends are payable partly in cash and partly in additional shares
of series B preferred stock, with the cash component initially equal to 30%
for the first dividend and declining over the period to approximately 19.8%
for the final dividend in year six. For the next four years dividends are
payable in cash or additional shares of series B preferred stock as determined
by the Board of Directors; and after year 10, dividends are payable solely in
cash. If any dividends are paid on the Wyndham common stock, additional
dividends will be paid in the amount that would have been paid on the shares
of Wyndham common stock into which the series B preferred stock is then
convertible. If a change in control or a liquidation of Wyndham occurs within
six years following the investment, any dividends remaining for the six years
will be accelerated and paid. The series B preferred stock is not redeemable
by Wyndham for six years, except that $300 million of the series B preferred
stock may be redeemed during the 170 day period following the closing of the
investment. The series B preferred stock can vote with the Wyndham common
stock on an as-converted basis on matters submitted to the common stockholders
and voting as a separate class on specified matters, with special rules
applying to the election of directors. The series B preferred stock is also
convertible, at the holder's option, into a number of shares of Wyndham common
stock equal to $100.00 divided by the conversion price, initially equal to
$8.59 but subject to potential downward adjustments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Item No. Description
-------- -----------
<C> <S>
10.1 Executive employment agreement dated April 19, 1999 between Wyndham
International, Inc. and Anne L. Raymond.
10.2 Executive employment agreement dated August 12, 1999 between
Wyndham International, Inc. and Fred J. Kleisner.
10.3 Executive employment agreement dated August 18, 1999 between
Wyndham International, Inc. and James D. Carreker.
10.4 Letter agreement dated July 7, 1999 between Wyndham International,
Inc. and Karim Alibhai.
27.1 Financial Data Schedule--Wyndham (filed herewith).
</TABLE>
(b) Reports on Form 8-K for the quarter ended September 30, 1999.
(1) Joint Current Report on Form 8-K of Patriot American Hospitality,
Inc. and Wyndham International, Inc. dated March 26, 1999 filed March 29,
1999 (Nos. 001-09319 and 001-09320), as amended May 10, 1999, May 24, 1999,
and September 3, 1999 filing under Item 5 the pro forma financial
information for the year ended December 31, 1998.
(2) Current Report on Form 8-K of Wyndham International, Inc. dated
August 19, 1999 (001-9320) reporting under Item 4, the change in its
independent accountants from Ernst & Young LLP to PricewaterhouseCoopers
LLP.
(3) Current Report on Form 8-K of Wyndham International, Inc. dated
September 17, 1999 (001-9320) reporting under Item 5, announcing the
settlement of certain class action litigation and the record date for its
rights offering.
(4) Current Report on Form 8-K of Wyndham International, Inc. dated
November 8, 1999 (001-9320) reporting under Item 5, announcing its earnings
for the quarter ended September 30, 1999.
43
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
Wyndham International, Inc.
/s/ Richard Mahoney
By __________________________________
Richard Mahoney
Chief Financial Officer
(Authorized Officer and Principal
Accounting and Financial Officer)
DATED: November 15, 1999
44
<PAGE>
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED
This AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is
made as of the 19th day of April, 1999, between Wyndham International, Inc., a
Delaware corporation (the "Company"), and Anne L. Raymond ("Executive").
WHEREAS, Executive is currently employed by the Company in a senior
executive capacity;
WHEREAS, the Company desires to continue to employ Executive and Executive
desires to continue to be employed by the Company;
WHEREAS, the Company and Executive desire to amend and restate Executive's
existing Executive Employment Agreement with the Company to make certain changes
therein and to eliminate the requirement of an escrow arrangement upon a Change
in Control of the Company;
WHEREAS, the Company and Executive acknowledge that regardless of the
provisions of Paragraph 8 of this amended and restated Agreement, upon the
closing of the Securities Purchase Agreement by and among Patriot American
Hospitality, Inc., Wyndham International, Inc., Patriot American Hospitality,
L.P. and the Investors named therein, all options and other stock-based awards
granted to Executive prior to the date of this Agreement shall immediately
accelerate and become exercisable or non-forfeitable as of such date;
WHEREAS, as an additional inducement to Executive to enter into this
amended and restated Agreement, the Company shall, on the Commencement Date (as
hereinafter defined), grant Executive an option to purchase a certain number of
Paired Shares of common stock of the Company and of common stock of Patriot
American Hospitality, Inc. as set forth in the agreement attached hereto as
Exhibit A (the "Option") and to enter into a new promissory note attached hereto
as Exhibit B (the "Note"); and
WHEREAS, Executive is desirous of committing to serve the Company on the
terms herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment. The term of this Agreement shall extend from the date hereof
(the "Commencement Date") until the third anniversary of the Commencement Date;
provided, however, that the term of this Agreement shall automatically be
extended for one additional year on the third anniversary of the Commencement
Date and each anniversary thereafter unless, not less than 90 days prior to each
such date, either party shall have given notice to the other that it does not
wish to extend this Agreement; provided, further, that if a Change in
<PAGE>
Control occurs during the original or extended term of this Agreement, the term
of this Agreement shall continue in effect for a period of not less than
eighteen (18) months beyond the month in which the Change in Control occurred.
The term of this Agreement shall be subject to termination as provided in
Paragraph 6 and may be referred to herein as the "Period of Employment."
2. Position and Duties. During the Period of Employment, Executive shall serve
as an Executive Vice President and Chief Investment Officer of the Company,
shall have supervision and control over and responsibility for the day-to-day
business and affairs of those functions and operations of the Company and shall
have such other powers and duties as may from time to time be prescribed by the
Chairman of the Board of the Company (the "Chairman") or the Chief Executive
Officer of the Company (the "CEO") or other executive authorized by the Chairman
or CEO, provided that such duties are consistent with Executive's position or
other positions that he may hold from time to time. Executive shall devote his
full working time and efforts to the business and affairs of the Company.
Notwithstanding the foregoing, Executive may serve on other boards of directors,
with the approval of the Chairman or CEO, or engage in religious, charitable or
other community activities as long as such services and activities are disclosed
to the Chairman or CEO and do not materially interfere with Executive's
performance of his duties to the Company as provided in this Agreement.
3. Compensation and Related Matters.
(a) Base Salary and Incentive Compensation. Executive's initial annual base
salary ("Base Salary") shall be $325,000.00. Effective July 1, 1999, Base Salary
shall be adjusted to $350,000.00. Executive's Base Salary shall be redetermined
at least thirty (30) days before each annual compensation determination date
established by the Company during the Period of Employment in an amount to be
fixed by the Board of Directors of the Company or a Committee thereof or a duly
authorized officer (the "Board"). The Base Salary, as redetermined, may be
referred to herein as "Adjusted Base Salary." The Base Salary or Adjusted Base
Salary shall be payable in substantially equal bi-weekly installments and shall
in no way limit or reduce the obligations of the Company hereunder. In addition
to Base Salary or Adjusted Base Salary, Executive shall be eligible to receive
cash incentive compensation as determined by the Board from time to time, and
shall also be eligible to participate in such incentive compensation plans as
the Board shall determine from time to time for employees of the same status
within the hierarchy of the Company.
(b) Expenses. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures then in effect and established by the Company for its senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with Company policy.
(c) Other Benefits. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of the
Company's Employee Benefit
2
<PAGE>
Plans in effect on the date hereof, or under plans or arrangements that provide
Executive with at least substantially equivalent benefits to those provided
under such Employee Benefit Plans. As used herein, "Employee Benefit Plans"
include, without limitation, each pension and retirement plan; supplemental
pension, retirement and deferred compensation plan; savings and profit-sharing
plan; stock ownership plan; stock purchase plan; stock option plan; life
insurance plan; medical insurance plan; disability plan; and health and accident
plan or arrangement established and maintained by the Company on the date hereof
for employees of the same status within the hierarchy of the Company. To the
extent that the scope or nature of benefits described in this section are
determined under the policies of the Company based in whole or in part on the
seniority or tenure of an employee's service, Executive shall be deemed to have
a tenure with the Company equal to the actual time of Executive's service with
Company. During the Period of Employment, Executive shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement which may, in the future, be made available by the Company to its
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plan or
arrangement. Any payments or benefits payable to Executive under a plan or
arrangement referred to in this Subparagraph 3(c) in respect of any calendar
year during which Executive is employed by the Company for less than the whole
of such year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which he is so employed. Should any such payments or benefits accrue
on a fiscal (rather than calendar) year, then the proration in the preceding
sentence shall be on the basis of a fiscal year rather than calendar year.
(d) Life Insurance. The Company shall pay the premiums on, and maintain in
effect throughout the Period of Employment, a life insurance policy on the life
of Executive in an amount not less than the amount of Executive's then current
Base Salary or Adjusted Base Salary. Executive shall have the right to designate
the beneficiary under such policy.
(e) Vacations. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for
executives at the same level as Executive. Executive shall also be entitled to
all paid holidays given by the Company to its executives. To the extent that the
scope or nature of benefits described in this section are determined under the
policies of the Company based in whole or in part on the seniority or tenure of
an employee's service, Executive shall be deemed to have a tenure with the
Company equal to the actual time of Executive's service with Company.
(f) Disability Insurance. The Company shall pay the premiums on, and
maintain in effect through the Period of Employment, long-term disability
insurance providing for payment of benefits at rates not less than sixty percent
(60%) of Executive's current Base Salary or Adjusted Base Salary.
(g) Tax Loan. Upon the maturity of the Note, if Executive is still employed
by the Company, the Company shall provide Executive with a loan (the "Tax Loan")
in an amount sufficient to enable Executive to pay taxes due upon the maturity
of the Note. The Tax Loan
3
<PAGE>
shall (i) be personal recourse, (ii) have a term of four (4) years, (iii) bear
interest at (a) six percent (6%) per annum, compounded annually from the date of
making the Tax Loan through April 18, 2002 and (b) from and after April 19,
2002, shall be at the Company's revolver interest rate, and (iv) require
Executive to prepay with fifty percent (50%) of the net after-tax proceeds of
the sale of any shares of stock of the Company acquired through option exercises
and with twenty-five percent (25%) of the net after-tax amount of any bonus
payment from the Company.
4. Unauthorized Disclosure.
(a) Confidential Information. Executive acknowledges that in the course of
his employment with the Company (and, if applicable, its predecessors), he has
been allowed to become, and will continue to be allowed to become, acquainted
with the Company's business affairs, information, trade secrets, and other
matters which are of a proprietary or confidential nature, including but not
limited to the Company's and its predecessors' operations, business
opportunities, price and cost information, finance, customer information,
business plans, various sales techniques, manuals, letters, notebooks,
procedures, reports, products, processes, services, and other confidential
information and knowledge (collectively the "Confidential Information")
concerning the Company's and its predecessors' business. The Company agrees to
provide on an ongoing basis such Confidential Information as the Company deems
necessary or desirable to aid Executive in the performance of his duties.
Executive understands and acknowledges that such Confidential Information is
confidential, and he agrees not to disclose such Confidential Information to
anyone outside the Company except to the extent that (i) Executive deems such
disclosure or use reasonably necessary or appropriate in connection with
performing his duties on behalf of the Company, (ii) Executive is required by
order of a court of competent jurisdiction (by subpoena or similar process) to
disclose or discuss any Confidential Information, provided that in such case,
Executive shall promptly inform the Company of such event, shall cooperate with
the Company in attempting to obtain a protective order or to otherwise restrict
such disclosure, and shall only disclose Confidential Information to the minimum
extent necessary to comply with any such court order; (iii) such Confidential
Information becomes generally known to and available for use by the hotel and
hospitality industry (the "Hotel Industry"), other than as a result of any
action or inaction by Executive; or (iv) such information has been rightfully
received by a member of the Hotel Industry or has been published in a form
generally available to the Hotel Industry prior to the date Executive proposes
to disclose or use such information. Executive further agrees that he will not
during employment and/or at any time thereafter use such Confidential
Information in competing, directly or indirectly, with the Company. At such time
as Executive shall cease to be employed by the Company, he will immediately turn
over to the Company all Confidential Information, including papers, documents,
writings, electronically stored information, other property, and all copies of
them provided to or created by him during the course of his employment with the
Company.
4
<PAGE>
(b) Heirs, successors, and legal representatives. The foregoing provisions
of this Paragraph 4 shall be binding upon Executive's heirs, successors, and
legal representatives. The provisions of this Paragraph 4 shall survive the
termination of this Agreement for any reason.
5. Covenant Not to Compete. In consideration for the Option and the Loan and
for Executive' s employment by the Company under the terms provided in this
Agreement and as a means to aid in the performance and enforcement of the terms
of the Unauthorized Disclosure provisions of Paragraph 4, Executive agrees that
(a) during the term of Executive's employment with the Company and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not, directly or indirectly, as an
owner, director, principal, agent, officer, employee, partner, consultant,
servant, or otherwise, carry on, operate, manage, control, or become involved in
any manner with any business, operation, corporation, partnership, association,
agency, or other person or entity which is in the business of owning, operating,
managing or granting franchise rights with respect to hotels, motels or other
lodging facilities in any area or territory in which the Company conducts
operations; provided, however, that the foregoing shall not prohibit Executive
from owning up to one percent (1%) of the outstanding stock of a publicly held
company engaged in the hospitality business. Notwithstanding the foregoing,
Executive shall be permitted to engage in such activities with respect to any
other hotel, motel or lodging facility that would be immaterial to the
operations of the Company in the area or territory in question. Immateriality,
for purposes of the foregoing sentence, shall be determined in the sole
discretion of the Board in good faith.
(b) during the term of Executive's employment with the Company and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not, directly or indirectly, either
for himself or for any other business, operation, corporation, partnership,
association, agency, or other person or entity, call upon, compete for, solicit,
divert, or take away, or attempt to divert or take away any of the customers
(including, without limitation, any hotel owner, lessor or lessee, asset
manager, trustee, consumer with whom the Company from time to time (i) has an
existing agreement or business relationship; or (ii) has included as a prospect
in its applicable pipeline) or vendors of the Company in any of the areas or
territories in which the Company conducts operations if such action has the
intent or effect of interfering with the Company's relationship with the vendor
or customer.
(c) during the term of Executive's employment with the Company and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not directly or indirectly solicit or
induce any present or future employee of the Company to accept employment with
Executive or with any business, operation, corporation, partnership,
association, agency, or other person or entity with which Executive may be
associated, and Executive will not employ or cause any business, operation,
corporation, partnership, association, agency, or other person or entity with
which Executive may be
5
<PAGE>
associated to employ any present or future employee of the Company without
providing the Company with ten (10) days' prior written notice of such proposed
employment.
Should Executive violate the provisions of this Paragraph, then in addition
to all other rights and remedies available to the Company at law or in equity,
the duration of this covenant shall automatically be extended for the period of
time from which Executive began such violation until he permanently ceases such
violation.
6. Termination. Executive's employment hereunder may be terminated without any
breach of this Agreement under the following circumstances:
(a) Death. Executive's employment hereunder shall terminate upon his death.
(b) Disability. If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have been absent from his duties hereunder on
a full-time basis for one hundred eighty (180) calendar days in the aggregate in
any twelve (12) month period, the Company may terminate Executive's employment
hereunder.
(c) Termination by Company For Cause. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder for Cause
if such termination is approved by not less than a majority of the Board of
Directors of the Company at a meeting of such Board of Directors called and held
for such purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct
by Executive constituting a material act of willful misconduct in connection
with the performance of his duties, including, without limitation,
misappropriation of funds or property of the Company or any of its affiliates
other than the occasional, customary and de minimis use of Company property for
personal purposes; (B) criminal or civil conviction of Executive, a plea of nob
contendere by Executive or conduct by Executive that would reasonably be
expected to result in material injury to the reputation of the Company if he
were retained in his position with the Company, including, without limitation,
conviction of a felony involving moral turpitude; (C) continued, willful and
deliberate non-performance by Executive of his duties hereunder (other than by
reason of Executive's physical or mental illness, incapacity or disability) and
such non-performance has continued for more than thirty (30) days following
written notice of such non-performance from the Board; (D) a breach by Executive
of any of the provisions contained in Paragraphs 4 and 5 of this Agreement; or
(E) a violation by Executive of the Company's employment policies and such
violation has continued following written notice of such violation from the
Board.
(d) Termination Without Cause. At any time during the Period of Employment,
the Company may terminate Executive's employment hereunder without Cause if such
termination is approved by a majority of the Board at a meeting of the Board
called and held for such purpose. Any termination by the Company of Executive's
employment under this Agreement which does not constitute a termination for
Cause under Subparagraph 6(c) or result from the death or disability of the
Executive under Subparagraph 6(a) or (b) shall be
6
<PAGE>
deemed a termination without Cause. If the Company provides notice to the
Executive under Paragraph 1 that it does not wish to extend the Period of
Employment, such action shall be deemed a termination without Cause.
(e) Termination by Executive. At any time during the Period of Employment,
Executive may terminate his employment hereunder for any reason, including but
not limited to Good Reason. If Executive provides notice to the Company under
Paragraph 1 that he does not wish to extend the Period of Employment, such
action shall be deemed a voluntary termination by Executive and one without Good
Reason. For purposes of this Agreement, "Good Reason" shall mean that Executive
has complied with the "Good Reason Process" (hereinafter defined) following the
occurrence of any of the following events: (A) a substantial diminution or other
substantive adverse change, not consented to by Executive, in the nature or
scope of Executive's responsibilities, authorities, powers, functions or duties,
other than a change in Executive's position or reporting relationship; (B) any
removal, during the Period of Employment, from Executive of his title of
Executive Vice President; (C) an involuntary reduction in Executive's Base
Salary or Adjusted Base Salary or involuntary reduction in cash incentive
compensation plan (but not reduction in incentive compensation appropriate for
level of performance) except for across-the-board salary reductions similarly
affecting all or substantially all management employees; (D) a breach by the
Company of any of its other material obligations under this Agreement and the
failure of the Company to cure such breach within thirty (30) days after written
notice thereof by Executive; (E) the involuntary relocation of the Company's
offices at which Executive is principally employed or the involuntary relocation
of the offices of Executive's primary workgroup to a location more than thirty
(30) miles from such offices (other than a relocation in either event to Dallas,
Texas), or the requirement by the Company for Executive to be based anywhere
other than the Company's offices at such location or in Dallas, Texas on an
extended basis, except for required travel on the Company's business to an
extent substantially consistent with Executive's business travel obligations; or
(F) the requirement that Executive report to a person who is below the level of
an Executive Vice President. "Good Reason Process" shall mean that (i) the
Executive reasonably determines in good faith that a "Good Reason" event has
occurred; (ii) Executive notifies the Company in writing of the occurrence of
the Good Reason event; (iii) Executive cooperates in good faith with the
Company's efforts, for a period not less than ninety (90) days following such
notice, to modify Executive's employment situation in a manner acceptable to
Executive and Company; and (iv) notwithstanding such efforts, one or more of the
Good Reason events continues to exist and has not been modified in a manner
acceptable to Executive. If the Company cures the Good Reason event during the
ninety (90) day period, Good Reason shall be deemed not to have occurred.
(f) Notice of Termination. Except for termination as specified in
Subparagraph 6(a), any termination of Executive's employment by the Company or
any such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
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(g) Date of Termination. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of disability under Subparagraph
6(b) or by the Company for Cause under Subparagraph 6(c), the date on which
Notice of Termination is given; (C) if Executive's employment is terminated by
the Company under Subparagraph 6(d), sixty (60) days after the date on which a
Notice of Termination is given; and (D) if Executive's employment is terminated
by Executive under Subparagraph 6(e), thirty (30) days after the date on which a
Notice of Termination is given.
7. Compensation Upon Termination or During Disability.
(a) If Executive's employment terminates by reason of his death, the
Company shall, within ninety (90) days of death, pay in a lump sum amount to
such person as Executive shall designate in a notice filed with the Company or,
if no such person is designated, to Executive's estate, Executive's accrued and
unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of
his death, plus his accrued and unpaid incentive compensation, if any, under
Subparagraph 3(a). For a period of one (1) year following the Date of
Termination, the Company shall pay such health insurance premiums as may be
necessary to allow Executive's spouse and dependents to receive health insurance
coverage substantially similar to coverage they received prior to the Date of
Termination. In addition to the foregoing, any payments to which Executive's
spouse, beneficiaries, or estate may be entitled under any employee benefit plan
shall also be paid in accordance with the terms of such plan or arrangement.
Such payments, in the aggregate, shall fully discharge the Company's obligations
hereunder.
(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued and unpaid Base Salary or, if applicable, his
Adjusted Base Salary and accrued and unpaid incentive compensation payments, if
any, under Subparagraph 3(a), until Executive's employment is terminated due to
disability in accordance with Subparagraph 6(b) or until Executive terminates
his employment in accordance with Subparagraph 6(e), whichever first occurs. For
a period of one (1) year following the Date of Termination, the Company shall
pay such health insurance premiums as may be necessary to allow Executive,
Executive's spouse and dependents to receive health insurance coverage
substantially similar to coverage they received prior to the Date of
Termination. Upon termination due to death prior to the termination first to
occur as specified in the preceding sentence, Subparagraph 7(a) shall apply.
(c) If Executive's employment is terminated by Executive other than for
Good Reason as provided in Subparagraph 6(e), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given. Thereafter, the Company shall have no further obligations
to Executive except as otherwise expressly provided under this Agreement,
provided any such termination shall not adversely affect or alter Executive's
rights under any employee benefit plan of the Company in which Executive, at the
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Date of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(d) If Executive terminates his employment for Good Reason as provided in
Subparagraph 6(e) or if Executive's employment is terminated by the Company
without Cause as provided in Subparagraph 6(d), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid incentive compensation, if any,
under Subparagraph 3(a). In addition, subject to signing by Executive of a
general release of claims in a form and manner satisfactory to the Company,
(i) the Company shall continue Executive's compensation at a rate
equal to the sum of Executive's Average Base Salary and his Average
Incentive Compensation payable for the remaining length of the Period of
Employment after the Date of Termination (the "Severance Amount"), but in
no event for fewer than twenty-four (24) months. The Severance Amount shall
be paid out in substantially equal bi-weekly installments, in arrears;
provided, however, that in the event Executive commences any employment
during such period, the Company shall be entitled to set-off against the
remaining Severance Amount seventy-five percent (75%) of the amount of any
cash compensation received by Executive from the new employer. From time to
time, Executive may be asked to certify to the Company that he has not
accepted employment with a new employer (including, without limitation,
contract and consulting agreements). For purposes of this Agreement,
"Average Base Salary" shall mean the average of the annual Base Salary or,
if applicable, Adjusted Base Salary received by Executive for each of the
three (3) immediately preceding fiscal years or such fewer number of
complete fiscal years as Executive may have been employed by the Company.
For purposes of this Agreement, "Average Incentive Compensation" shall mean
the average of the annual incentive compensation under Subparagraph 3(a)
received by Executive for the three (3) immediately preceding fiscal years
or such fewer number of complete fiscal years as Executive may have been
employed by the Company. In no event shall "Average Incentive Compensation"
include any sign-on bonus, retention bonus or any other special bonus.
Notwithstanding the foregoing, if the Executive breaches any of the
provisions contained in Paragraphs 4 and 5 of this Agreement, all payments
of the Severance Amount shall immediately cease. Notwithstanding the
foregoing, in the event Executive terminates his employment for Good Reason
as provided in Subparagraph 6(e), he shall be entitled to the Severance
Amount only if he provides the Notice of Termination provided for in
Subparagraph 6(f) within thirty (30) days after the occurrence of the event
or events which constitute such Good Reason as specified in clauses (A),
(B), (C), (D) (E) and (F) of Subparagraph 6(e);
(ii) in addition to any other benefits to which Executive may be
entitled in accordance with the Company's then existing severance policies,
the Company shall, for a period of one (1) year commencing on the Date of
Termination, pay such health
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insurance premiums as may be necessary to allow Executive, Executive's
spouse and dependents to continue to receive health insurance coverage
substantially similar to the coverage they received prior to his
termination of employment.
(e) If Executive's employment is terminated by the Company for Cause as
provided in Subparagraph 6(c), then the Company shall, through the Date of
Termination, pay Executive his accrued and unpaid Base Salary or, if applicable,
his Adjusted Base Salary at the rate in effect at the time Notice of Termination
is given. Thereafter, the Company shall have no further obligations to Executive
except as otherwise expressly provided under this Agreement, provided any such
termination shall not adversely affect or alter Executive's rights under any
employee benefit plan of the Company in which Executive, at the Date of
Termination, has a vested interest, unless otherwise provided in such employee
benefit plan or any agreement or other instrument attendant thereto.
(f) Regardless of the reason for termination, for a period of five (5)
years beginning on the Date of Termination, the Company will provide such
reasonable assistance and support to Executive as he shall reasonably require in
connection with the preparation and filing of tax returns, statements and forms
insofar as such returns, statements or forms relate to Executive's association
with the Company or any of its predecessors or affiliates. At the Company's
election, such assistance and support shall be provided by either tax personnel
from the Company or certified public accountants selected and compensated by the
Company.
(g) Nothing contained in the foregoing Subparagraphs 7(a) through 7(f)
shall be construed so as to affect Executive's rights or the Company's
obligations relating to agreements or benefits which are unrelated to
termination of employment.
8. Change in Control Payment. The provisions of this Paragraph 8 set forth
certain terms of an agreement reached between Executive and the Company
regarding Executive's rights and obligations upon the occurrence of a Change in
Control of the Company. These provisions are intended to assure and encourage in
advance Executive's continued attention and dedication to his assigned duties
and his objectivity during the pendency and after the occurrence of any such
event. These provisions shall apply in lieu of, and expressly supersede, the
provisions of Subparagraph 7(d)(i) regarding severance pay upon a termination of
employment, if such termination of employment occurs within eighteen (18) months
after the occurrence of the first event constituting a Change of Control;
provided that such first event occurs during the Period of Employment. These
provisions shall terminate and be of no further force or effect beginning
eighteen (18) months after the occurrence of a Change of Control.
(a) Change in Control.
(i) If within eighteen (18) months after the occurrence of the first
event constituting a Change in Control, Executive's employment is
terminated by the Company without Cause as provided in Subparagraph 6(d) or
Executive terminates his employment for Good Reason as provided in
Subparagraph 6(e), then the Company shall pay Executive the Severance
Amount as provided in Subparagraph 7(d)(i) in
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substantially bi-weekly installments, in arrears, over twenty-four (24)
months. Notwithstanding the foregoing, if the Executive breaches any of the
provisions contained in Paragraphs 4 and 5 of this Agreement, all payments
of the Severance Amount shall immediately cease; and
(ii) Within fifteen (15) days after Executive becomes entitled to
receive the Severance Amount under (i) above, the Company shall place funds
in an amount equal to the estimated Severance Amount in escrow, pursuant to
arrangements that are mutually acceptable to the Company and Executive (the
"Escrow Arrangement"). The Escrow Arrangement shall be maintained until the
final installment payment of the Severance Amount has been made;
(iii) Notwithstanding anything to the contrary in any applicable
option agreement or stock-based award agreement, if Executive terminates
his employment for Good Reason as provided in Subparagraph 6(e) or if
Executive's employment is terminated by the Company without Cause as
provided in Subparagraph 6(d) within eighteen (18) months of a Change in
Control, all stock options and other stock-based awards granted to
Executive by the Company shall immediately accelerate and become
exercisable or non-forfeitable as of the Date of Termination, and Executive
shall have 360 days to exercise all his stock options. Executive shall also
be entitled to any other rights and benefits with respect to stock-related
awards, to the extent and upon the terms provided in the employee stock
option or incentive plan or any agreement or other instrument attendant
thereto pursuant to which such options or awards were granted; and
(iv) The Company shall, for a period of one (1) year commencing on
the Date of Termination, pay such health insurance premiums as may be
necessary to allow Executive, Executive's spouse and dependents to continue
to receive health insurance coverage substantially similar to the coverage
they received prior to his termination of employment.
(b) Gross Up Payment.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Company will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local income taxes and employment taxes (together with
penalties and interest) and Excise Tax upon the payment provided for by
this Subparagraph 8(c)(i), will be equal to the Severance Amount.
(ii) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at
the highest
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marginal rate of federal income taxation in the calendar year in which the
Gross Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of Executive's
residence on the date of Executive's Termination, net of the maximum
reduction in federal income taxes that could be obtained from deduction of
such state and local taxes.
(iii) Detennination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Executive and approved by the
Company, which approval will not be unreasonably withheld. If such opinion
is not finally accepted by the Internal Revenue Service (or state and local
taxing authorities), then appropriate adjustments to the Excise Tax will be
computed and additional Gross Up Payments will be made in the manner
provided by this Subparagraph (c).
(iv) Time For Payment. The Company will pay the estimated amount of
the Gross Up Payment in cash to Executive at such time or times when the
Excise Tax is due. Executive and the Company agree to reasonably cooperate
in the determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the estimated
amount of the Gross Up Payment as may be necessary to equal the actual
amount of the Gross Up Payment, which in the case of Executive will refer
to refunds of prior overpayments and in the case of the Company will refer
to makeup of prior underpayments.
(c) Definitions. For purposes of this Paragraph 8, the following terms
shall have the following meanings:
"Change in Control" shall mean any of the following:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 1 3(d)(3) or 14(d)(2) of the Exchange Act) (the
"Acquiring Person"), other than the Company, or any of its Subsidiaries or
any Investor or Excluded Group, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the
combined voting power or economic interests of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors; provided, however, that any transfer from any Investor or
Excluded Group will not result in a Change in Control if such transfer was
part of a series of related transactions the effect of which, absent the
transfer to such Acquiring Person by the Investor or Excluded Group, would
not have resulted in the acquisition by such Acquiring Person of 35% or
more of the combined voting power or economic interests of the then
outstanding voting securities; or
(b) during any period of 12 consecutive months after the Issuance
Date, the individuals who at the beginning of any such 12-month period
constituted a majority of the Class A Directors and Class C Directors (the
"Incumbent Non-Investor Majority")
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cease for any reason to constitute at least a majority of such Class A
Directors and Class C Directors; provided that (i) any individual becoming
a director whose election, or nomination for election by the Company's
stockholders, was approved by a vote of the stockholders having the right
to designate such director and (ii) any director whose election to the
Board or whose nomination for election by the stockholders of the Company
was approved by the requisite vote of directors entitled to vote on such
election or nomination in accordance with the Restated Certificate of
Incorporation of the Company, shall, in each such case, be considered as
though such individual were a member of the Incumbent Non-Investor
Majority, but excluding, as a member of the Incumbent Non-Investor
Majority, any such individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company (as such terms are used in Rule
14a-1 1 of Regulation 14A promulgated under the Exchange Act) and further
excluding any person who is an affiliate or associate of an Acquiring
Person having or proposing to acquire beneficial ownership of 25% or more
of the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors; or
(c) the approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were the
respective beneficial owners of the voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 57.5% of the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors of the Company resulting from such reorganization,
merger or consolidation; or
(d) the sale or other disposition of assets representing 50% or more
of the assets of the Company in one transaction or series of related
transactions.
All defined terms used in the definition of "Change in Control" shall have
the same meaning as set forth in the Form of Certificate of Designation of
Series B Convertible Preferred Stock of Wyndham International, Inc.
"Company" shall mean not only Wyndham International, Inc., but also
its successors by merger or otherwise.
9. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
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if to the Executive:
At his home address as shown
in the Company's personnel records;
if to the Company:
Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attention: Senior Vice President of Human Resources and General
Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Miscellaneous. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Texas (without regard to principles of
conflicts of laws).
11. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement, if any, shall be modified by any
court having jurisdiction to the extent necessary to render such portion
enforceable.
12. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. Arbitration; Other Disputes. In the event of any dispute or controversy
arising under or in connection with this Agreement, the parties shall first
promptly try in good faith to settle such dispute or controversy by mediation
under the applicable rules of the American Arbitration Association before
resorting to arbitration. In the event such dispute or controversy remains
unresolved in whole or in part for a period of thirty (30) days after it
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arises, the parties will settle any remaining dispute or controversy exclusively
by arbitration in Dallas, Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding the above,
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
Paragraph 4 or 5 hereof. Furthermore, should a dispute occur concerning
Executive's mental or physical capacity as described in Subparagraph 6(b), 6(c)
or 7(b), a doctor selected by Executive and a doctor selected by the Company
shall be entitled to examine Executive. If the opinion of the Company's doctor
and Executive's doctor conflict, the Company's doctor and Executive's doctor
shall together agree upon a third doctor, whose opinion shall be binding. Any
amount to which Executive is entitled under this Agreement (including any
disputed amount), which is not paid when due, shall bear interest at a rate
equal to the lesser of eighteen percent (18%) per annum or the maximum lawful
rate.
14. Third-Party Agreements and Rights. Executive represents to the Company that
Executive's execution of this Agreement, Executive's employment with the Company
and the performance of Executive's proposed duties for the Company will not
violate any obligations Executive may have to any employer or other party, and
Executive will not bring to the premises of the Company any copies or other
tangible embodiments of non-public information belonging to or obtained from any
such previous employment or other party.
15. Litigation and Regulatory Cooperation. During and after Executive's
employment, Executive shall reasonably cooperate with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while Executive was employed by the Company;
provided, however, that such cooperation shall not materially and adversely
affect Executive or expose Executive to an increased probability of civil or
criminal litigation. Executive's cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after Executive' s
employment, Executive also shall cooperate fully with the Company in connection
with any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or occurrences
that transpired while Executive was employed by the Company. The Company shall
also provide Executive with compensation on an hourly basis (to be derived from
the sum of his Base Compensation or, if applicable, Adjusted Base Salary and
Average Incentive Compensation) for requested litigation and regulatory
cooperation that occurs after his termination of employment, and reimburse
Executive for all costs and expenses incurred in connection with his performance
under this Paragraph 15, including, but not limited to, reasonable attorneys'
fees and costs.
16. Gender Neutral. Wherever used herein, a pronoun in the masculine gender
shall be considered as including the feminine gender unless the context clearly
indicates otherwise.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.
WYNDHAM INTERNATIONAL, INC.
By:
----------------------------------------
Its: Chairman and Chief Executive Officer
/s/ Anne L. Raymond
----------------------------------------
Anne L. Raymond
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EXHIBIT 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the 12th
day of August, 1999, between Wyndham International, Inc., a Delaware corporation
(the "Company"), and Fred J. Kleisner ("Executive"), but it shall become
effective only on the date set forth in Paragraph 19 below (the "Effective
Date").
WHEREAS, the Company desires to employ Executive as its President and
Chief Operating Officer; and
WHEREAS, as an additional inducement to Executive to enter into this
Agreement, the Company shall, on the Effective Date, (a) pay to Executive a
signing bonus of $550,000.00, (b) aid Executive in the purchase of a Dallas
residence, up to and including a bridge loan, (c) grant Executive an option to
purchase a certain number of shares of Class A Common Stock of the Company, as
set forth in the agreement attached hereto as Exhibit A (the "Option"), (d)
grant Executive a certain number of shares of Class A Common Stock of the
Company as set forth in the agreement attached hereto as Exhibit B (the "Stock
Grant"); and (e) enter into a promissory note in the form attached hereto as
Exhibit C (the "Note"); and
WHEREAS, Executive desires to be employed by the Company on the terms
herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment. The term of this Agreement shall extend from the Effective Date
until the third anniversary of the Effective Date; provided, however, that the
term of this Agreement shall automatically be extended for one additional year
on the third anniversary of the Effective Date and each anniversary thereafter
unless, not less than 90 days prior to each such date, either party shall have
given notice to the other that it does not wish to extend this Agreement;
provided, further, that if a Change in Control occurs during the original or
extended term of this Agreement, the term of this Agreement shall continue in
effect for a period of not less than eighteen (18) months beyond the month in
which the Change in Control occurred. The term of this Agreement shall be
subject to termination as provided in Paragraph 7 and may be referred to herein
as the "Period of Employment."
2. Position and Duties. During the Period of Employment, Executive shall serve
as President and Chief Operating Officer of the Company, shall have supervision
and control over and responsibility for the day-to-day business and affairs of
those functions and operations of the Company and shall have such other powers
and duties as may from time to time be prescribed by the Chairman of the Board
of the Company (the "Chairman") or the Chief Executive Officer of the Company
(the "CEO"), provided that such duties are consistent with the normal and
customary duties of the Executive's position or other positions that he may hold
from time to time. Executive shall devote his full working time and efforts to
the business and affairs of the
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Company. Notwithstanding the foregoing, Executive may serve on other boards of
directors, with the approval of the Chairman or CEO, or engage in religious,
charitable or other community activities as long as such services and activities
are disclosed to the Chairman or CEO and do not materially interfere with
Executive's performance of his duties to the Company as provided in this
Agreement.
3. Compensation and Related Matters.
(a) Base Salary. Executive's initial annual base salary ("Base Salary")
shall be $550,000.00. Thereafter, Executive's Base Salary shall be redetermined
at least thirty (30) days before each annual compensation determination date
established by the Company during the Period of Employment but in any event not
later than the first quarter of the applicable fiscal year (the "Annual
Compensation Determination Date") in an amount to be fixed by the Board of
Directors (the "Board") based upon merit, but in no event shall such re-
determined Base Salary be less than $550,000.00. The Base Salary, as
redetermined, is referred to herein as the "Adjusted Base Salary." The Base
Salary or, if applicable, the Adjusted Base Salary, shall be payable in
substantially equal bi-weekly installments.
(b) Incentive Compensation. In addition to Base Salary or, if applicable,
Adjusted Base Salary, Executive shall be eligible to receive in each fiscal year
during the Period of Employment, on or about the Annual Compensation
Determination Date (or earlier as provided in Paragraph 8 and 9 of this
Agreement), cash incentive compensation (the "Incentive Compensation") in an
amount determined annually by the Compensation Committee of the Board based on
individual performance, "Employer EBITDA Achievement" (as hereinafter defined),
and total return to shareholders. Incentive Compensation shall equal from zero
to two times the then current Base Salary or, if applicable, Adjusted Base
Salary. "Employer EBITDA Achievement" is the degree to which the annual budget
established by Employer for earnings before interest, taxes, depreciation, and
amortization is achieved. Incentive Compensation shall equal at least
$750,000.00 for the remainder of 1999, which shall be payable to Executive not
later than March 31, 2000. Thereafter, Incentive Compensation shall be targeted
at a minimum of 100% of the Base Salary or, if applicable, Adjusted Base Salary
for any year in which Employer EBITDA Achievement is one hundred percent (100%)
or more ("Target Incentive Compensation"). The Company will advance $12,500.00
of Incentive Compensation on a monthly basis, as a draw against annual Incentive
Compensation.
"Pro Rata Incentive Compensation" shall be paid to Executive for any
termination. Pro Rata Incentive Compensation equals the Incentive Compensation
for the fiscal year of termination multiplied by a fraction, the numerator of
which is the number of days in the current fiscal year through Date of
Termination and the denominator is 365.
If, for the purpose of calculating Incentive Compensation or Pro Rata
Incentive Compensation, the Incentive Compensation cannot be determined by the
time required to be paid, Employer shall make a good faith estimate of the pro
rata amount based on an amount Executive would have earned had he continued
employment for the entire fiscal year.
Executive will also participate in such other incentive compensation plans,
policies or practices as the Board shall determine.
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(c) Expenses. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures then in effect and established by the Company for its senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with the Company policy.
(d) Other Benefits. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of the
Company's Employee Benefit Plans in effect on the date hereof, or under plans or
arrangements that provide Executive with at least substantially equivalent
benefits to those provided under such Employee Benefit Plans. As used herein,
"Employee Benefit Plans" include, without limitation, each pension and
retirement plan; supplemental pension, retirement and deferred compensation
plan; savings and profit-sharing plan; stock ownership plan; stock purchase
plan; stock option plan; life insurance plan; medical insurance plan; disability
plan; and health and accident plan or arrangement established and maintained by
the Company on the date hereof for employees of the same status within the
hierarchy of the Company. To the extent that the scope or nature of benefits
described in this section are determined under the policies of the Company based
in whole or in part on the seniority or tenure of an employee's service,
Executive shall be deemed to have a tenure with the Company equal to the actual
time of Executive's service with Company. During the Period of Employment,
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement which may, in the future, be made available
by the Company to its executive and key management employees, subject to and on
a basis consistent with the terms, conditions, and overall administration of
such plan or arrangement. Any payments or benefits payable to Executive under a
plan or arrangement referred to in this Subparagraph 3(d) in respect of any
calendar year during which Executive is employed by the Company for less than
the whole of such year shall, unless otherwise provided in the applicable plan
or arrangement, be prorated in accordance with the number of days in each
calendar year during which he is so employed. Should any such payments or
benefits accrue on a fiscal (rather than calendar) year, then the proration in
the preceding sentence shall be on the basis of a fiscal year rather than
calendar year.
(e) Life Insurance. The Company shall pay the premiums on, and maintain in
effect throughout the Period of Employment, a life insurance policy on the life
of Executive in an amount not less than $2.0 million. Executive shall have the
right to designate the beneficiary under such policy.
(f) Vacations. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for
executives at the same level as Executive. Executive shall also be entitled to
all paid holidays given by the Company to its executives. To the extent that the
scope or nature of benefits described in this section are determined under the
policies of the Company based in whole or in part on the seniority or tenure of
an employee's service, Executive shall be deemed to have a tenure with the
Company equal to the actual time of Executive's service with Company.
(g) Disability Insurance. The Company shall pay the premiums on, and
maintain in effect through the Period of Employment, long-term disability
insurance providing for payment
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of benefits at rates not less than sixty percent (60%) of Executive's current
Base Salary or Adjusted Base Salary.
4. Board Service. Executive agrees to serve as a Director of the Company if so
elected or appointed.
5. Unauthorized Disclosure.
(a) Confidential Information. Executive acknowledges that in the course of
his employment with the Company (and, if applicable, its predecessors), he has
been allowed to become, and will continue to be allowed to become, acquainted
with the Company's business affairs, information, trade secrets, and other
matters which are of a proprietary or confidential nature, including but not
limited to the Company's and its predecessors' operations, business
opportunities, price and cost information, finance, customer information,
business plans, various sales techniques, manuals, letters, notebooks,
procedures, reports, products, processes, services, and other confidential
information and knowledge (collectively the "Confidential Information")
concerning the Company's and its predecessors' business. The Company agrees to
provide on an ongoing basis such Confidential Information as the Company deems
necessary or desirable to aid Executive in the performance of his duties.
Executive understands and acknowledges that such Confidential Information is
confidential, and he agrees not to disclose such Confidential Information to
anyone outside the company except to the extent that (i) Executive deems such
disclosure or use reasonably necessary or appropriate in connection with
performing his duties on behalf of the Company; (ii) Executive is required by
order of a court of competent jurisdiction (by subpoena or similar process) to
disclose or discuss any Confidential Information, provided that in such case,
Executive shall promptly inform the Company of such event, shall cooperate with
the Company in attempting to obtain a protective order or to otherwise restrict
such disclosure, and shall only disclose Confidential Information to the minimum
extent necessary to comply with any such court order; (iii) such Confidential
Information becomes generally known to and available for use by the hotel and
hospitality industry (the "Hotel Industry"), other than as a result of any
action or inaction by Executive; or (iv) such information has been rightfully
received by a member of the Hotel Industry or has been published in a form
generally available to the Hotel Industry prior to the date Executive proposes
to disclose or use such information. Executive further agrees that he will not
during employment and/or at any time thereafter use such Confidential
Information in competing, directly or indirectly, with the Company. At such time
as Executive shall cease to be employed by the Company, he will immediately turn
over to the Company all Confidential Information, including papers, documents,
writings, electronically stored information, other property, and all copies of
them, provided to or created by him during the course of his employment with the
Company.
(b) Heirs, successors, and legal representatives. The foregoing provisions
of this Paragraph 5 shall be binding upon Executive's heirs, successors, and
legal representatives. The provisions of this Paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Covenant Not to Compete. In consideration for the Option, Stock Grant, loan
evidenced by the Note, the Company's promise to provide Confidential Information
as set forth in Paragraph 5 above, and for Executive's employment by the Company
under the terms provided
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in this Agreement and as a means to aid in the performance and enforcement of
and preserve the rights of the Company pursuant to the terms of the Unauthorized
Disclosure provisions of Paragraph 5, Executive agrees as follows:
(a) during the term of Executive's employment with the Company and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not, directly or indirectly, as an
owner, director, principal, agent, officer, employee, partner, consultant,
servant, or otherwise, carry on, operate, manage, control, or become involved in
any manner with any business, operation, corporation, partnership, association,
agency, or other person or entity which is in the business of owning, operating,
managing or granting franchise rights with respect to hotels, motels or other
lodging facilities in any location in which the Company, or any subsidiary or
affiliate of the Company, operates or has plans or has projected to operate any
facility during Executive's term of Employment including any area within a 50
mile radius of such facility (any "Business Area"); provided, however, that the
foregoing shall not prohibit Executive from owning up to one percent (1%) of the
outstanding stock of a publicly held company engaged in the hospitality
business. Notwithstanding the foregoing, after Executive's employment with the
Company has terminated, upon receiving written permission by the Board,
Executive shall be permitted to engage in such activities with respect to any
other hotel, motel or lodging facility that shall be determined in the sole
discretion of the Board in good faith to be immaterial to the operations of the
Company, or any subsidiary or affiliate of the Company, in the area or territory
in question.
(b) during the term of Executive's employment with the Company and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not, directly or indirectly, either
for himself or for any other business, operation, corporation, partnership,
association, agency, or other person or entity, call upon, compete for, solicit,
divert, or take away, or attempt to divert or take away current or prospective
customers (including, without limitation, any hotel owner, lessor or lessee,
asset manager, trustee, consumer with whom the Company, or any subsidiary or
affiliate of the Company, (i) has an existing agreement or business
relationship; (ii) has had an agreement or business relationship within the two-
year period preceding the Executive's last day of employment with the Company;
or (iii) has included as a prospect in its applicable pipeline) or vendors of
the Company, or any subsidiary or affiliate of the Company, in any Business
Area.
(c) during the term of Executive's employment with the Company and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not directly or indirectly solicit or
induce any current or prospective employee of the Company, or any subsidiary or
affiliate of the Company (including, without limitation, any current or
prospective employee of the Company within the six-month period preceding the
Executive's last day of employment with the Company or within the 24-month
period of this covenant) to accept employment with Executive or with any
business, operation, corporation, partnership, association, agency, or other
person or entity with which Executive may be associated, and Executive will not
employ or cause any business, operation, corporation, partnership, association,
agency, or other person or entity with which Executive may be associated to
employ any current or prospective employee of the Company, or any subsidiary or
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affiliate of the Company, without providing the Company with ten (10) days'
prior written notice of such proposed employment.
(d) Executive agrees and acknowledges that the restrictions contained in
this noncompetition covenant are reasonable in scope and duration and are
necessary to protect the Company's business interests and Confidential
Information after the Effective Date of this Agreement. If any provision of this
noncompetition covenant as applied to any party or to any circumstance is
adjudged by a court to be invalid or unenforceable, the same will no in way
affect any other circumstance or the validity or enforceability of this
Agreement. If any such provision, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or area of such provision, and/or to delete
specific words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced. The parties agree and acknowledge that the
breach of this noncompetition covenant will cause irreparable damage to the
Company, and upon breach of any provision of this noncompetition covenant, the
Company shall be entitled to injunctive relief, specific performance, or other
equitable relief; provided, however, that this shall in no way limit any other
remedies which the Company may have (including, without limitation, the right to
seek monetary damages).
(e) Should Executive violate the provisions of this Paragraph, then in
addition to all other rights and remedies available to the Company at law or in
equity, the duration of this covenant shall automatically be extended for the
period of time from which Executive began such violation until he permanently
ceases such violation.
7. Termination. Executive's employment hereunder may be terminated without any
breach of this Agreement under the following circumstances:
(a) Death. Executive's employment hereunder shall terminate upon his death.
(b) Disability. If, as a result of Executive's incapacity due to physical
or mental illness, Executive shall have been absent from his duties hereunder on
a full-time basis for one hundred eighty (180) calendar days in the aggregate in
any twelve (12) month period, the Company may terminate Executive's employment
hereunder.
(c) Termination by Company for Cause. At any time during the Period of
Employment, the Company may terminate Executive's employment hereunder for Cause
if such termination is approved by not less than a majority of the Board of
Directors of the Company at a meeting of such Board of Directors called and held
for such purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct
by Executive constituting a material act of willful misconduct in connection
with the performance of his duties, including, without limitation,
misappropriation of funds or property of the Company or any of its affiliates
other than the occasional, customary and de minimis use of Company property for
personal purposes; (B) criminal or civil conviction of Executive, a plea of nolo
contendere by Executive or conduct by Executive that, as determined in the sole
discretion of the Board of Directors of the Company, has resulted in, or would
result in if he were retained in his position with the Company, material
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injury to the reputation of the Company, including, without limitation,
conviction of a felony involving moral turpitude; (C) continued, willful and
deliberate non-performance by Executive of his duties hereunder (other than by
reason of Executive's physical or mental illness, incapacity or disability) and
such non-performance has continued for more than thirty (30) days following
written notice of such non-performance from the Board; (D) a breach by Executive
of any of the provisions contained in Paragraphs 5 and 6 of this Agreement; or
(E) a violation by the Executive of the Company's employment policies and such
violation has continued following written notice of such violation from the
Board.
(d) Termination Without Cause. At any time during the Period of Employment,
the Company may terminate Executive's employment hereunder without Cause if such
termination is approved by a majority of the Board at a meeting of the Board
called and held for such purpose. Any termination by the Company or Executive's
employment under this Agreement which does not constitute a termination for
Cause under Subparagraph 7(c) or result from the death or disability of the
Executive under Subparagraph 7(a) or (b) shall be deemed a termination without
Cause. If the Company provides notice to the Executive under Paragraph 1 that it
does not wish to extend the Period of Employment, such action shall be deemed a
termination without Cause.
(e) Termination by Executive. At any time during the Period of Employment,
Executive may terminate his employment hereunder for any reason, including but
not limited to Good Reason. If Executive provides notice to the Company under
Paragraph 1 that he does not wish to extend the Period of Employment, such
action shall be deemed a voluntary termination by Executive and one without Good
Reason. For purposes of this Agreement, "Good Reason" shall mean that Executive
has complied with the "Good Reason Process" (hereinafter defined) following the
occurrence of any of the following events: (A) a substantial diminution or other
substantive adverse change, not consented to by Executive, in the nature or
scope of Executive's responsibilities, authorities, powers, functions or duties,
(B) any removal, during the Period of Employment, from Executive of his titles
of President and Chief Operating Officer; (C) an involuntary reduction in
Executive's Base Salary, Adjusted Base Salary or Incentive Compensation (but not
reduction in Incentive Compensation appropriate for level of performance); (D) a
breach by the Company of any of its other material obligations under this
Agreement and the failure of Company to cure such breach within thirty (30) days
after written notice thereof by Executive; (B) the involuntary relocation of the
Company's offices at which Executive is principally employed or the involuntary
relocation of the offices of Executive's primary workgroup to a location more
than thirty (30) miles from such offices (other than a relocation in either
event to Dallas, Texas), or the requirement by the Company for Executive to be
based anywhere other than the Company's offices at such location or in Dallas,
Texas on an extended basis, except for required travel on obligations; and (F)
Executive shall not have been nominated by the Nominating Committee of the Board
to fill a seat as a Class A Director when the next such vacancy occurs but in
any event prior to the first anniversary of the Effective Date. "Good Reason
Process" shall mean that (i) the Executive reasonably determines in good faith
that a "Good Reason" event has occurred; (ii) Executive notifies the Company in
writing of the occurrence of the Good Reason event; (iii) Executive cooperates
in good faith with the Company's efforts, for a period not less than ninety (90)
days following such notice, to modify Executive's employment situation in a
manner acceptable to Executive and Company; and (iv) notwithstanding such
efforts, one or more of the Good Reason events continues to exist and has
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not been modified in a manner acceptable to Executive. If the Company cures the
Good Reason event during the ninety (90) day period, Good Reason shall be deemed
not to have occurred.
(f) Notice of Term/nation. Except for termination as specified in
Subparagraph 7(a), any termination of Executive's employment by the Company or
any such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(g) Date of Termination. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of disability under Subparagraph
7(b) or by the Company for Cause under Subparagraph 7(c), the date on which
Notice of Termination is given; (C) if Executive's employment is terminated by
the Company under Subparagraph 7(d), sixty (60) days after the date on which a
Notice of Termination is given; and (D) if Executive's employment is terminated
by Executive under Subparagraph 7(e), thirty (30) days after the date on which a
Notice of Termination is given.
8. Compensation Upon Termination or During Disability.
(a) If Executive's employment terminates by reason of his death, the
Company shall, within ninety (90) days of death, pay in a lump sum amount to
such person as Executive shall designate in a notice filed with the Company or,
if no such person is designated, to Executive's estate, Executive's accrued and
unpaid Base Salary, or, if applicable, his Adjusted Base Salary, to the date of
his death, plus his Pro Rata Incentive Compensation, if any, under Subparagraph
3(b). For a period of one (1) year following the Date of Termination, the
Company shall pay such health insurance premiums as may be necessary to allow
Executive's spouse and dependents to receive health insurance coverage
substantially similar to coverage they received prior to the Date of
Termination. In addition to the foregoing, any payments to which Executive's
spouse, beneficiaries, or estate may be entitled under any employee benefit plan
shall also be paid in accordance with the terms of such plan or arrangement.
Such payments, in the aggregate, shall fully discharge the Company's obligations
hereunder.
(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued arid unpaid Base Salary or, if applicable, his
Adjusted Base Salary and accrued and unpaid Incentive Compensation payments, if
any, under Subparagraph 3(b), until Executive's employment is terminated due to
disability in accordance with Subparagraph 7(b) or until Executive terminates
his employment in accordance with Subparagraph 7(e), whichever first occurs. For
a period of one (1) year following the Date of Termination, the Company shall
pay such health insurance premiums as may be necessary to allow Executive,
Executive's spouse and dependents to receive health insurance coverage
substantially similar to coverage they received prior to the Date of
Termination. Upon termination due to death prior to the termination first to
occur as specified in the preceding sentence, Subparagraph 8(a) shall apply.
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(c) If Executive's employment is terminated by Executive other than for
Good Reason as provided in Subparagraph 7(e), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given. Thereafter, the Company shall have no further obligations
to Executive except as otherwise expressly provided under this Agreement,
provided any such termination shall not adversely affect or alter Executive's
rights under any employee benefit plan of the Company in which Executive, at the
Date of Termination, has a vested interest, unless otherwise provided in such
employee benefit plan or any agreement or other instrument attendant thereto.
(d) If Executive terminates his employment for Good Reason as provided in
Subparagraph 7(e) or if Executive's employment is terminated by the Company
without Cause as provided in Subparagraph 7(d), then the Company shall, through
the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary at the rate in effect at the time Notice of
Termination is given and his accrued and unpaid Incentive Compensation, if any,
under Subparagraph 3(b). In addition, subject to signing by Executive of a
general release of claims in a form and manner satisfactory to the Company,
(i) the Company shall continue Executive's compensation at a rate
equal to the sum of Executive's Average Base Salary and his Average
Incentive Compensation payable for the remaining length of the Period of
Employment after the Date of Termination (the "Severance Amount"), but in
no event for fewer than twenty-four (24) months. The Severance Amount shall
be paid out in substantially equal bi-weekly installments, in arrears;
provided, however, that in the event Executive commences any employment
with an employer other than the Company during the twelve month period
ending on the first anniversary of the Date of termination, the Company
shall be entitled to set-off against the remaining Severance Amount fifty
percent (50%) of the amount of any cash compensation received by Executive
from the new employer during such period, provided further that, in the
event Executive commences any employment with, or is employed by, any
employer other than the Company during the twelve month period ending on
the second anniversary of the Date of Termination, the Company shall be
entitled to set-off against the remaining Severance Amount twenty-five
percent (25%) of the amount of any cash received by Executive from such
employer during such period. From time to time, Executive may be asked to
certify to the Company that he has not accepted employment with a new
employer (including, without limitation, contract and consulting
agreements). For purposes of this Agreement, "Average Base Salary" shall
mean the average of the annual Base Salary or, if applicable, Adjusted Base
Salary received by Executive for each of the three (3) immediately
preceding fiscal years or such fewer number of complete fiscal years as
Executive may have been employed by the Company. For purposes of this
Agreement, "Average Incentive Compensation" shall mean the average of the
annual Incentive Compensation under Subparagraph 3(b) received by Executive
for the three (3) immediately preceding fiscal years or such fewer numbers
of complete fiscal years as Executive may have been employed by the
Company. In no event shall "Average Incentive Compensation" include any
sign-on bonus, retention bonus or any other special bonus. Notwithstanding
the foregoing, if the Executive breaches any of the provisions contained in
Paragraphs 5 and 6 of this
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Agreement, all payments of the Severance Amount shall immediately cease.
Notwithstanding the foregoing, in the event Executive terminates his
employment for Good Reason as provided in Subparagraph 7(e), he shall be
entitled to the Severance Amount only if he provides the Notice of
Termination provided for in Subparagraph 7(f) within thirty (30) days after
the occurrence of the event or events which constitute such Good Reason as
specified in clauses (A), (B), (C), (D), (E) and (F) of Subparagraph 7(e).
(ii) in addition to any other benefits to which Executive may be
entitled in accordance with the Company's then existing severance policies,
the Company shall, for a period of one (1) year commencing on the Date of
Termination, pay such health insurance premiums as may be necessary to
allow Executive, Executive's spouse and dependents to continue to receive
health insurance coverage substantially similar to the coverage they
received prior to his termination of employment.
(e) If Executive's employment is terminated by the Company for Cause as
provided in Subparagraph 7(c), then the Company shall, through the Date of
Termination, pay Executive his accrued and unpaid Base Salary or, if applicable,
his Adjusted Base Salary at the rate in effect at the time Notice of Termination
is given. Thereafter, the Company shall have no further obligations to Executive
except as otherwise expressly provided under this Agreement, provided any such
termination shall not adversely affect or alter Executive's rights under any
employee benefit plan of the Company in which Executive, at the Date of
Termination, has a vested interest, unless, otherwise provided in such employee
benefit plan or any agreement or other instrument attendant thereto.
(f) Regardless of the reason for termination, for a period of five (5)
years beginning on the Date of Termination, the Company will provide such
reasonable assistance and support to Executive as he shall reasonably require in
connection with the preparation and filing of tax returns, statements and forms
insofar as such returns, statements or forms relate to Executive's association
with the Company or any of its predecessors or affiliates. At the Company's
election, such assistance and support shall be provided by either tax personnel
from the Company or certified public accountants selected and compensated by the
Company.
(g) Nothing contained in the foregoing Subparagraphs 8(a) through 8(f)
shall be construed so as to effect Executive's rights or the Company's
obligations relating to agreements or benefits which are unrelated to
termination of employment.
9. Change in Control Payment. The provisions of this Paragraph 9 set forth
certain terms of an agreement reached between Executive and the Company
regarding Executive's rights and obligations upon the occurrence of a Change in
Control of the Company. These provisions are intended to assure and encourage in
advance Executive's continued attention and dedication to his assigned duties
and his objectivity during the pendency and after the occurrence of any such
event. These provisions shall apply in lieu of, and expressly supersede, the
provisions of Subparagraph 8(d)(i) regarding severance pay upon a termination of
employment, if such termination of employment occurs within eighteen (18) months
after the occurrence of the first event constituting a Change in Control;
provided that such first event occurs during the Period of
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Employment. These provisions shall terminate and be of no further force or
effect beginning eighteen (18) months after the occurrence of a Change in
Control.
(a) Change in Control
(i) If within eighteen (18) months after the occurrence of the first
event constituting a Change in Control, Executive's employment is
terminated by the Company without Cause as provided in Subparagraph 7(d) or
Executive terminates his employment for Good Reason as provided in
Subparagraph 7(e), then the Company shall pay Executive the Severance
Amount as provided in Subparagraph 8(d)(i) in substantially biweekly
installments, in arrears, over twenty-four (24) months. Notwithstanding the
foregoing, if the Executive breaches any of the provisions contained in
Paragraphs 5 and 6 of this Agreement, all payments of the Severance Amount
shall immediately cease;
(ii) Within fifteen (15) days after Executive becomes entitled to
receive the Severance Amount under (i) above, the Company shall place funds
in an amount equal to the estimated Severance Agreement in escrow, pursuant
to arrangements that are mutually acceptable to the Company and Executive
(the "Escrow Arrangement"). The Escrow Arrangement shall be maintained
until the final installment payment of the Severance Amount has been made;
(iii) Notwithstanding anything to the contrary in any applicable
option agreement or stock-based award agreement, if Executive terminates
his employment for Good Reason as provided in Subparagraph 7(e) or if
Executive's employment is terminated by the Company without Cause as
provided in Subparagraph 7(d) within eighteen (18) months of a Change in
Control, all stock options and other stock-based awards granted to
Executive by the Company shall immediately accelerate and become
exercisable or non-forfeitable as of the Date of Termination, and Executive
shall have 360 days to exercise his stock options. Executive shall also be
entitled to any other rights and benefits with respect to stock-related
awards, to the extent and upon the terms provided in the employee stock
option or incentive plan or any agreement or other instrument attendant
thereto pursuant to which such options or awards were granted; and
(iv) The Company shall, for a period of one (1) year commencing on
the Date of Termination, pay such health insurance premiums as may be
necessary to allow Executive, Executive's spouse and dependent to continue
to receive health insurance coverage substantially similar to the coverage
they received prior to his termination employment.
(b) Gross Up Payment.
(i) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code, the Company will pay to Executive an amount (the
"Gross Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute
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payment and any federal, state and local income taxes and employment taxes
(together with penalties and interest) and Excise Tax upon the payment
provided for by this Subparagraph 8(c)(i), will be equal to the Severance
Amount.
(ii) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year
in which the Gross Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality
of Executive's residence on the date of Executive's Termination, net of the
maximum reduction in federal income taxes that could be obtained from
deduction of such state and local taxes.
(iii) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon
the opinion of tax counsel selected by Executive and approved by the
Company, which approval will not be unreasonably withheld. If such opinion
is not finally accepted by the Internal Revenue Service (or state and local
taxing authorities), then appropriate adjustments to the Excise Tax will be
computed and additional Gross Up Payments will be made in the manner
provided by this Subparagraph (c).
(iv) Time For Payment. The Company will pay the estimated amount of
the Gross Up Payment in cash to Executive at such time of times when the
Excise Tax is due. Executive and the Company agree to reasonably cooperate
in the determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the estimated
amount of the Gross Up Payment, which in the case of Executive will refer
to refunds of prior overpayments and in the case of the Company will refer
to makeup of prior underpayments.
(c) Definitions. For purpose of this Paragraph 9, the following terms
shall have the following meanings:
"Change in Control" shall mean any of the following:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (the
"Acquiring Person"), other than the Company, or any of its Subsidiaries or
any Investor or Excluded Group, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the
combined voting power or economic interests of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors; provided, however, that any transfer from any Investor or
Excluded Group will not result in a Change in Control if such transfer was
part of a series of related transactions the effect of which, absent the
transfer to such Acquiring Person by the Investor or Excluded Group, would
not have resulted in the acquisition by such Acquiring Person of 35% or
more of the combined voting power or economic interests of the then
outstanding voting securities; or
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(b) during any period of 12 consecutive months after the Issuance
Date, the individuals who are the beginning of any such 12-month period
constituted a majority of the Class A Directors and Class C Directors (the
"Incumbent Non-Investor Majority") cease for any reason to constitute at
least a majority of such Class A Directors and Class C Directors; provided
that (i) any individual becoming a director whose election, or nomination
for election by the Company's stockholders, was approved by a vote of the
stockholders having the right to designate such director and (ii) any
director whose election to the Board or whose nomination for election by
the stockholders of the Company was approved by the requisite vote of
directors entitled to vote on such election or nomination in accordance
with the Restated Certificate of Incorporation of the Company, shall, in
each such case, be considered as though such individual were a member of
the Incumbent Non-Investor Majority, but excluding, as a member of the
Incumbent Non-Investor Majority, any such individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) and further excluding any person who is an affiliate or
associate of an Acquiring Person having or proposing to acquire beneficial
ownership of 25% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors; or
(c) the approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were the
respective beneficial owners of the voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 57.5% of the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of director of the Company resulting from such reorganization,
merger or consolidation; or
(d) the sale or other disposition of assets representing 50% or more
of the assets of the Company in one transaction or series of related
transactions.
All defined terms used in the definition of "Change in Control" shall have
the same meaning as set forth in the Form of Certificate of Designation of
Series B Convertible Preferred Stock of Wyndham International, Inc.
"Company" shall mean not only Wyndham International, Inc., but also
its successors by merger or otherwise.
10. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive:
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At his home address as shown in the Company's personnel records;
if to the Company:
Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attention: Senior Vice President of Human Resources and General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Texas (without regard to principles of
conflicts of laws.)
12. Validity. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect. The
invalid portion of this Agreement, if any, shall be modified by any court having
jurisdiction to the extent necessary to render such portion enforceable.
13. Counterparts. This agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Arbitration; Other Disputes. In the event of any dispute or controversy
arising under or in connection with this Agreement, the parties shall first
promptly try in good faith to settle such dispute or controversy by mediation
under the applicable rules of the American Arbitration Association before
resorting to arbitration. In the event such dispute or controversy remains
unresolved in whole or in part for a period of thirty (30) days after it arises,
the parties will settle any remaining dispute or controversy exclusively by
arbitration in Dallas, Texas in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding the above,
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
Paragraph 5 or 6 hereof. Furthermore, should a dispute occur concerning
Executive's mental or physical capacity as
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described in Subparagraph 7(b), 7(c) or 8(b), a doctor selected by Executive and
a doctor selected by the Company shall be entitled to examine Executive. If the
opinion of the Company's doctor and Executive's doctor conflict, the Company's
doctor and Executive's doctor shall together agree upon a third doctor, whose
opinion shall be binding. Any amount to which Executive is entitled under this
Agreement (including any disputed amount), which is not paid when due, shall
bear interest at a rate equal to the lesser of eighteen percent (18%) per annum
or the maximum lawful rate.
15. Third-Party Agreements and Rights. Executive represents to the Company that
Executive's execution of this Agreement, Executive's employment with the Company
and the performance of Executive's proposed duties for the Company will not
violate any obligations Executive may have to any employer or other party, and
Executive will not bring to the premises of the Company any copies or other
tangible embodiments of non-public information belonging to or obtained from any
such previous employment or other party.
16. Litigation and Regulatory Cooperation. During and after Executive's
employment, Executive shall reasonably cooperate with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while Executive was employed by the Company;
provided, however, that such cooperation shall not materially and adversely
affect Executive or expose Executive to an increased probability of civil or
criminal litigation. Executive's cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after Executive's
employment, Executive also shall cooperate fully with the Company in connection
with any investigation or review of any federal, state or local regulatory
authority as any such investigation or review relates to events or occurrences
that transpired while Executive was employed by the Company. The Company shall
also provide Executive with compensation on an hourly basis (to be derived from
the sum of his Base Compensation or, if applicable, Adjusted Base Salary and
Average Incentive Compensation) for requested litigation and regulatory
cooperation that occurs after his termination of employment, and reimburse
Executive for all costs and expenses incurred in connection with his performance
under this Paragraph 14, including, but not limited to, reasonable attorneys'
fees and costs.
17. Gender Neutral. Wherever used herein, a pronoun in the masculine gender
shall be considered as including the feminine gender unless the context clearly
indicates otherwise.
18. Governing Law and Consent. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas without
giving effect to any choice of law or conflict provisions or rule (whether of
the State of Texas or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Texas, and Executive
hereby expressly consents to the personal jurisdiction of the state and federal
courts located in Dallas County, Texas for any lawsuit filed by the Company to
seek a restraining order or injunction to prevent any continuation of any
violation of Paragraph 5 or 6 of this Agreement.
19. Effective Date. This Agreement is effective ____________________, 1999.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
WYNDHAM INTERNATIONAL, INC.
By: /s/ JAMES D. CARREKAR
-------------------------------------
Its: Chairman and Chief Executive Officer
/s/ FRED J. KLEISNER
----------------------------------------
Fred J. Kleisner
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EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the 18th
day of August, 1999, between Wyndham International, Inc., a Delaware corporation
("Employer"), and James D. Carreker ("Executive"), but it shall become effective
only on the date set forth in paragraph 25 below (the "Effective Date").
WHEREAS, Executive has previously had a valued association with Patriot
American Hospitality, Inc., a Virginia corporation ("Previous Employer") and a
predecessor of Previous Employer, Wyndham Hotel Corporation, a Delaware
corporation ("WHC");
WHEREAS, Executive has previously entered into an Executive Employment
Agreement with Previous Employer, which has been subsequently assumed and
honored by Employer (the "Prior Agreement");
WHEREAS, Executive currently serves as CEO of Employer.
WHEREAS, Employer, acting by and through the Board of Directors of Employer
(the "Board"), now desires to terminate the Prior Agreement and supercede the
Prior Agreement with this Agreement to better ensure the future of Employer by
establishing a continuing relationship with Executive;
WHEREAS, Executive, seeking to serve the best interests of Employer, is
agreeable to terminating the Prior Agreement and superceding the Prior Agreement
with this Agreement on the terms herein provided;
WHEREAS, as an additional inducement to Executive to enter into this
Agreement,
<PAGE>
Employer shall, on the Effective Date enter into a separate "indemnification
agreement" with Executive in the form attached hereto as Exhibit A (the
"Indemnification Agreement");
WHEREAS, as an additional inducement to Executive to enter into this
Agreement, Employer shall, as of the Effective Date grant Executive an option
(such option being herein referred to as the "Stock Options") to purchase a
certain number of "Shares" (herein so called) of common stock of Employer at a
floor price of $5.00 per each of the Shares and as otherwise set forth in the
Agreement attached hereto as Exhibit B (the "Option Agreement"); and
WHEREAS, Executive is desirous of committing himself to serve Employer on
the terms herein provided,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration,, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment. The initial term of this Agreement shall extend from the
Effective Date until the fifth anniversary of the Effective Date. On the third
anniversary of the Effective Date and every even-numbered calendar year
anniversary date thereafter (e.g., 2004, 2006. . .), the term of this Agreement
shall be automatically extended for an additional two (2) years unless either
party otherwise elects by notice in writing delivered to the other at least
ninety (90) days prior to the third anniversary or ninety (90) days prior to the
concerned even-numbered calendar year anniversary date thereafter; provided,
however that this sentence shall not be deemed to reduce the five (5) year
initial term of this Agreement; provided, further, that if a Change in Control
(as hereinafter defined) occurs during the initial or extended term of this
Agreement, the term of this Agreement shall continue in effect for a period of
not less than eighteen (18) months
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EXECUTIVE EMPLOYMENT AGREEMENT Page 2
<PAGE>
beyond that month in which that Change in Control occurred. The term of the
Agreement shall be subject to termination only as provided in paragraph 7. The
term of this Agreement may be referred to herein as the "Period of Employment."
2. Position and Duties. During the Period of Employment, Executive shall serve
as Chairman and Chief Executive Officer of Employer, reporting to the Board;
shall have supervision and control over and responsibility for the day-to-day
business and affairs of Employer; and shall have such other powers and duties as
may from time to time be prescribed by the Board, provided that such duties are
consistent with the normal and customary responsibilities of a Chairman and
Chief Executive Officer. Should, during the Period of Employment, Executive not
be nominated to serve (or, if nominated, not be elected to serve) as a director
or member of the Board, then Executive may, as provided in subparagraph 7(e),
terminate his employment hereunder, which termination shall be deemed to be for
Good Reason, as defined in subparagraph 7(e). Except as provided otherwise
herein, Executive shall devote his full working time and working efforts to the
business and affairs of Employer and Previous Employer. Notwithstanding the
foregoing, Executive may serve on other boards of directors or engage in
religious, charitable, or other community activities as long as such services
and activities are disclosed to the Board and do not materially interfere with
Executive's performance of his duties as provided in this Agreement.
3. Compensation and Related Matters
(a) Base Salary. Initially, Executive shall receive an annual minimum base
salary ("Base Salary") equal to Six Hundred Thousand Dollars and No/100 Cents
($600,000.00). Thereafter, Executive's Base Salary shall be redetermined at
least thirty (30) days before each
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EXECUTIVE EMPLOYMENT AGREEMENT Page 3
<PAGE>
annual compensation determination date established by Employer during the Period
of Employment but in any event no later than the first quarter of the applicable
fiscal year (the "Annual Compensation Determination Date") in an amount to be
fixed by the Board, but in no event shall such re-determined Base Salary be less
than $600,000.00. The Base Salary, as redetermined, is referred to herein as the
"Adjusted Base Salary." The Base Salary or, if applicable, the Adjusted Base
Salary, shall be payable in substantially equal bi-weekly installments.
(b) Incentive Compensation. In addition to Base Salary or, if applicable,
Adjusted Base Salary, Executive shall be eligible to receive in each fiscal year
during the Period of Employment, on or about the Annual Compensation
Determination Date (or earlier as provided in Paragraph 8 and 9 of this
Agreement), cash incentive compensation (the "Incentive Compensation") in an
amount determined annually by the Compensation Committee of the Board based on
individual performance, "Employer EBITDA Achievement" (as hereinafter defined),
and total return to shareholders. Incentive Compensation shall equal from zero
to three times the then current Base Salary or, if applicable, Adjusted Base
Salary. "Employer EBITDA Achievement" is the degree to which the annual budget
established by Employer for earnings before interest, taxes, depreciation, and
amortization is achieved. Notwithstanding the foregoing, the Incentive
Compensation shall equal at least one hundred fifty percent (150%) of the Base
Salary or, if applicable, Adjusted Base Salary for any year in which Employer
EBITDA Achievement is one hundred percent (100%) or more ("Target Incentive
Compensation").
"Pro Rata Incentive Compensation" shall be paid to Executive for any
termination. Pro Rata Incentive Compensation equals the Incentive Compensation
for the fiscal year of termination multiplied by a fraction, the numerator of
which is the number of days in the current
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EXECUTIVE EMPLOYMENT AGREEMENT Page 4
<PAGE>
fiscal year through Date of Termination and the denominator is 365.
If, for the purpose of calculating Incentive Compensation or Pro Rata
Incentive Compensation, the Incentive Compensation cannot be determined by the
time required to be paid, Employer shall make a good faith estimate of this
amount, resolving all doubts in favor of Executive and, in calculating the Pro
Rata Incentive Compensation, such good faith estimate shall be based on an
amount Executive would have earned had he continued employment for the entire
fiscal year.
Executive will also participate in such other incentive compensation plans,
policies or practices as the Board shall determine.
(c) Expenses. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies
and procedures then in effect and established by Employer for its senior
executive officers) in performing services hereunder during the Period of
Employment, provided that Executive properly accounts therefor in accordance
with Employer policy.
(d) Country Club Entertainment Benefit. Employer shall, if Executive so
requests, provide Executive with a country club membership at Preston Trails
Golf Club (or an equivalent club selected by Executive) and pay or reimburse
Executive for all charges for goods and services incurred relating to Employer's
business and for all membership costs and dues incurred with regard thereto by
or on behalf of Executive.
(e) Automobile Allowance. Employer shall provide Executive with a company
car or allowance therefor, which car or allowance shall be for, or sufficient
for, a BMW 750i or
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EXECUTIVE EMPLOYMENT AGREEMENT Page 5
<PAGE>
equivalent selected by Executive.
(f) Air Travel Allowance. Executive, and, when requested by Executive, his
spouse, shall be provided with or reimbursed for the cost of first-class or
private aircraft travel when Executive is traveling on Employer's business, as
and when Executive deems such travel to be required or convenient.
(g) Other Benefits. During the Period of Employment, Executive shall be
entitled to continue to participate in or receive benefits under all of
Employer's Employee Benefit Plans in effect on the date hereof, or under plans
or arrangements that provide Executive with at least substantially equivalent
benefits to those provided under such Employee Benefit Plans. As used herein,
"Employee Benefit Plans" include, without. limitation, each pension and
retirement plan, supplemental pension, retirement and deferred compensation
plan, savings and profit-sharing plan, stock ownership plan, stock purchase
plan, stock option plan, life insurance plan, medical insurance plan, disability
plan, and health and accident plan, or arrangement established and maintained by
Employer on the date hereof and enhancements thereof hereafter made. To the
extent that the scope or nature of benefits described in this section are
determined based in whole or in part on the seniority or tenure of an employee's
service, Executive shall be deemed to have a tenure with Employer equal to the
actual time of Executive's service with Employer plus the actual service by
Executive to the Previous Employer and to WHC. During the Period of Employment,
Executive shall be entitled to participate in or receive benefits under any of
the Employee Benefit Plans or arrangements that may, in the future, be made
available by Employer to its executives and key management employees, subject to
and on a basis consistent with the terms, conditions, and overall administration
of such plans or arrangements. Nothing paid to Executive under the Employee
Benefit Plans presently in effect or any employee benefit plan or
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EXECUTIVE EMPLOYMENT AGREEMENT Page 6
<PAGE>
arrangement that may be made available in the future shall be deemed to be in
lieu of compensation otherwise payable to Executive under subparagraphs 3(a) and
3(b) and elsewhere in this Agreement. Any payments or benefits payable to
Executive under a plan or arrangement referred to in this subparagraph 3(g) in
respect of any calendar year during which Executive is employed by Employer for
less than the whole of such year shall, unless otherwise provided in such plan
or arrangement, be prorated in accordance with the number of days in such
calendar year during which he is so employed. Should any such payments or
benefits accrue on a fiscal (rather than calendar) year, then the proration in
the preceding sentence shall be on the basis of a fiscal year rather than
calendar year.
(h) Life Insurance. Employer shall pay the premiums on, and maintain in
effect throughout the Period of Employment, a life insurance policy on the life
of Executive in an amount of not less than $2,000,000.00. Executive shall have
the right to designate the beneficiary under such policy.
(i) Vacations. Executive shall be entitled to a minimum of twenty (20)
days of paid vacation in each calendar year or such greater number of days as is
determined by Employer from time to time for its senior executive officers.
Executive shall also be entitled to all paid holidays given by Employer to its
senior executive officers. To the extent that the scope or nature of benefits
described in this section are determined under the policies of Employer, based
in whole or in part on the seniority or tenure of an employee's service,
Executive shall be deemed to have a tenure with Employer equal to the actual
time of Executive's service with Employer plus the actual service by Executive
to the Previous Employer and WHC.
(j) Disability Insurance. Employer shall pay the premiums on, and maintain
in
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EXECUTIVE EMPLOYMENT AGREEMENT Page 7
<PAGE>
effect throughout the Period of Employment, long-term disability insurance
providing for payment of benefits at rates not less than 60% of Executive's Base
Salary or, if applicable, his Adjusted Base Salary.
(k) Employer Property Usage Policy. During the Period of Employment and
thereafter, unless Executive's employment by Employer terminates "For Cause" as
that term is defined in subparagraph 7(c), Executive shall be provided with
rights and benefits comparable to the standard rights and benefits provided to
the Directors who are currently serving on the Board.
(l) Comparability. Notwithstanding anything to the contrary in the
foregoing provisions of this paragraph 3, so long as Executive serves as the CEO
of Employer, the sum of Executive's Base Salary or, if applicable, Adjusted Base
Salary, and Target Incentive Compensation shall in no event be less than one
hundred fifty percent (15 0%) of the sum of the Salary and Target Incentive
Compensation paid to the next highest paid employee of the Employer and one
hundred percent (100%) of each and all benefits under Employee Benefit Plans or
otherwise awarded to any other employee of Employer. All other terms and
provisions of this Agreement shall at all times be deemed amended to the end
that such terms and provisions are at all times, and from time to time, at least
as favorable to Executive as such terms and provisions would be under any other
employment agreement to which Employer is a party.
4. Board Service. Executive agrees to serve as a director of Employer and
Previous Employer, if elected or appointed, provided he is forever indemnified
for serving in such capacities as set forth in the Indemnification Agreement,
which indemnity shall survive the termination of the Indemnification Agreement
and the termination of this Agreement. Employer will provide appropriate
Directors' and Officers' Insurance naming Executive as a named
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EXECUTIVE EMPLOYMENT AGREEMENT Page 8
<PAGE>
insured with limits of no less than provided to other officers and directors.
5. Unauthorized Disclosure.
(a) Confidential Information. Executive acknowledges that in the course of
his employment with Employer (and, if applicable, the predecessors of Employer
or Previous Employer or WHC), he has been allowed to become, and will continue
to be allowed to become, acquainted with Employer's business affairs,
information, trade secrets, and other matters that are of a proprietary or
confidential nature, such as business opportunities, price and cost information,
finance, customer information, business plans, various sales techniques,
manuals, letters, notebooks, procedures, reports, products, processes, services,
and other confidential information and knowledge (collectively, the
"Confidential Information") concerning Employer's, Previous Employer's, and
their respective predecessors' business. Employer agrees to provide, on an
ongoing basis, such Confidential Information as Employer deems necessary or
desirable to aid Executive in the performance of his duties. Executive
understands and acknowledges that such Confidential Information is confidential,
and he agrees not to disclose such Confidential Information to anyone outside
Employer, except as he deems reasonably necessary or appropriate in connection
with performing his duties on behalf of Employer. Executive further agrees that
he will not during employment and/or at any time thereafter use such
Confidential Information in competing, directly or indirectly, with Employer or
Previous Employer. At such time as Executive shall cease to be employed by
Employer, he will immediately turn over to Employer all Confidential
Information, including papers, documents, writings, electronically stored
information, other property, and all copies of them provided to or created by
him during the course of his employment with Employer (or, if applicable,
Previous Employer).
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EXECUTIVE EMPLOYMENT AGREEMENT Page 9
<PAGE>
(b) Heirs, successors, and legal representatives. The foregoing provisions
of this paragraph 5 shall be binding upon Executive's heirs, successors, and
legal representatives. The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Covenant Not to Compete. In consideration for the Option Agreement, the
Employer's promise to provide Confidential Information as set forth in Paragraph
5 above, and for Executive's employment by the Employer under the terms provided
in this Agreement, and as a means to aid in the performance and enforcement of
and preserve the rights of the Employer pursuant to the terms of the
Unauthorized Disclosure provisions of Paragraph 5, Executive agrees as follows:
(a) during the term of Executive's employment with the Employer and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not, directly or indirectly, as an
owner, director, principal, agent, officer, employee, partner, consultant,
servant, or otherwise, carry on, operate, manage, control, or become involved in
any manner with any business, operation, corporation, partnership, association,
agency, or other person or entity which is in the business of owning, operating,
managing or granting franchise rights with respect to the top ten branded hotel
companies, as defined by accepted industry consultants, such as Price Waterhouse
Coopers, in any city in which the Employer, or any subsidiary or affiliate of
the Employer, operates any facility during Executive's term of Employment;
provided, however, that the foregoing shall not prohibit Executive from owning
up to one percent (1%) of the outstanding stock of a publicly held company
engaged in the hospitality business or holding as a purely passive investor of
less than a controlling interest in any other entity. Notwithstanding the
foregoing, after Executive's employment with the Employer has terminated, upon
receiving written permission by the Board,
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EXECUTIVE EMPLOYMENT AGREEMENT Page 10
<PAGE>
Executive shall be permitted to engage in such activities with respect to any
other hotel, motel or lodging facility that shall be determined in the sole
discretion of the Board in good faith to be immaterial to the operations of the
Employer, or any subsidiary or affiliate of the Employer, in the area or
territory in question.
(b) during the term of Executive's employment with the Employer and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not, directly or indirectly, either
for himself or for any other business, operation, corporation, partnership,
association, agency, or other person or entity, call upon, compete for, solicit,
divert, or take away, or attempt to divert or take away current or prospective
customers (including, without limitation, any hotel owner, lessor or lessee,
asset manager, trustee, consumer with whom the Employer, or any subsidiary or
affiliate of the Employer, (i) has an existing agreement or business
relationship; (ii) has had an agreement or business relationship within the two-
year period preceding the Executive's last day of employment with the Employer;
or (iii) has included as a prospect in its applicable pipeline) or any
subsidiary or affiliate of the Employer.
(c) during the term of Executive's employment with the Employer and for a
period of twenty-four (24) months thereafter, regardless of the reason for
termination of employment, Executive will not directly or indirectly solicit or
induce any current or prospective employee of the Employer, or any subsidiary or
affiliate of the Employer (including, without limitation, any current or
prospective employee of the Employer within the six-month period preceding the
Executive's last day of employment with the Employer or within the 24-month
period of this covenant) to accept employment with Executive or with any
business, operation, corporation, partnership, association, agency, or other
person or entity with which Executive may be associated, and Executive will not
employ or cause any business, operation, corporation,
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EXECUTIVE EMPLOYMENT AGREEMENT Page 11
<PAGE>
partnership, association, agency, or other person or entity with which Executive
may be associated to employ any current or prospective employee of the Employer,
or any subsidiary or affiliate of the Employer, without providing the Employer
with ten (10) days' prior written notice of such proposed employment.
(d) Executive agrees and acknowledges that the restrictions contained in
this noncompetition covenant are reasonable in scope and duration and are
necessary to protect the Employer's business interests and Confidential
Information after the Effective Date of this Agreement. If any provision of this
noncompetition covenant as applied to any party or to any circumstance is
adjudged by a court to be invalid or unenforceable, the same will no in way
affect any other circumstance or the validity or enforceability of this
Agreement. If any such provision, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or area of such provision, and/or to delete
specific words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced. The parties agree and acknowledge that the
breach of this noncompetition covenant will cause irreparable damage to the
Employer, and upon breach of any provision of this noncompetition covenant, the
Employer shall be entitled to injunctive relief, specific performance, or other
equitable relief provided, however, that this shall in no way limit any other
remedies which the Employer may have (including, without limitation, the right
to seek monetary damages).
(e) Should Executive violate the provisions of this Paragraph, then in
addition to all other rights and remedies available to the Employer at law or in
equity, the duration of this covenant shall automatically be extended for the
period of time from which Executive began
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EXECUTIVE EMPLOYMENT AGREEMENT Page 12
<PAGE>
such violation until he permanently ceases such violation.
(f) Should, however, Employer fail to timely pay any sums or otherwise
fail to timely provide any benefit due and owing to Executive, his family, or
his estate within ten (10) days after Executive or a representative or his
family or estate notifies Employer in writing of a failure to timely pay any
such sums or timely provide any such benefits, the provisions of this paragraph
6 shall no longer be binding and shall have no force or effect, unless and until
Executive is, after a full and final hearing, found to be in material breach of
this Agreement in an arbitrator's award made by an arbitrator appointed under
paragraph 18 of this Agreement.
7. Termination. Executive's employment hereunder may be terminated without
any breach of this Agreement under the following circumstances:
(a) Death. Executive's employment hereunder shall terminate upon his
death.
(b) Disability. Employer shall be entitled to terminate the Executive's
employment because of the Executive's Disability during the Period of
Employment. "Disability" means that as a result of Executive's incapacity due to
physical or mental illness Executive shall have been absent from his duties
hereunder or a full-time basis for one hundred eighty (180) calendar days in the
aggregate in any twelve (12) month period (such period to not include, however,
any time that Executive is on leave of absence as authorized by this Agreement
or Employer's leave policies). A termination of the Executive's employment by
Employer for Disability, shall after the 180 calendar day period described above
in this subparagraph (7(b), be communicated to the Executive by written notice,
and shall be effective on the 60th day after receipt of such notice by the
Executive (the "Disability Effective Date"), unless the Executive returns to
full-time performance of the Executive's duties before the Disability Effective
Date.
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EXECUTIVE EMPLOYMENT AGREEMENT Page 13
<PAGE>
(c) Termination by Employer For Cause. At any time during the Period of
Employment, Employer may terminate Executive's employment hereunder for Cause if
such termination is approved by not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose. For purposes of this Agreement "Cause" shall mean: (i) the willful and
continued failure of the Executive substantially to perform the Executive's
duties under this Agreement (other than as a result of physical or mental
illness or injury), after the Board delivers to the Executive a written demand
for substantial performance and such nonperformance has continued for more than
60 days following written notice of nonperformance from the Board that
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties (provided,
however, that Executive shall not be deemed to be in nonperformance if within
such 60-day time period following receipt by Executive of such notice he has
taken steps reasonably calculated to resolve such nonperformance); (ii) illegal
conduct or gross misconduct by the Executive, that has resulted in material
injury to the reputation of Employer; or (iii) a material breach by Executive of
the covenants contained in paragraph 5 of this Agreement.
(d) Termination Without Cause. At any time during the Period of Employment,
Employer may terminate Executive's employment hereunder without (i.e., not for)
Cause if such termination is approved by not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose. Further, any termination by Employer of Executive's employment that is
not otherwise governed by this paragraph 7 shall also be deemed a termination
without, or not for, Cause.
(e) Termination by Executive. At any time during the Period of Employment,
Executive may terminate his employment hereunder for any reason, including but
not limited to
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"Good Reason" (as hereinafter defined). For purposes of this Agreement, "Good
Reason" shall mean that Executive has complied with the "Good Reason Process"
(as hereinafter defined) following the occurrence of any of the following events
(referred to individually as a "Good Reason Event" and collectively as "Good
Reason Events"): (A) any substantial adverse change, not consented to by
Executive in a writing signed by him, in the nature or scope of Executive's
responsibilities, authorities, powers, functions, or duties exercised by
Executive immediately prior to the Effective Date, except as provided in
paragraph 11; (B) any removal, during the Period of Employment, of Executive
from, or any failure by management to nominate, or, if nominated, any failure by
the stockholders to re-elect Executive to, any of the positions indicated in
paragraph 2; (C) an involuntary reduction in Executive's Base Salary or Adjusted
Base Salary or Target Incentive Compensation; (D) a breach by Employer of any of
its other material obligations under this Agreement and the failure of Employer
to cure such breach within thirty (30) days after written notice thereof by
Executive; (B) the relocation of Employer's primary offices at which Executive
is principally employed to a location more than thirty (30) miles from
Executive's current offices, or the requirement by Employer for Executive to be
based anywhere other than Employer's primary offices at such current location
[or more than 30 miles therefrom] on an extended basis, except for required
travel on Employer's business to an extent substantially consistent with
Executive's current business travel obligations; or (F) Employer gives notice of
non-extension of the Period of Employment under paragraph 1 of this Agreement.
"Good Reason Process" shall mean that (i) the Executive reasonably determines in
good faith that a Good Reason Event has occurred; (ii) Executive notifies
Employer in writing of the occurrence of the Good Reason Event; (iii) Executive
cooperates in good faith with Employer's efforts, for a period not more than
thirty (30) days following such notice, to modified Executive's employment
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situation in a manner acceptable to Executive and Employer; and (iv)
notwithstanding such efforts, one or more of the Good Reason Events continues to
exist for a period of more than thirty (30) days following such notice and has
not been modified in a manner acceptable to Executive.
(f) Notice of Termination. Except for termination as specified in
subparagraph 7(a), any termination of Executive's employment by Employer or any
such termination by Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice that shall indicate the specific provision
in this Agreement relied upon.
(g) Date of Termination. "Date of Termination" shall mean: (A) if
Executive's employment is terminated by his death, the date of his death; (B) if
Executive's employment is terminated on account of Disability under subparagraph
7(b) on the Disability Effective Date unless Executive returns to full-time
performance of Executive's duties before the Disability Effective Date; (C) if
Executive's employment is terminated by Employer under subparagraphs 7(c) or (d)
thirty (30) days after the date on which a Notice of Termination is given; and
(D) if Executive's employment is terminated by Executive under subparagraph
7(e), thirty (30) days after the date on which a Notice of Termination is given.
8. Compensation Upon Termination or During Disability
(a) Death. If Executive's employment terminates by reason of his death,
Employer shall, within thirty (30) days of death, pay in a lump sum amount to
such person as his estate shall designate in a notice filed with Employer or, if
no such person is designated, to Executive's estate, (i) Executive's accrued and
unpaid Base Salary or, if applicable, his Adjusted Base
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Salary, through the date of his deaths and (ii) any accrued and any unpaid
Incentive Compensation and Pro Rata Incentive Compensation. Upon such death, all
unvested stock options and stock-based grants shall immediately vest in
Executive's estate or other legal representatives and become exercisable, and
Executive's estate or other legal representatives shall have one (1) year from
the Date of Termination, or remaining option term, if later, to exercise the
stock options. For a period of five (5) years following the Date of Termination,
Employer shall pay such health insurance premiums as may be necessary to allow
Executive's spouse and other dependents to receive health insurance coverage
substantially similar to the coverage they received prior to the Date of
Termination.
(b) Disability. During any period that Executive is unable to perform his
duties hereunder as a result of incapacity due to physical or mental illness or
injury, Executive shall continue to receive his accrued and unpaid Base Salary
or, if applicable, his Adjusted Base Salary, and accrued and unpaid Incentive
Compensation payments under subparagraph 3(b), until and unless Executive's
employment is terminated due to Disability in accordance with subparagraph 7(b)
or until Executive terminates his employment in accordance with subparagraph
7(e), whichever first occurs. In the event of termination due to Disability
Employer shall, within thirty (30) days of the Disability Effective Date, pay in
a lump sum amount to Executive (i) his accrued and unpaid Base Salary or, if
applicable, his Adjusted Base Salary through the Date of Termination, plus (ii)
any accrued and unpaid Incentive Compensation and Pro Rata Incentive
Compensation. Upon the Disability Effective Date, all unvested stock options and
stock-based grants shall immediately vest and become exercisable and Executive
shall have one (1) year from the Date of Termination, or the remaining option
term, if later, to exercise the stock options. For a period of two (2) years
following the Date of
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Termination, Employer shall pay such health insurance premiums as may be
necessary to allow Executive and Executive's spouse and other dependents, to
receive health insurance coverage substantially similar to the coverage they
received prior to the Date of Termination. Upon termination due to death prior
to the Disability Effective Date, subparagraph 8(a) shall apply.
(c) By Executive Not for Good Reason. If Executive's employment is
terminated by Executive other than for Good Reason as provided in subparagraph
7(e), then Employer shall, through the Date of Termination, pay Executive (i)
his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary
at the rate in effect on the date Notice of Termination is given, and (ii) any
accrued, earned, and unpaid Incentive Compensation plus, (iii) such other
benefits as are available under any Employer policy or practice then in effect.
If Executive's employment is terminated by Executive other than for Good Reason
as provided in subparagraph 7(e), all unvested stock options are forfeited on
the Date of Termination and Executive shall have 90 clays from the Date of
Termination to exercise any previously unexercised but then vested stock
options.
(d) By Executive for Good Reason; by Employer Without Cause. If Executive
terminates his employment for Good Reason as provided in subparagraph 7(e) or if
Executive's employment is terminated by Employer without Cause as provided in
subparagraph 7(d), then Employer shall, through the Date of Termination, pay
Executive (i) his accrued and unpaid Base Salary or, if applicable, his Adjusted
Base Salary at the rate in effect on the date Notice of Termination is given,
plus (ii) any accrued and unpaid Incentive Compensation and Pro Rata Incentive
Compensation. Upon the Date of Termination, all unvested stock options and
stock-based grants shall immediately vest and become exercisable, and Executive
shall have one (1) year from the Date of Termination, or the remaining option
term (not to exceed three (3) years),
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if later, to exercise the stock options. For a period of three (3) years
following the Date of Termination, Employer shall pay such health insurance
premiums as may be necessary to allow Executive and Executive's spouse and other
dependents to receive health insurance coverage substantially similar to
coverage they received prior to the Date of Termination. In addition, subject to
signing by Executive of a general release of claims in a form and manner
satisfactory to the Executive and Employer:
(1) Employer shall pay Executive, on the Date of Termination, such
additional amounts to which Executive may be entitled in accordance with
Employer's then current severance policies (the "Severance Amount"), provided
that, at a minimum, Executive shall be entitled to receive an amount in a lump
sum (the "Minimum Severance Amount") equal to the greater of(A) $3,000,000.00 or
(B) three (3) times the sum of the "Applicable Base Salary" plus the "Average
Incentive Compensation."
For purposes of this Agreement, "Applicable Base Salary" shall mean the
greater of (aa) $600,000, or, (bb) such of the following alternatives as is
applicable:
(aaa) prior to January 1, 2000, Executive's Base Salary, or if
applicable, Adjusted Base Salary; or
(bbb) on or after January 1, 2000, the average of the annual
Base Salary and, if applicable, Adjusted Base Salary, payable to Executive for
the year of termination and the immediately preceding complete fiscal year which
he was employed by Employer. The fiscal year ending December 31, 1999, shall be
treated as a complete fiscal year.
For purposes of this Agreement, "Average Incentive Compensation" shall mean
such of
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the following alternatives as is applicable:
(aaaa) prior to January 1, 2000, Executive's Target Incentive
Compensation;
(bbbb) on or after January 1, 2000, and before January 1, 2001,
the sum of Executive's Incentive Compensation for the fiscal year ending
December 31, 1999, and Executive's Target Incentive Compensation for the fiscal
year ending December 31, 2000, divided by two (2);
(cccc) on or after January 1, 2001, the total of the annual
Incentive Compensation payable to Executive for the two (2) immediately
preceding complete fiscal years divided by two (2). The fiscal year ending
December 31, 1999, shall be treated as a complete fiscal year.
The Applicable Base Salary and Average Incentive Compensation shall each be
determined as of the date of Notice of Termination or the Termination Date,
whichever is more favorable to Executive.
Notwithstanding the foregoing, in the event Executive terminates his
employment for Good Reason as provided in subparagraph 7(e), he shall be
entitled to the Severance Amount or, if applicable, the Minimum Severance Amount
only if he provides the Notice of Termination provided for in subparagraph 7(f)
within one hundred and twenty (120) days after Executive has informed Employer
in writing of the occurrence of the Good Reason Event(s), on which his
termination is based, pursuant to the provisions of subparagraph 7(e).
Should Executive commence any new employment as an employee during the
twenty-
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four (24) months following the Date of Termination, then Employer shall be
entitled to (1) 50% of the lesser of (i) all Executive's Base Salary, or if
applicable, Adjusted Base Salary in effect at the Date of Termination or (ii)
all sums paid to Executive as base compensation for such new employment (but not
as incentive or other compensation) within the first twelve (12) months
following the Date of Termination; and (2) 25% of the lesser of (i) all
Executive's Base Salary, or if applicable, Adjusted Base Salary in effect at the
Date of Termination or (ii) all sums paid to Executive as base compensation for
such new employer (but not as incentive or other compensation) within the second
twelve (12) months following the Date of Termination. The provisions of the
preceding sentence shall not, however, apply to payments of the "Parachute
Amount" (as herein defined).
(2) In addition to any other benefits to which Executive may be
entitled in accordance with Employer's then existing severance plans, policies
or practices (for which Executive shall not be required to sign the above-
referenced general release of claims), Employer shall:
(aa) for a period of three (3) years commencing on the Date of
Termination, provide Executive, at Employer's expense, with an office and all
reasonable occupancy expenses associated therewith, and related telephone and
telefax facilities, and an assistant at a location of Executive's choosing,
provided that the office facilities shall be comparable to Executive's office at
Employer on the Date of Termination; and,
(bb) for a period of one (1) year commencing on the Date of
Termination, pay for the cost of executive outplacement services selected by
Executive for use in connection with obtaining alternate employment.
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(e) For Cause. If Executive's employment is terminated by Employer for
Cause as provided in subparagraph 7(c), then Employer shall, through the Date of
Termination, pay Executive his accrued and unpaid Base Salary or, if applicable,
his Adjusted Base Salary at the rate in effect on the date Notice of Termination
is given, plus his accrued, earned and unpaid Incentive Compensation.
(f) Continuing Assistance. Regardless of the reason for the termination of
Executive's employment, for a period of five (5) years beginning on the Date of
Termination or the end of the Period of Employment, Employer will provide such
reasonable assistance and support to Executive or his estate as he or such
estate shall reasonably require in connection with the preparation and filing of
tax returns, statements, and forms insofar as such returns, statements, or forms
relate to Executive's employment or other association with Employer, Previous
Employer, or any of their respective predecessors or affiliates. At Employer's
election, such assistance and support shall be provided by either tax personnel
from Employer or certified public accountants selected and compensated by
Employer.
(g) Payment Place and Due Date. All amounts due under this Agreement to
Executive or his estate by Employer following the Date of Termination or the end
of the Period of Employment shall be due and payable in Dallas County, Texas. On
or before the tenth (1 0th) day following such Date of Termination or the date
upon which the end of the Period of Employment occurs, except as otherwise
expressly set forth in this Agreement, Employer shall (i) escrow all amounts due
to Executive or his estate for the severance amount or minimum severance amount
whichever is applicable (the "Escrowed Severance Payment"), and (ii) pay to
Executive or his estate all other amounts due to Executive or his estate. The
Escrowed Severance Payment shall be due and payable to Executive or his estate
without notice or demand
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of any kind, in thirty-six (36) equal monthly payments, with the first such
payment being due and payable thirty (30) days following the Date of Termination
or the end of the Period of Employment, provided however:
(aa) that in the event a payment of Escrowed Severance Payment is for
any reason not paid within 10 days after Executive notifies Employer in writing
of a failure to timely make such payment, then, in that event, without further
notice or demand of any kind the entire unpaid balance of the Escrowed Severance
Payment shall at once become due and payable in full to Executive or his estate,
unless, prior to that time, Executive shall, after full and final hearing, be
found to be in material breach of this Agreement by an arbitrator appointed
under paragraph 18 of this Agreement, and
(bb) advances of the payments of the Escrowed Severance Payment
shall, if Executive so requests, be made to Executive to the extent income taxes
on unpaid payments are reasonably determined by Executive to be due, with such
advances to be proportionately offset against all unpaid future payments.
If Executive so elects at any time, the unpaid balance of the Escrowed
Severance Payment shall be paid over by Employer to an independent third party
escrow keeper, to be held pursuant to written arrangements mutually acceptable
to Employer and Executive providing for timely payment to Executive of the
payments due therefrom, whereupon such escrowed funds shall no longer be an
asset of the Employer.
(h) Other Obligations. The foregoing subparagraphs 8(a) through 8(g) shall
not adversely affect or alter Executive's rights (or the rights of his estate,
spouse or other dependents) under any Employee Benefit Plan or other plans of
Employer, except to the extent
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otherwise expressly provided therein or in any agreement or other instrument
attendant thereto.
9. Parachute Payment. The provisions of this paragraph 9 set forth the terms
of an agreement reached between Executive and Employer regarding Executive's
rights and obligations upon the occurrence of a "Change in Control" (as
hereinafter defined) of Employer. These provisions are intended to assure and
encourage in advance Executive's continued attention and dedication to his
assigned duties and his objectivity during the pendency and after the occurrence
of any such Change in Control. These provisions shall apply in lieu of, and
expressly supersede, the provisions of subparagraph 8(d)( 1) if Executive's
employment is terminated or Notice of Termination is given ninety (90) days
prior to or within eighteen (18) months after the occurrence of an event
constituting a Change in Control.
(a) Escrow. Within fifteen (15) days after the occurrence of the first
event constituting a Change in Control (irrespective of whether Executive has
actual knowledge of such event), Employer shall place immediately negotiable
funds in escrow in an amount equal to the Five Million Dollars ($5,000,000.00)
attributable to subparagraph 9(c), plus such additional amount as equals the
"Gross Up Payment" (as hereinafter defined) thereon. Such escrow shall be
conducted pursuant to written arrangements that are mutually acceptable to
Employer and Executive providing for the timely payment to Executive of the
amounts held in such escrow in the event Executive becomes entitled thereto
under the applicable provisions of this Agreement (the "Escrow Arrangement").
Further, the remaining portion of the "Parachute Amount" (as hereinafter
defined) shall also, within such fifteen (15) days after the occurrence of the
first event constituting a "Hostile Takeover" (as hereinafter defined), be
funded by Employer in immediately negotiable funds into such escrow pursuant to
such Escrow Arrangement. The Escrow Arrangement shall be maintained until the
earlier of (A) nineteen (19) months after the
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occurrence of an event constituting a Change in Control or (B) the payment to
Executive of all sums escrowed.
(b) Change in Control If, within 90 days prior to, or within eighteen (18)
months after the occurrence of an event constituting a Change in Control,
Executive's employment is terminated or a Notice of Termination is given for any
reason other than (A) his death, (B) his Disability, or (C) by Executive Without
Good Reason, then such termination shall be deemed to be a "Termination Due to
Change in Control" (herein so called), in which event Employer shall pay
Executive, in a lump sum, on or prior to the tenth (10th) day following the
Executive's Date of Termination:
(1) an amount equal to the applicable Parachute Amount (including any
Gross Up Payment); and
(2) Executive's accrued and unpaid Base Salary or, if applicable, his
Adjusted Base Salary, through such Date of Termination; and
(3) accrued and unpaid Incentive Compensation and Pro Rata Incentive
Compensation.
(c) Stock Option Floor. Upon the occurrence of the first event
constituting a Change in Control, all stock options and other stock--based
grants to Executive by Employer shall, irrespective of any provisions of the
Option Agreement, immediately and irrevocably vest and become exercisable as of
the date of such first event whereupon, at any time during the Option Term as
defined in the Option Agreement (but not to exceed five (5) years after such
event), Executive or his estate may by five (5) days' advance written notice
given to Employer, and
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irrespective of whether Executive is then employed by Employer or then living,
and solely at the election of Executive or his estate, require Employer to:
(1) immediately purchase all Stock Options from Executive or his
estate in exchange for the sum of Five Million Dollars ($5,000,000.00) cash
delivered in immediately negotiable funds in Dallas County, Texas, to Executive
or his estate, or,
(2) allow Executive to exercise all or any part of such Stock Options
at the option prices therefor specified in the grant of the Stock Options.
Employer shall also loan to Executive pursuant to the provisions of the Master
Note otherwise referenced and described in this Agreement all funds due by
Executive for income taxes (federal, state, or local), including but not limited
to on capital gains as well as on ordinary income, by reason of the provisions
of the existence of any of the provisions of this subparagraph 9(c) or the
carrying out of all or any part of such provisions. Taxes for purposes of the
above computation shall be computed at the highest marginal rate of federal
income taxation for the tax year for which such taxes are or will be due, and
state and local taxes at the highest marginal rate at the end of such year, net
of the maximum reduction (if any) in federal income taxes that could be obtained
from the deduction of deductible state and local taxes.
(d) Gross Up Payment.
(1) Excess Parachute Payment. If Executive incurs the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the
"Code") on "Excess Parachute Payments" within the meaning of Section 280G(b)(l)
of the Code, Employer will pay to Executive an amount (the "Gross Up Payment")
such that the net amount retained by
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Executive, after deduction of any Excise Tax on both the Excess Parachute
Payment and any federal, state and local income tax (together with penalties and
interest) as well as the Excise Tax upon the payment provided for by this
subparagraph 9(d)(1), will be equal to the Parachute Amount.
(2) Applicable Rates. For purposes of determining the amount of the
Gross Up Payment, Executive will be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality where taxes thereon
are lawfully due, net of the maximum reduction (if any) in federal income taxes
that could be obtained from deduction of deductible state and `local taxes.
(3) Determination of Gross Up Payment Amount. The determination of
whether the Excise Tax is payable and the amount thereof will be based upon the
opinion of tax counsel selected by Executive and approved by Employer, which
approval will not be unreasonably withheld or delayed. If such opinion is not
finally accepted by the Internal Revenue Service (or state and local taxing
authorities), then appropriate adjustments to the Excise Tax will be computed
and additional Gross Up Payments will be made in the manner provided by this
subparagraph (d).
(4) Payment. Employer will pay the estimated amount of the Gross Up
Payment in cash to Executive at the time specified in this Agreement. Executive
and Employer agree to reasonably cooperate in the determination of the actual
amount of the Gross Up Payment. Further, Executive and Employer agree to make
such adjustments to the estimated amount of the Gross Up Payment as may be
necessary to equal the actual amount of the Gross
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Up Payment, which in the case of Executive will refer to refunds of prior
overpayments by Employer and in the case of Employer will refer to additional
payments to Executive to make up for prior underpayments.
(e) Definitions. For purposes of this paragraph 9, the following terms
shall have the following meanings:
"Change in Control" shall mean any of the following:
(1) the acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (the "Acquiring
Person"), other than Employer, or any of its Subsidiaries or any Investor or
Excluded Group, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 35% or more of the combined voting power
or economic interests of the then outstanding voting securities of Employer
entitled to vote generally in the election of directors; provided however, that
any transfer from any Investor or Excluded Group will not result in a Change in
Control if such transfer was part of a series of related transactions the effect
of which, absent the transfer to such Acquiring Person by the Investor or
Excluded Group, would not have resulted in the acquisition by such Acquiring
Person of 35% or more of the combined voting power or economic interests of the
then outstanding voting securities; or
(2) during any period of 12 consecutive months after the Issuance
Date, the individuals who at the beginning of any such 12-month period
constituted a majority of the Class A Directors and Class C Directors (the
"Incumbent Non-Investor Majority") cease for any reason to constitute at least a
majority of such Class A Directors and Class C Directors; provided that (i) any
individual becoming a director whose election, or nomination for election by
Employer's
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stockholders, was approved by a vote of the stockholders having the right to
designate such director and (ii) any director whose election to the Board or
whose nomination for election by the stockholders of Employer was approved by
the requisite vote of directors entitled to vote on such election or nomination
in accordance with the Restated Certificate of Incorporation of Employer, shall,
in each such case, be considered as though such individual were a member of the
Incumbent Non-Investor Majority, but excluding, as a member of the Incumbent
Non-Investor Majority, any such individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the directors of Employer (as such terms are used in Rule 14a-1 1 of
Regulation 14A promulgated under the Exchange Act) and further excluding any
person who is an affiliate or associate of an Acquiring Person having or
proposing to acquire beneficial ownership of 25% or more of the combined voting
power of the then outstanding voting securities of Employer entitled to vote
generally in the election of directors; or
(3) the approval by the stockholders of Employer of a reorganization,
merger or consolidation, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the voting securities of Employer immediately prior to such
reorganization, merger, or consolidation do not, following such reorganization,
merger, or consolidation, beneficially own, directly or indirectly, more than
57.5% of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of Employer resulting
from such reorganization, merger, or consolidation; or
(4) the sale or other disposition of assets representing 50% or more
of the assets of Employer in one transaction or series of related transactions;
or
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(5) a "Fundamental Change in Business" as hereinafter defined.
Except as otherwise specified herein, defined terms used in the definition of
"Change in Control" shall have the same meaning as set forth in the Form of
Certificate of Designation of Series B Convertible Preferred Stock of Wyndham
International, Inc.
"Employer" shall mean not only Wyndham International, Inc., but also
its successors by merger or otherwise.
"Fundamental Change in Business" shall mean that Employer, at any
time, no longer earns at least fifty percent (50%) of its gross revenues from
hotel, or hotel-related businesses.
"Hostile Takeover" shall mean any Change in Control which at any time
is declared by at least a majority of the Board, directly or indirectly, to be
hostile or not in the best interests of Employer, or in which an attempt is made
(irrespective of whether successful) to wrest control away from the incumbent
management of Employer, or with respect to which the Board makes any effort to
resist.
"Parachute Amount" shall mean an amount equal to (i) the greater of
$3,000,000.00 or the Severance Amount or, if applicable, the Minimum Severance
Amount provided for in subparagraph 8(d)(1), plus (ii) any amount computed by
reference to subparagraphs 9(c) or 9(d) of this Agreement or otherwise which are
deemed to be a "Parachute Payment" within the meaning of Section 280G(b)(2) of
the Code.
10. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when
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delivered or mailed by United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
if to the Executive:
At his home address as shown
in Employer's personnel records;
if to Employer:
Wyndham International, Inc.
2001 Bryan Street, Suite 2300
Dallas, Texas 75201-3075
Attn.: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Extended Leave of Absence (Family-Related Illness and Bereavement).
Executive may, at Executive's option, during the Period of Employment, take a
leave of absence for purposes of a family-related illness and/or bereavement.
Such leave of absence may extend for an aggregate period during the life of this
Agreement of up to twelve (12) months, plus any vacation available to him under
this Agreement, during which time Executive shall be entitled to all benefits
under this Agreement and any stock option agreement, including all compensation
and rights of tenure and pursuant to paragraph 9 of this Agreement.
Provided, however, Employer by action of a majority vote of the Board, may,
if, by reason of such leave of absence, Executive shall have worked less than
ten (10) calendar days (or any portion thereof) in any seventy (70) consecutive
calendar day period, give Executive written notice of intent to appoint some
other person as Chairman of the Board or Chief Executive Officer, and Executive
must, within sixty (60) days of receipt of such notice, either elect to
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return from such leave of absence, or accept the position of Chairman of the
Board or the position of Chief Executive Officer for the remaining portion of
the Period of Employment, at the same rate of compensation and with all the
rights and benefits provided to Executive in this Agreement. Acceptance of the
position of Chairman of the Board or Chief Executive Officer shall not
constitute grounds for termination of this Agreement for Good Reason by
Executive.
12. Tag Along and Piggyback Rights. Employer shall make best efforts to allow
Executive an equitable opportunity to participate to the extent of any shares of
stock he may then own in Employer or any affiliate of or successor to Employer
(or have the right to own by the exercise of then vested options held by
Executive) in any shelf offering, secondary offering, or follow-up offering. Any
resulting costs for the registration of such shares of Executive shall be paid
by Employer. Further, if at any time or times from and after the date hereof
during the Period of Employment, Employer intends to file a registration
statement for the registration of common stock with a governmental body
permitting the registration of registrable stock, then Employer shall notify
Executive at least thirty (30) days prior to each such filing of such intention
to file such a registration statement. Such notice shall state the amount and
type of securities proposed to be registered thereby, the underwriters involved,
if any, and whether such underwriting is to be distributed on a firm commitment
or best efforts basis. Upon the written request of Executive given within 20
days after receipt of any such notice stating the number of shares of
registrable stock to be disposed of by the Executive and the intended method of
disposition, Employer will use its best efforts to cause the aggregate of the
registrable stock designated by Executive to be included in such registration so
as to permit the disposition (in accordance with the methods specified by
Executive) of the registrable stock so registered, subject to the following:
(a) If the proposed registration involves an underwritten offering of
common stock,
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT Page 32
<PAGE>
whether or not for sale for the account of Employer, to be distributed (on a
best efforts or firm commitment basis) by or through one or more underwriters,
and the managing underwriter of such underwritten offering shall advise Employer
in writing that, in its opinion, the registration of all or a specified portion
of registrable stock concurrently with the common stock will adversely affect
the distribution of such common stock by such underwriters, then Employer may
require, by written notice to Executive that the distribution of all or a
specified portion of the registrable stock be excluded from such registration;
(b) Employer may in its discretion withdraw any registration statement
filed pursuant to this subparagraph subsequent to its filing and prior to its
effective date without liability to the Executive; and
(c) If the preferred stock series B shareholders of Employer restrict the
registration of common shares of Employer held by other holders of common shares
of Employer then, in that event, they may also so restrict to the same extent
the registration rights hereunder of Executive.
Employer shall, and hereby does, indemnify and hold harmless, to the extent
permitted by law, Executive against all losses, claims, damages, liabilities,
and expenses resulting from any untrue or misleading statement or alleged untrue
or misleading statement of a material fact contained in any registration
statement or prospectus (preliminary or otherwise), whether or not such untrue
or misleading statement or. alleged untrue or misleading statement is caused by
Executive's negligence, except in so far as such losses, claims, damages,
liabilities, or expenses are caused by any untrue statement intentionally
furnished or made by Executive. The foregoing indemnity is in addition to, and
does not limit, Executive's right to indemnity, or actual indemnity provided by
Employer, pursuant to the Indemnification Agreement, any Directors' and
Officers'
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT Page 33
<PAGE>
insurance provided to Executive under paragraph 4 of this Agreement, or any
other agreement or insurance.
13. Loans.
(a) Existing Debt. Executive is currently indebted to Employer in the
original principal amount of $4,904,573.00, which debt is witnessed by a
promissory note, a duplicate of which is attached hereto as Exhibit C (the
"Original Note"), and secured as set forth in the Original Note. All right,
title, and interest in and to the Original Note is currently held by Employer,
and the original of the Original Note is in the possession of Employer, having
been heretofore duly endorsed by the payee therein named and delivered to
Employer. Employer and Executive mutually recognize and agree that the Original
Note is in good standing and ;that no payments have been heretofore made on the
Original Note. Employer and Executive mutually desire to amend the provisions of
the Original Note, and each herewith agrees that the Original Note is
concurrently herewith and without further action amended to read as set forth in
the attached Exhibit D (the "Amended Original Note"), which Amended Original
Note is being concurrently herewith signed by Executive and delivered to
Employer. The original of the Original Note is herewith delivered by Employer to
Executive, marked cancelled; Employer and Executive agree that, as of this date,
the Amended Original Note shall for all purposes be deemed effective as of the
date of the Original Note.
(b) Existing Debt Tax Loan. If, at the time of such repayment, Executive
is employed by Employer, Employer shall loan to Executive or his estate such
funds as are required to pay any income taxes due by reason of the repayment by
Executive or his estate of the Original Note, as amended by the Amended Original
Note, with the "Collateral" as such term is defined in the Amended Original Note
attached hereto as Exhibit D. Such loan for income taxes
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT Page 34
<PAGE>
shall be unsecured and shall be due and payable in accordance with the "Master
Note" (herein so called) hereinafter described and attached hereto as Exhibit E.
(c) 1997 Salary Advance. The amount owed by Executive to Employer for a
1997 salary advance will be as of June 30, 1999, $421,214.02 (the "Salary
Advance Balance"). The 1997 Salary Advance Balance will, contemporaneously
herewith be deemed to be documented and made as of July 1, 1999, in accordance
with the provisions of the Master Note hereinafter described, except that such
amount shall be due and payable four (4) years from July 1, 1999.
(d) Master Note Provisions. Attached hereto as Exhibit E is a non-
negotiable and unsecured Master Note executed by Executive and payable to
Employer. Without further action, all loans hereafter made by Employer to
Executive pursuant to the provisions of this Agreement (other than the Original
Note as amended by the Amended Original Note) shall be deemed to have been made
pursuant to the provisions of the Master Note dated as of the date the funds are
advanced for concerned loans (except as herein otherwise specified for the 1997
Salary Advance) and in the original principal amount equal to the amount of such
funding and due and payable four (4) years from the date of the concerned
advance.
14. Miscellaneous. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer of Employer as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party that are not set forth
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT Page 35
<PAGE>
expressly in this Agreement. The validity, interpretation, construction, and
performance of the Agreement shall be governed by the laws of the State of Texas
(without regard to principles of conflicts of laws) and, where applicable, the
laws of the United States.
15. Validity. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect. The
invalid portion of this Agreement, if any, shall be modified by any court having
jurisdiction to the extent necessary to render such portion enforceable.
16. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
17. No Mitigation. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced, regardless of whether the Executive obtains other
employment, except strictly as provided in subparagraph 8(d)(i) of this
Agreement.
18. Arbitration; Other Disputes. In the event of any dispute or controversy
arising under or in connection with this Agreement, the parties shall first
promptly try in good faith to settle such dispute or controversy by mediation
under the applicable rules of the American Arbitration Association before
resorting to arbitration. In the event such dispute or controversy remains
unresolved in whole or in part for a period of thirty (30) days after it arises,
the parties will settle any remaining dispute or controversy exclusively by
arbitration in Dallas, Texas in accordance
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT Page 36
<PAGE>
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction. All
administration fees and arbitration fees shall be paid solely by Employer.
Notwithstanding the above, Employer shall be entitled to seek a restraining
order or injunction in any court of competent jurisdiction to prevent any
continuation of any violation of paragraph 5 or 6 hereof. The prevailing party
may recover attorneys' fees in any dispute or controversy arising under or in
connection with this Agreement. Should a dispute occur concerning Executive's
mental or physical capacity as described in subparagraphs 7(b) or 8(b), a doctor
selected by Executive and a doctor selected by Employer shall be entitled to
examine Executive. If the opinion of Employer's doctor and Executive's doctor
conflict, Employer's doctor and Executive's doctor shall together agree upon a
third doctor, whose opinion shall be binding. Any amount to which Executive is
entitled under this Agreement (including any disputed amount) which is not paid
when due shall bear interest from the date due but not paid at a rate equal to
the lesser of eighteen percent (18%) per annum or the maximum lawful rate.
19. Third-Party Agreements and Rights. Executive represents to Employer that
upon Executive's execution of this Agreement, Executive's employment with
Employer, and the performance of Executive's proposed duties for Employer, will
not violate any obligations Executive may have to any employer prior to WHC, and
Executive will not bring to the premises of Employer any copies of other
tangible embodiments of non-public information belonging to or obtained from any
such previous employment prior to WHC.
20. Legal Fees. Employer agrees to pay all legal fees incurred by the Executive
in connection with the negotiation and preparation of this Agreement, up to a
maximum of sixty thousand dollars ($60,000.00).
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT Page 37
<PAGE>
21. Litigation and Regulatory Cooperation. During and after Executive's
employment, Executive shall reasonably cooperate with Employer in the defense or
prosecution of any claims or actions now in existence or that may be brought in
the future against or on behalf of Employer that relate to events or occurrences
that transpired while Executive was employed by Employer; provided, however,
that such cooperation shall not materially and adversely affect Executive or
expose Executive to an. increased probability of civil or criminal litigation.
Executive's cooperation in connection with such claims or actions shall include,
but not be limited to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of Employer at mutually
convenient times. During and after Executive's employment, Executive also shall
cooperate fully with Employer in connection with any investigation or review by
any federal, state, or local regulatory authority as any such investigation or
review relates to events or occurrences that transpired while Executive was
employed by Employer. Employer shall also provide Executive with compensation on
an hourly basis calculated at his final Annual Base Salary, or if applicable,
Annual Adjusted Base Salary divided by 2000 hours for requested litigation and
regulatory cooperation that occurs after his termination of employment, and
shall reimburse Executive for all costs and expenses incurred in connection with
his performance under this paragraph 21, including, but not limited to,
reasonable attorneys' fees and costs.
22. Conflicts. In the event of any conflict between the provisions of this
Agreement and the Option Agreement, any other option granted heretofore or
hereafter made, or any agreement between Executive and Employer heretofore
executed, this Agreement shall govern and rule supreme.
23. Note prepayment. Executive shall, at the time of receipt of same, pay to
Maker as payment on the Master Note (but not on the Amended Original Note) to
the extent such Master
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EXECUTIVE EMPLOYMENT AGREEMENT Page 38
<PAGE>
Note is unpaid, twenty-five percent (25%) of the after tax Incentive
Compensation and a total of fifty percent (50%) of any after tax gain received
as the result of the exercise and sale of any options provided to Executive
under the Option Agreement. For purposes of this paragraph, Executive will be
deemed to pay federal income taxes at the highest marginal rate of federal
taxation in the applicable calendar year and state and local taxes at the
highest marginal rates of taxation in the state and. locality where taxes
thereon are lawfully due, net of the maximum reduction (if any) in federal
income taxes that could be obtained from deduction of deductible state and local
taxes.
24. Effective Date. This Agreement is effective April 19, 1999.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year above written.
WYNDHAM INTERNATIONAL, INC.
By: /s/ CARLA S. MORELAND
--------------------------------------------
Carla S. Moreland
Its: Executive Vice President - General Counsel
/S/ JAMES D. CARREKER
------------------------------------------------
James D. Carreker
- --------------------------------------------------------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT Page 39
<PAGE>
EXHIBIT 10.4
[LETTERHEAD APPEARS HERE]
July 7, 1999
Mr. Karim Alibhai
10777 Westheimer
Suite 1000
Houston, TX 77042
Dear Karim:
This letter agreement (the "Agreement") confirms the agreement that we have
reached regarding your resignation from your regular, full-time employment and
all offices you held with Wyndham International, Inc. ("WII") and its related
and affiliated entities (collectively, "Wyndham").
This Agreement does not constitute and should not be construed as an
admission by Wyndham or Patriot American Hospitality, Inc. ("PAHI") and its
related and affiliated entities (collectively with PAHI, "Patriot") (Wyndham and
Patriot, collectively hereinafter referred to as the "Companies") that they have
in any way violated any legal obligation that they owe to you or to any other
person or as an admission by you that you have in any way violated any legal
obligation that you owe to the Companies or to any other person. To the
contrary, the parties' willingness to enter into this Agreement demonstrates
that they are continuing to deal with each other fairly and in good faith.
With those understandings and in exchange for the promises set forth below,
you and the Companies agree as follows:
1. Resignation
-----------
You hereby confirm that you resigned as an employee of WII effective as of
June 30, 1999 (the "Resignation Date"). You also hereby confirm that you
resigned from your offices of President and Chief Operating Officer of WII and
any and all employment, offices and board of directors seats (other than your
directorship on WII's Board) that you held with any of the other Companies as of
the Resignation Date. The Companies hereby confirm that said resignations were
accepted by the Companies.
WII agrees to nominate you as a Class 3 Director for the Board of Directors
of WII ("Board") in connection with the merger of WII and PAHI. In the event
that the Board establishes and delegates certain of its authority to an
executive committee of the
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 2
Board, WII shall recommend and support your candidacy for a seat on such
committee to the extent that the structure of such a committee so permits.
2. Compensation and Benefit
------------------------
(a) Repricing of Outstanding Options. As of June 1, 1999, all of your
--------------------------------
outstanding options to purchase 601,065 paired shares of the common stock of WII
and PAHI ("Paired Shares") hereby are canceled, and in lieu thereof you are
granted fully vested new options to purchase 100,000 shares of common stock of
WII (formerly denominated as Paired Shares) at a purchase price of $5. 1875 per
share (the "New Options"). The New Options shall remain fully exercisable until
June 30, 2002 and otherwise shall remain subject to the terms of paragraphs
2(c), 2(d), 7, 8, 9, 11, 12, and 14 of the Patriot American Hospitality
Operating Company Non-Qualified Stock Option Agreement dated as of June 12, 1998
by and between you and PAHI.
(b) Pro Rata Bonus. The Companies agree to pay you, on or within a
--------------
reasonable time after the annual compensation determination date established by
the Board, a lump sum of One Hundred Eighty-Thousand Dollars ($180,000) as a pro
rata incentive bonus for 1999.
(c) Benefit Continuation. You may continue to participate in WII's
--------------------
group health, dental, life and disability insurance plans in which, and to the
same extent as, you are currently participating for up to two (2) years from the
Resignation Date, with the cost of the regular premium for such benefits shared
in the same relative proportion by you and WII as in effect for senior
executives of WIT on the Resignation Date; provided that nothing in this Section
--------
2(c) shall be construed to affect your or your dependents' rights thereafter (i)
to receive continuation coverage to the extent authorized by and consistent with
29 U.S.C. (S) 1161 et seq. (commonly known as "COBRA") and applicable group
health and dental plan terms, or (ii) convert your coverage under the life and
disability plans to individual coverage to the extent authorized by and
consistent with applicable group life and disability plan terms, in all cases
entirely at your or their own cost after your right to cost sharing under this
Section 2(c) ends.
(d) Office. WII shall continue to provide you with the use of one
------
support staff member through December 31, 1999 (Natalie Dixon to the extent she
remains employed by WII). WII shall make a suitable office at its corporate
headquarters available to the assigned support staff member through December 31,
1999.
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 3
(e) Hotel Suite. WII shall make Suite 1013 at the Grand Bay Miami
-----------
available to you for your use through November 21, 1999.
(f) Other Benefits. Except as expressly provided above, your
--------------
eligibility to participate in any of the Companies' respective employee benefit
plans and programs ceases on or after the Resignation Date in accordance with
the terms and conditions of each of those benefit plans and programs and your
rights to benefits under any of the employee benefit plans and programs, if any,
are governed by the terms and conditions of each of those employee benefit plans
and programs.
3. Release of Claims
-----------------
(a) Release by Mr. Alibhai. You voluntarily and irrevocably release
----------------------
and discharge the Companies, their related or affiliated entities, and their
respective predecessors, successors, and assigns, and, solely in their
respective capacities as such, the current and former officers, directors,
shareholders, employees, and agents of each of the foregoing (any and all of
which are referred to as "Releasees") generally from all charges, complaints,
claims, promises, agreements, causes of action, damages, and debts that relate
in any manner to your employment with or services as an employee for the
Companies, known or unknown ("Claims"), which you have, claim to have, ever had,
or ever claimed to have had against any of the Releasees through the date on
which you execute this Agreement. This general release of Claims includes,
without implication of limitation, all Claims for or related to: the Employment
Agreement; the compensation provided to you by the Companies; your resignations
as described in Section 1; wrongful or constructive discharge; breach of
contract; breach of any implied covenant of good faith and fair dealing;
tortious interference with advantageous relations; intentional or negligent
misrepresentation, fraud or deceit; infliction of emotional distress, and
unlawful discrimination under the common law or any statute (including, without
implication of limitation, the Employee Retirement Income Security Act, Title
VII of the Civil Rights Act of 1964, the American with Disabilities Act, Tex.
Lab. Code (S) 21.001, et seq., and Tex. Hum. Res. Code (S) 121.001, et seq.).
You also waive any Claim for reinstatement, severance, incentive or retention
pay (except as expressly provided in this Agreement), attorney's fees, or costs,
relating to the Claims.
You agree that you will not hereafter pursue any Claim against any Releasee
by filing a lawsuit in any local, state or federal court for or on account of
anything which has occurred up to the date on which you execute this Agreement
as a result of your employment, and you shall not seek reinstatement with, or
damages of any nature, severance, incentive or retention pay, attorney's fees,
or costs from the Companies or any of the other Releasees; provided, however,
--------
that nothing in this general release shall
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 4
be construed to bar or limit your rights, if any, to indemnification subject to
and in accordance with the terms of the By-Laws of WII and the Indemnification
Agreement, dated as of May 23, 1998, by and among you, WII and PAHI (the
"Indemnification Agreement"), or to enforce your rights under this Agreement.
(b) Release by the Companies. The Companies, on behalf of themselves
------------------------
and their respective predecessors, successors, assigns, directors (but only in
their capacities as directors of the Companies) and officers (but only in their
capacities as officers of the Companies) voluntarily and irrevocably release and
discharge you and your successors, assigns, heirs and survivors from any and all
charges, complaints, claims, promises, agreements, causes of action, damages and
debts (including attorney's fees and costs actually incurred) which any of them
have, claim to have, ever had or ever claimed to have had against you through
the date hereof, that are known to the Companies or that presently are not
actually known to senior management of the Companies but that directly or
indirectly arise out of, relate to or concern good faith acts or omissions by
you during the course of your employment undertaken or not undertaken in the
reasonable belief that such acts or omissions were in or not opposed to the best
interests of the Companies ("WII Claims").
The Companies further represent that they do not have any knowledge at this
time of any acts or omissions by you that would give rise claims not otherwise
released in the previous paragraph.
4. Employment Agreement
--------------------
This Agreement supersedes all provisions of the Employment Agreement other
than Paragraphs 4, 5 (as amended and restated hereinbelow), 8(c), 13 and 15
thereof. Paragraphs 4, 5 (as amended and restated hereinbelow), 8(c), 13 and 15
of the Employment Agreement are incorporated herein by reference and shall
continue to bind you in accordance with their respective terms. The parties
hereby agree that Paragraph 5 of the Employment Agreement, however, is
incorporated herein only to the extent amended and restated as follows:
The provisions of this Paragraph 5 shall apply during Executive's
employment with the Company and for a period of twelve (12) months
thereafter. In consideration for Executive's employment by the Company
under the terms provided in this Agreement and as a means to aid in the
performance and enforcement of the terms of the Unauthorized Disclosure
provisions of Paragraph 4, Executive agrees that Executive will not,
directly or indirectly, solicit or induce any present or future employee of
the Company or Affiliated Company to accept employment with Executive or
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 5
with any business, operation, corporation, partnership, association,
agency, or other person or entity with which Executive may be associated,
and Executive will not employ or cause any business, operation,
corporation, partnership, association, agency, or other person or entity
with which Executive may be associated to employ any present or future
employee of the Company or Affiliated Company without providing the Company
or Affiliated Company with ten (10) days' prior written notice of such
proposed employment. Should Executive violate the provisions of this
Paragraph 5, then in addition to all other rights and remedies available to
the Company or Affiliated Company at law or in equity, the duration of this
covenant shall automatically be extended for the period of time from which
Executive began such violation until he permanently ceases such violation.
The parties further agree that Paragraph 8(c) (Gross Up Payment) of the
Employment Agreement shall be applied with respect to the payments to you under
this Agreement if such payments results in an Excise Tax (as defined in the
Employment Agreement).
The Employment Agreement, except for Paragraphs 4, 5 (as amended and
restated herein), 8(c), 13 and 15 thereof, shall terminate on the Resignation
Date.
5. Return of Property
------------------
All documents, records, material and all copies of any of the foregoing
pertaining to Confidential Information (as defined in Paragraph 4 of the
Employment Agreement), and all software, equipment, and other supplies, whether
or not pertaining to Confidential Information, that have come into your
possession or been produced by you in connection with your employment
("Property") have been and remain the sole property of the Companies. You
confirm that you have returned all Property to the Companies, except for the
notebook computer currently in your possession. The Companies agree that you may
keep the notebook computer, so long as you first permit the Companies to remove
any Confidential Information from it. In no event should this provision be
construed to require you to return to the Company any document or other
materials concerning your remuneration and benefits during your employment with
the Companies. The Companies agree to return to you, promptly upon your request,
such of your property as may be in the possession of any of the Companies.
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 6
6. Nondisparagement
----------------
You agree not to take any action or make any statement, written or oral,
which disparages or criticizes the Companies or their respective officers,
directors, agents, or management and business practices, or which disrupts or
impairs the Companies' normal operations. The Companies, on behalf of
themselves, agree (a) not to take any action or make any statement, written or
oral, which disparages or criticizes you or your management and business
practices, and (b) to instruct their respective directors and officers not to
take any action or make any statement, written or oral, which disparages or
criticizes you or your management and business practices. The provisions of this
Section 6 shall not apply to any truthful statement required to be made by you
or the Companies, as the case may be, in any legal proceeding or governmental or
regulatory investigation.
You shall be entitled to review and approve, which approval shall not be
unreasonably withheld, the content of any press release or other public
statement issued by the Companies concerning your resignation and participate in
the transaction call announcing your resignation.
7. Additional Representations. Warranties and Covenants
----------------------------------------------------
(a) As a material inducement to the Companies to enter into this
Agreement, you represent, warrant and covenant as follows:
(i) You have not assigned to any third party any Claim released by
this Agreement.
(ii) You have not heretofore filed with any agency or court any Claim
released by this Agreement.
(b) As a material inducement to you to enter into this Agreement, the
Companies represent, warrant and covenant as follows:
(i) The Companies have not assigned to any third party any WII
Claims released by this Agreement; and
(ii) The Companies have not heretofore filed with any agency or court
any WII Claims released by this Agreement.
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 7
8. Further Assurances
------------------
Upon the terms and subject to the conditions herein provided, each of the
parties hereto agrees to use its reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.
9. Exclusivity
-----------
This Agreement sets forth all the consideration to which you are entitled
from the Companies by reason of your resignation and the consummation by the
Companies of any strategic restructuring or transaction, and you shall not be
entitled to or eligible for any payments or benefits under any other Company
severance, bonus, retention or incentive policy, arrangement or plan.
10. Tax Matters
-----------
All payments and other consideration provided to you pursuant to this
Agreement shall be subject to any deductions, wititholding or tax reporting that
the Companies reasonably determine to be required for tax purposes.
11. Acknowledgment
--------------
WII hereby acknowledges that a significant portion of the services
performed by you on behalf of WII since January 1, 1998 was attributable to
pursuing WII's and its related and affiliated entities' interests outside of the
United States, including oversight of Arcadian, WII's United Kingdom-based
operating division, and that such services included oversight of operations,
acquisitions and strategy development for such foreign operations.
12. Arbitration of Disputes
-----------------------
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof shall, to the fullest extent permitted by law, be settled by
arbitration in accordance with Paragraph 13 of the Employment Agreement. This
Section 12 shall be specifically enforceable. Notwithstanding the foregoing,
this Section 12 shall not preclude either party from pursuing a court action for
the sole purpose of obtaining a temporary restraining order or a preliminary
injunction in circumstances in which such relief is appropriate; provided that
--------
any other relief shall be pursued through an arbitration proceeding pursuant to
this Section 12.
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 8
13. Consent to Jurisdiction
-----------------------
To the extent that any court action is permitted consistent with or to
enforce Section 12 of this Agreement, the parties hereby consent to the
jurisdiction of the state and federal courts in or for Dallas, Texas.
Accordingly, with respect to any such court action, you and the Companies (a)
submit to the personal jurisdiction of such courts; (b) consent to service of
process; and (c) waive any other requirement (whether imposed by statute, rule
of court, or otherwise) with respect to personal jurisdiction or service of
process.
14. Notices. Acknowledgments and Other Terms
----------------------------------------
(a) You are advised to consult with an attorney before signing this
Agreement.
(b) You acknowledge and agree that the Companies' promises in this
Agreement constitute consideration in addition to anything of value to which you
are otherwise entitled by reason of the termination of your employment.
(c) By signing this Agreement, you acknowledge that you are doing so
voluntarily and knowingly, fully intending to be bound by this Agreement. You
also acknowledge that you are not relying on any representations by any
representative of the Companies concerning the meaning of any aspect of this
Agreement. You understand that this Agreement shall not in any way be construed
as an admission by the Companies of any liability or any act of wrongdoing
whatsoever by the Companies against you and that the Companies specifically
disclaim any liability or wrongdoing whatsoever against you on the part of
themselves and their respective officers, directors, shareholders, employees and
agents.
(d) In the event of any dispute, this Agreement will be construed as
a whole, will be interpreted in accordance with its fair meaning, and will not
be construed strictly for or against either you or the Companies.
(e) The laws of the State of Texas will govern any dispute about this
Agreement, including any interpretation or enforcement of this Agreement.
(f) In the event that any provision or portion of a provision of this
Agreement shall be determined to be illegal, invalid or unenforceable, the
remainder of this Agreement shall be enforced to the fullest extent possible and
the illegal, invalid or unenforceable provision or portion of a provision will
be amended by a court of
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 9
competent jurisdiction to reflect the parties' intent if possible. If such
amendment is not possible, the illegal, invalid or unenforceable provision or
portion of a provision will be severed from the remainder of this Agreement and
the remainder of this Agreement shall be enforced to the fullest extent possible
as if such illegal, invalid or unenforceable provision or portion of a provision
was not included.
(g) This Agreement may be modified only by a written agreement signed
by you and authorized representatives of the Companies.
(h) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter;
provided, that the Indemnification Agreement shall remain in full force and
- --------
effect in accordance with its terms.
(i) This Agreement shall be binding upon each of the parties and upon
their respective heirs, administrators, representatives, executors, successors
and assigns, and shall inure to the benefit of each party and to their heirs,
administrators, representatives, executors, successors, and assigns.
(j) This Agreement may be executed in one or more counterparts, all
of which taken together shall constitute one and the same Agreement.
<PAGE>
Mr. Karim Alibhai
July 7, 1999
Page 10
If you agree to these terms, please sign and date below and return this
Agreement to the General Counsel of WII.
Sincerely,
WYNDHAM INTERNATIONAL, INC.
By: /s/ JAMES D. CARREKER
-------------------------------------
James D. Carreker
Chairman and Chief Executive Officer
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ JAMES D. CARREKER
-------------------------------------
James D. Carreker
Chief Executive Officer
Accepted and agreed to:
/s/ KARIM ALIBHAI
- ----------------------- ----------------------------------------
Karim Alibhai Date
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 AND
THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND SEPTEMBER 30, 1998 OF WYNDHAM INTERNATIONAL, INC.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 216,084 158,954
<SECURITIES> 0 0
<RECEIVABLES> 198,813 194,583
<ALLOWANCES> 0 0
<INVENTORY> 23,832 23,583
<CURRENT-ASSETS> 465,255 35,346
<PP&E> 5,936,881 5,838,196
<DEPRECIATION> 438,644 252,580
<TOTAL-ASSETS> 7,071,509 7,415,670
<CURRENT-LIABILITIES> 404,683 1,614,967
<BONDS> 0 0
0 0
102 90
<COMMON> 1,672 4,270
<OTHER-SE> 2,308,942 2,598,677
<TOTAL-LIABILITY-AND-EQUITY> 7,071,509 7,415,670
<SALES> 0 0
<TOTAL-REVENUES> 1,901,509 1,426,080
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,899,981 1,284,086
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 266,678 172,191
<INCOME-PRETAX> (262,150) (22,822)
<INCOME-TAX> (651,053) (11,273)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> (9,838) (31,817)
<CHANGES> 0 0
<NET-INCOME> (921,223) (67,257)
<EPS-BASIC> (6.06) (0.54)
<EPS-DILUTED> (6.19) (1.46)
</TABLE>
