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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
WYNDHAM INTERNATIONAL, INC.
(Name of Issuer)
Wyndham International, Inc.
(Name of Person Filing Statement)
Series A Preferred Stock Series B Preferred Stock
(Title of Class of Securities) (Title of Class of Securities)
983101 20 5 983101 30 4
(CUSIP Number of Class of (CUSIP Number of Class of
Securities) Securities)
James D. Carreker
Chief Executive Officer
WYNDHAM INTERNATIONAL, INC.
1950 Stemmons Freeway, Suite 600
Dallas, TX 75207
(214) 863-1000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of Person Filing Statement)
June 1, 1999
(Date Tender Offer First Published, Sent or Given to Security Holders)
----------------
CALCULATION OF FILING FEE
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Transaction Valuation* Amount of Filing Fee
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$18,591,214 $5,168.36
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* Calculated pursuant to Rule O-11(b)(2) under the Securities Exchange Act of
1934.
[X]Check box if any part of the fee is offset as provided by Rule O-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount previously paid: $5,168.36
Form or registration no.: Form S-4 (File No. 333-79527)
Filing party: Patriot American Hospitality, Inc. and Wyndham International,
Inc.
Date Filed: May 28, 1999
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Item 1. Security and Issuer.
(a) The name of the issuer is Wyndham International, Inc., a Delaware
corporation ("Wyndham"). Wyndham's principal executive offices are located at
1950 Stemmons Freeway, Suite 6001, Dallas, TX 75207.
(b) This Schedule 13e-4 relates to an offer to exchange twenty (20) shares
of Wyndham common stock for each share of its currently outstanding series A
preferred stock and series B preferred stock upon the terms and subject to the
conditions set forth in the Joint Proxy Statement/Prospectus dated June 1,
1999 (the "Proxy Statement") and in the related Letter of Transmittal (which
together constitute the "Exchange Offer"), copies of which are attached hereto
as Exhibits (a)(1) and (a)(2), respectively. The information set forth in
"Opportunity for Holders of Wyndham Series A and Series B Preferred Stock to
Exchange Their Stock for Wyndham Common Stock" of the Proxy Statement is
incorporated herein by reference. Wyndham will acquire 921,432 shares of its
series A preferred stock and 921,432 shares of its series B preferred stock
from Sherwood Weiser, a director of Wyndham, and certain affiliates of Mr.
Weiser on terms and conditions described in the Proxy Statement.
(c) There is currently no established trading market for the Wyndham series
A preferred stock or series B preferred stock.
(d) Not applicable.
Item 2. Source and Amount of Funds or Other Consideration.
(a)-(b) Wyndham will issue 71,247,080 shares of its common stock in
exchange for all of the outstanding shares of Wyndham series A and series B
preferred stock.
Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
(a)-(j) The information set forth under "Proposal 1, Proposal to Approve the
Issuance of the Wyndham Series B Preferred Stock to the Investors," "Proposal
2, Proposal to Approve the Issuance of Wyndham Common Stock in Exchange for
Existing Preferred Stock of Wyndham and Limited Partnership Interests in the
Companies' Operating Partnerships," "Proposal 3, Proposal to Approve the
Merger of a Subsidiary of Wyndham with Patriot," "Proposal 4, Proposal to
Implement a Reverse Stock Split of Wyndham Common Stock," "Proposal 6,
Proposal to Terminate the Pairing Agreement," "Proposals to Adopt the Restated
Certificate of Incorporation of Wyndham which includes Proposal 7-- An
Increase in Authorized Common Stock, Proposal 8-- An Increase in Authorized
Preferred Stock, Proposal 9-- Designations of "class A" common stock, Proposal
10--Designations of "class B" common stock, and Proposal 11--Changes in Board
Structure and Composition," "Proposal 12, Election of Directors for Wyndham"
and "Proposal 13, Election of Directors for Patriot" and "Opportunity for
Holders of Wyndham Series A and Series B Preferred Stock to Exchange Their
Stock for Wyndham Common Stock" in the Proxy Statement is incorporated herein
by reference.
Item 4. Interest in Securities of the Issuer.
Not Applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect
to the Issuer's Securities.
The information set forth under "Proposal 1, Proposal to Approve the
Issuance of the Wyndham Series B Preferred Stock to the Investors," "Proposal
2, Proposal to Approve the Issuance of Wyndham Common Stock in Exchange for
Existing Preferred Stock of Wyndham and Limited Partnership Interests in the
Companies' Operating Partnerships," "Proposal 3, Proposal to Approve the
Merger of a Subsidiary of Wyndham with Patriot," "Proposal 4, Proposal to
Implement a Reverse Stock Split of Wyndham Common Stock," "Proposal 6,
Proposal to Terminate the Pairing Agreement," "Proposals to Adopt the Restated
Certificate of Incorporation of Wyndham which includes Proposal 7-- An
Increase in Authorized Common Stock, Proposal 8-- An Increase in Authorized
Preferred Stock, Proposal 9-- Designations of "class A" common stock, Proposal
10--Designations
2
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of "class B" common stock, and Proposal 11--Changes in Board Structure and
Composition," "Proposal 12, Election of Directors for Wyndham" and "Proposal
13, Election of Directors for Patriot" and "Opportunity for Holders of Wyndham
Series A and Series B Preferred Stock to Exchange Their Stock for Wyndham
Common Stock" in the Proxy Statement is incorporated herein by reference.
Item 6. Persons Retained, Employed or to be Compensated.
The information set forth under "Opportunity for Holders of Wyndham Series A
and Series B Preferred Stock to Exchange their stock for Wyndham Common Stock"
in the Proxy Statement is incorporated herein by reference.
Item 7. Financial Information
(a) The historical audited financial information of Patriot and Wyndham set
forth in the Annual Report on Form 10-K, as amended, of Patriot and Wyndham
for the fiscal year ended December 31, 1998 is incorporated herein by
reference. A copy of such Annual Report on Form 10-K, as amended, is attached
hereto as Exhibit (a)(3).
(b) The information set forth under "Summary--Wyndham and Patriot Summary
Selected Financial Information" and the pro forma financial information set
forth under "Index to Financial Information" in the Proxy Statement is
incorporated herein by reference.
Item 8. Additional Information
(a)Not applicable
(b)Not applicable
(c)Not applicable
(d)Not applicable
(e)Not applicable
Item 9. Material to be filed as Exhibits
(a)(1) Joint Proxy Statement/Prospectus of Patriot American Hospitality,
Inc. and Wyndham International, Inc. dated June 1, 1999.
(a)(2) Letter of Transmittal from Wyndham International, Inc. dated June 1,
1999.
(a)(3) Annual Report on From 10-K of Patriot American Hospitality, Inc. and
Wyndham International, Inc. for the fiscal year ended December 31,
1998 (as amended on May 10, 1999, May 24, 1999 and May 28, 1999).
(b) Not applicable.
(c) Not applicable.
(d) Opinion of Goodwin, Procter & Hoar LLP dated June 1, 1999.
(e) Joint Proxy Statement/Prospectus of Patriot American Hospitality,
Inc. and Wyndham International, Inc. dated June 1, 1999. (see Item 9
(a)(1)).
(f) Not applicable.
3
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
WYNDHAM INTERNATIONAL, INC.
By: /s/ James D. Carreker
-----------------------------------
Name: James D. Carreker
Title: Chairman and Chief
Executive Officer
Date: June 1, 1999
4
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EXHIBIT (a)(1)
WYNDHAM INTERNATIONAL, INC.
PATRIOT AMERICAN HOSPITALITY, INC.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
Dear Stockholders:
The Boards of Directors of Wyndham International, Inc. and Patriot American
Hospitality, Inc. have unanimously approved a $1 billion equity investment and
related restructuring of the two companies and are seeking your votes in
connection with these important transactions. Under the terms of the
investment, investors will purchase for cash $1 billion of a new class of
preferred stock of Wyndham. We will use the proceeds from the $1 billion equity
investment and a new $2.45 billion credit facility to settle our forward equity
contracts, retire existing debt and provide additional working and growth
capital. As a result of these transactions, we believe that we will be
positioned to pursue our growth strategy of developing our proprietary hotel
brands. The Boards unanimously recommend that you vote in favor of these
transactions.
Following the $1 billion equity investment, the investors will own
approximately 41% of the voting power of Wyndham, increasing to approximately
52% after six years. These amounts could decrease to approximately 29% and 36%,
respectively, if stockholders other than the investors purchase the entire $300
million of preferred stock to be offered in the rights offering after the
closing of the investment. Additionally, the Board of Directors of Wyndham will
be restructured to consist of nineteen directors: eight designated by the
current members, eight designated by the investors, and three to be mutually
agreed upon by the investors and the current members.
As part of the related restructuring, Patriot will convert to a taxable C
corporation from a real estate investment trust and merge to become a
subsidiary of Wyndham. After the conversion, shareholders will no longer
receive 95% of Patriot's income in the form of dividends. As part of the
merger, the paired shares, which are currently listed on the New York Stock
Exchange under the symbol "PAH", will convert on a one-for-one basis into
newly-issued shares of Wyndham common stock which we intend to list on the NYSE
under the symbol "WYN".
This joint proxy statement/prospectus constitutes the prospectus of Wyndham
with respect to 241,242,743 shares of Wyndham common stock to be issued to
stockholders of Patriot in connection with the merger. This joint proxy
statement/prospectus also constitutes the prospectus of Wyndham with respect to
35,623,460 and 35,623,620 shares of Wyndham common stock which may be issued to
the holders of the currently outstanding series A and B preferred stock of
Wyndham in an exchange offer on a twenty-for-one basis. Following this exchange
offer, every 20 shares of Wyndham common stock issued in the exchange offer
will then be converted into one share of Wyndham common stock in a reverse
stock split immediately before the merger.
See "Risk Factors" starting on page 15 for a description of material risks
and uncertainties that you should consider in determining whether to approve
the $1 billion equity investment and the related transactions.
Sincerely,
/s/ James D. Carreker
James D. Carreker
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
Joint Proxy Statement/Prospectus dated June 1, 1999,
and first mailed to stockholders on or about June 1, 1999.
<PAGE>
WYNDHAM INTERNATIONAL, INC.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1999
----------------
To the Stockholders of Wyndham International, Inc.:
The annual meeting of stockholders of Wyndham International, Inc., a
Delaware corporation, will be held on June 29, 1999 at 9:00 a.m. local time, at
Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, NY 10036, for the
following purposes:
. To consider and vote upon a proposal to approve the issuance for cash of
$1 billion of Wyndham series B convertible preferred stock to new
investors;
. To consider and vote upon a proposal to approve the issuance of shares
of Wyndham common stock to existing holders of Wyndham's preferred stock
and existing limited partners of the companies' operating partnerships
in exchange for their preferred stock and limited partnership interests;
. To consider and vote upon a proposal to approve the merger of a newly-
formed, wholly-owned subsidiary of Wyndham with and into Patriot
American Hospitality, Inc.;
. To consider and vote upon a proposal to approve a reverse stock split of
Wyndham common stock;
. To consider and vote upon a proposal to terminate the existing pairing
agreement dated February 17, 1983, as amended, between Patriot and
Wyndham;
. To consider and vote upon a proposal to amend and restate Wyndham's
certificate of incorporation to, among other things, increase the
authorized number of shares of common and preferred stock, create
classes of common stock designated as class A and class B, and classify
the Board of Directors;
. To reelect four members of the Board of Directors; and
. In the discretion of the persons named in the proxy, to transact any
other business that may properly come before the Wyndham annual meeting
or any adjournment of the meeting.
Holders of record of Wyndham common stock at the close of business on May
24, 1999 are entitled to notice of, and to vote at, the Wyndham annual meeting.
A list of those stockholders will be available for inspection at the offices of
Wyndham at least ten days prior to the Wyndham annual meeting.
The $1 billion equity investment, the merger with Patriot, and other related
matters are more fully described in the accompanying joint proxy
statement/prospectus and annexes.
By Order of the Board of Directors
of Wyndham International, Inc.
Carla S. Moreland
Secretary
June 1, 1999
The Boards of Directors of Patriot and Wyndham are soliciting proxies
separately. To ensure representation of your stock at the Wyndham annual
meeting, you must mark, sign and return the enclosed proxy card.
Whether or not you plan to attend the Wyndham annual meeting, please
complete, sign, date, and return the enclosed proxy card in the enclosed
self-addressed envelope as promptly as possible. If you attend the Wyndham
annual meeting, you may vote your shares in person, even though you have
previously signed and returned your proxy.
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PATRIOT AMERICAN HOSPITALITY, INC.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1999
----------------
To the Stockholders of Patriot American Hospitality, Inc.:
The annual meeting of stockholders of Patriot American Hospitality, Inc., a
Delaware corporation, will be held on June 29, 1999 at 9:30 a.m. local time, at
Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, NY 10036, for the
following purposes:
. To consider and vote upon a proposal to approve the merger of a newly-
formed, wholly-owned subsidiary of Wyndham International, Inc. with and
into Patriot;
. To consider and vote upon a proposal to approve a reverse stock split of
Patriot common stock;
. To consider and vote upon a proposal to terminate the pairing agreement
dated February 17, 1983, as amended, between Patriot and Wyndham;
. To reelect three members of the Board of Directors; and
. In the discretion of the persons named in the proxy, to transact any
other business that may properly come before the Patriot annual meeting
or any adjournment of the meeting.
Holders of record of Patriot common stock and Patriot series A preferred
stock at the close of business on May 24, 1999 are entitled to notice of, and
to vote at, the Patriot annual meeting. A list of those stockholders will be
available for inspection at the offices of Patriot at least ten days prior to
the Patriot annual meeting.
The merger with Wyndham and other related matters are more fully described
in the accompanying joint proxy statement/prospectus and annexes.
By Order of the Board of Directors
of Patriot American Hospitality,
Inc.
John P. Bohlmann
Secretary
June 1, 1999
The Boards of Directors of Patriot and Wyndham are soliciting proxies
separately. To ensure representation of your stock at the Patriot annual
meeting, you must mark, sign and return the enclosed proxy card.
Whether or not you plan to attend the Patriot annual meeting, please
complete, sign, date, and return the enclosed proxy card in the enclosed
self-addressed envelope as promptly as possible. If you attend the Patriot
annual meeting, you may vote your shares in person, even though you have
previously signed and returned your proxy.
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TABLE OF CONTENTS
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Summary................................................................... 1
Risk Factors.............................................................. 15
Note Regarding Forward-looking Statements................................. 19
The Annual Meetings....................................................... 20
What is the Background of the Investment.................................. 23
Our Reasons for the Investment............................................ 30
Proposal 1
Proposal to Approve the Issuance of the Wyndham Series B Preferred Stock
to the Investors (For Wyndham Stockholders Only) ...................... 32
Proposal 2
Proposal to Approve the Issuance of Wyndham Common Stock in Exchange for
Existing Preferred Stock of Wyndham and Limited Partnership Interests
in the Companies' Operating Partnerships (For Wyndham Stockholders
Only).................................................................. 32
What is Wyndham asking you to approve?.................................. 32
What does the Board of Directors of Wyndham recommend that you do in
response to Proposal 1 and Proposal 2? ................................ 32
What is the opinion of the financial advisor to Wyndham and Patriot of
the $1 billion equity investment?...................................... 32
What are the terms of Wyndham's series B preferred stock?............... 38
What other rights or limitations do the investors have?................. 45
Who are the investors?.................................................. 47
What are the other terms of the Purchase Agreement?..................... 47
Are there any risks or disadvantages to Wyndham and Patriot if the
stockholders do not approve the $1 billion equity investment?.......... 51
Are there any risks or disadvantages to Wyndham and Patriot if the
stockholders approve the $1 billion equity investment?................. 52
Do the officers and directors of Patriot and Wyndham have any conflicts
of interest in recommending that you approve the $1 billion equity
investment?............................................................ 52
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Has any litigation been filed as a result of the $1 billion equity
investment?............................................................ 53
Are there any take-over implications of the series B preferred stock
issuance?.............................................................. 54
Why is stockholder approval being sought for Proposal 1 and Proposal
2?..................................................................... 55
The proposed Rights Offering............................................ 55
Proposal 3
Proposal to Approve the Merger of a Subsidiary of Wyndham with Patriot
(For Wyndham and Patriot Stockholders)................................. 56
Proposal 4
Proposal to Implement a Reverse Stock Split of Wyndham Common Stock (For
Wyndham Stockholders Only)............................................. 56
Proposal 5
Proposal to Implement a Reverse Stock Split of Patriot Common Stock (For
Patriot Stockholders Only)............................................. 56
Proposal 6
Proposal to Terminate the Pairing Agreement (For Wyndham and Patriot
Stockholders).......................................................... 56
What are you being asked to approve?.................................... 56
What does the Board of Directors recommend with respect to
Proposals 3 through 6?................................................. 56
What are the terms of the reverse stock splits?......................... 56
What are the terms of the Merger?....................................... 57
What will happen if Patriot terminates its REIT status?................. 57
What will happen if the pairing agreement is terminated?................ 58
How do stockholders' rights as Wyndham stockholders differ from rights
as holders of paired shares? .......................................... 59
Will the Wyndham common stock be listed on the NYSE?.................... 59
What is the accounting treatment of the Merger?......................... 59
Do stockholders have appraisal rights?.................................. 60
What is the impact of the approval or disapproval of Proposals 3 through
6?..................................................................... 62
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Proposals to Adopt the Restated Certificate of Incorporation of Wyndham.
Which Includes:
Proposal 7--An Increase in Authorized Common Stock...................... 63
Proposal 8--An Increase in Authorized Preferred Stock................... 63
Proposal 9--Designation of "class A common stock"....................... 63
Proposal 10--Designation of "class B common stock"...................... 63
Proposal 11--Changes in Board Structure and Composition................. 63
What is Wyndham asking you to approve?.................................. 63
What does the Board of Directors of Wyndham recommend that you do in
response to Proposals 7 through 11?.................................... 63
Why is Wyndham requesting an increase in the number of authorized shares
of common stock and preferred stock?................................... 63
What are the terms of the preferred stock?.............................. 64
What are the possible negative effects of the adoption of the proposed
restated certificate of incorporation and the increase of the
authorized Wyndham common stock and preferred stock?................... 64
Why does the proposed Wyndham certificate of incorporation create the
class A common stock and class B common stock?......................... 65
What are the terms of the class A common stock and class B common
stock?................................................................. 65
How will the proposed Wyndham certificate of incorporation change the
composition of the Board of Directors?................................. 66
Who will the Directors be if the proposed Wyndham certificate of
incorporation is approved?............................................. 67
Who will the executive officers be if the $1 billion investment and
related restructuring are approved?.................................... 68
Will Wyndham have a staggered board under the proposed Wyndham
certificate of incorporation?.......................................... 68
What is the impact of the approval or disapproval of Proposals 7 through
11?.................................................................... 68
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Proposal No. 12
Election of Directors for Wyndham (For Wyndham Stockholders Only)....... 69
Proposal No. 13
Election of Directors for Patriot (For Patriot Stockholders Only)....... 69
Principal Executive Officers of Wyndham and Patriot..................... 69
Current Directors Wyndham............................................... 72
Current Directors of Patriot............................................ 74
Directors of Wyndham Following the Investment........................... 75
Information Regarding the Board of Directors of Wyndham and Its
Committees............................................................. 77
Information Regarding the Board of Directors of Patriot and Its
Committees............................................................. 77
Director Compensation for Wyndham and Patriot........................... 78
Executive Compensation for Patriot...................................... 79
Option Grants in Fiscal Year 1998 for Patriot........................... 82
Option Exercises and Year-End Holdings for Patriot...................... 82
Patriot Stock Option Repricing Program.................................. 83
Compensation Committee Report on Repricing of Options................... 83
Executive Compensation for Wyndham...................................... 85
Option Grants in Fiscal Year 1998 for Wyndham........................... 87
Option Exercises and Year-End Holdings for Wyndham...................... 88
Wyndham Stock Option Repricing Program.................................. 89
Report of the Compensation Committees of the Boards of Directors of
Wyndham and Patriot on Executive Compensation.......................... 89
Compensation Committee Interlocks and Insider Participation for Wyndham
and Patriot............................................................ 92
Wyndham and Patriot Employment Agreements and Termination Agreements.... 92
Stock Performance Graph for Wyndham and Patriot......................... 96
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Opportunity for Holders of Wyndham Series A and Series B Preferred Stock
to Exchange Their Stock for Wyndham Common Stock......................... 97
General................................................................... 97
Purposes of the Preferred Stock Exchange Offer............................ 97
Terms of the Preferred Stock Exchange Offer............................... 97
Expiration Date; Extension; Amendments.................................... 97
Procedure for Tendering Series A Preferred Stock and Series B Preferred
Stock.................................................................... 98
Terms and Conditions of the Preferred Stock Exchange Offer................ 99
Withdrawal Rights......................................................... 99
Acceptance of Series A Preferred Stock and Series B Preferred Stock for
Exchange; Delivery of Common Stock....................................... 100
Conditions of the Preferred Stock Exchange Offer.......................... 101
Dissenters' Rights........................................................ 102
Exchange Agent............................................................ 102
Transfer Taxes............................................................ 103
Consequences of Failure to Exchange....................................... 103
Wyndham and Patriot....................................................... 104
The Current Structure of Wyndham and Patriot............................ 104
Business Strengths...................................................... 104
Business Strategy....................................................... 104
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Current Business Challenges.............................................. 106
The Restructuring of Wyndham and Patriot................................. 108
Indebtedness............................................................. 108
Federal Income Tax Consequences............................................ 110
Securities Ownership of Certain Beneficial Owners And Management........... 119
Certain Relationships and Related Transactions............................. 123
Other Matters.............................................................. 130
Legal Matters.............................................................. 130
Experts.................................................................... 130
Stockholder Proposals...................................................... 131
Where You Can Find More Information........................................ 132
Available Information...................................................... 132
Incorporation of Certain Documents by Reference............................ 132
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ANNEXES
A. Securities Purchase Agreement
B. Restructuring Plan
C. Form of Restated Certificate of
Incorporation of Wyndham
D. Form of Certificate of Designation of
Series B Convertible Preferred Stock of
Wyndham
E. Opinion of Morgan Stanley & Co. Incorporated
F. Agreement and Plan of Merger
G. Form of Amendment to Wyndham
Certificate of Incorporation to effect
reverse stock split.
H. Form of Amendment to Patriot
Certificate of Incorporation to effect
reverse stock split.
I. Delaware Statutory Appraisal Rights
J. Opinion of Chase Securities Inc.
</TABLE>
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Summary
This summary highlights selected information from this joint proxy
statement/prospectus. It may not contain all of the information that is
important to you. To more fully understand the proposed $1 billion equity
investment in Wyndham International, Inc. and the proposed restructuring of
Wyndham and Patriot American Hospitality, Inc., you should read carefully this
entire document, including the annexes. For additional information regarding
Wyndham and Patriot, you should read the documents that we have filed with the
Securities and Exchange Commission listed under the caption "Where You Can Find
More Information" on page 132.
Transaction Overview
Wyndham and Patriot have entered into an agreement with investors including
affiliates of Apollo Real Estate Management III, L.P., Apollo Management IV,
L.P., Thomas H. Lee Equity Fund IV, L.P., Beacon Capital Partners, L.P., and
Strategic Real Estate Investments I, LLC providing for a $1 billion equity
investment and related restructuring of the two companies. The companies have
also received financing commitments for a $2.45 billion credit facility to be
put in place upon the completion of the $1 billion equity investment.
The investors will purchase for cash $1 billion of a new series of Wyndham
preferred stock. The preferred stock will have 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 $29,250,000 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,
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 payable in cash or additional
shares of preferred stock as determined by the Board of Directors;
and, after year 10, dividends payable 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 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 $300 million of
the 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.
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.
The $1 billion equity investment requires that the companies restructure
their existing organization. Under the planned restructuring, Patriot will
become a wholly-owned subsidiary of Wyndham. Generally, the assets of each of
Wyndham, Patriot and the operating partnerships will remain in the entity that
currently owns them, except that the nonvoting stock
1
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of specified corporate subsidiaries will be transferred from the Patriot
partnership to either Wyndham or Patriot. In addition, the pairing agreement
between Wyndham and Patriot will terminate, Patriot's status as a real estate
investment trust will terminate effective January 1, 1999, and Patriot will
become a taxable corporation as of that date.
As compensation for their commitment to make the $1 billion investment,
Wyndham and Patriot have agreed to pay the investors an equity transaction
funding fee equal to $21 million and to reimburse the investors for all costs
and expenses up to $25 million incurred by the investors in the evaluation,
negotiation and completion of the investment.
As part of these transactions, the Board of Directors of Wyndham will be
restructured to consist initially of eight "class A" directors designated by
the existing Board members, eight "class B" directors designated by the
investors, and three "class C" directors to be mutually agreed upon by the
investors and the existing Board members.
For a period of 170 days following the completion of the $1 billion equity
investment, Wyndham may redeem up to $300 million of the preferred stock issued
to the investors. Wyndham currently intends to use the proceeds of an offering
to its stockholders and the limited partners in its subsidiary operating
partnerships of rights to purchase three million shares of an additional series
of its preferred stock which generally will have the same economic terms as the
preferred stock issued to the investors but will have limited voting rights, to
fund this redemption.
The new $2.45 billion credit facility will consist of the following:
. $1.2 billion in term loans with a seven year term;
. a $600 million revolving credit facility with a five year term; and
. a $650 million increasing rate loan facility with a five year term.
Potential Benefits of the Restructuring and the $1 Billion Equity Investment
We believe that the $1 billion equity investment and the new credit facility
will provide us with working and growth capital to pursue our strategy of
developing our proprietary hotel brands. We believe these transactions will
alleviate our current liquidity and capital constraints by permitting
settlement of our forward equity contracts and retirement and refinancing of
about $3.0 billion of our existing debt. We also believe that the restructuring
will simplify our corporate structure.
Potential Detriments of the Restructuring and the $1 Billion Equity Investment
In making our determination to approve the $1 billion equity investment, we
also considered the dilutive effect of the transaction on net income per share,
the potential downward adjustment of the conversion price of the preferred
stock issued to the investors, the significant transaction costs incurred in
connection with the investment, the 9.75% dividend payable on the preferred
stock, as well as the $21 million equity transaction funding fee paid to the
investors, and the fact that the investors will hold approximately 41% of the
voting power of Wyndham following the investment and will be entitled to
appoint 8 of 19 directors of Wyndham.
In making our determination to approve the restructuring, we considered
that, as a result of the termination of Patriot's status as a REIT, beginning
in 1999, Patriot's stockholders will no longer receive at least 95% of
Patriot's net income in the form of dividends each year. Patriot's
distributions per share of common stock equaled $1.04 in 1998, $1.09 in 1997,
and $0.92 in 1996, after giving effect to mergers and stock splits. Wyndham
does not intend to make any further distributions in 1999. Additionally, we
estimate that Wyndham will take a one-time accounting charge of approximately
$750 million relating to a deferred tax liability as a result of the
termination of Patriot's REIT status.
Our Recommendations
The Boards of Directors believe that the $1 billion equity investment and
the related restructuring of Wyndham and Patriot are in your best interest and
unanimously recommend that you vote for all of the proposals relating to these
transactions described in this joint proxy statement/prospectus.
2
<PAGE>
Conflicts of Interest of or Benefits to Officers, Directors and Significant
Stockholders
In considering our recommendation to approve the $1 billion equity
investment, you should be aware that some of our executive officers and
directors will receive benefits as a result of the transaction. Outstanding
stock options and restricted stock grants held by the companies' executive
officers for 887,117 paired shares in the aggregate will vest upon completion
of the investment. Additionally, under our executive employment agreements,
specified executives may be entitled to receive maximum severance benefits of
approximately $6.5 million in the aggregate, if their employment is terminated
or if their reporting relationship changes following the investment so that
they report to the chief operating officer as opposed to the chairman and chief
executive officer. Lawrence S. Jones, the companies' current treasurer, has
asserted that he is entitled to receive approximately $2.4 million in cash
severance benefits as a result of the investment. James D. Carreker will
receive 72,222 shares of Wyndham common stock upon the closing of the
investment and the related transactions and 72,222 shares of Wyndham common
stock on each of the first and second anniversaries of the investment. Paul A.
Nussbaum received 83,334 paired shares upon the execution of the purchase
agreement and will receive 83,333 shares of Wyndham common stock on each of the
first and second anniversaries of the investment. William W. Evans III will
receive a bonus of $1.5 million upon the completion of the equity investment,
the refinancing of the debt facilities and the Interstate spin-off. He will
also receive 166,666 paired shares, payable in three installments. If Mr.
Evans' employment should terminate after the completion of the investment, he
will be entitled to a cash severance of approximately $1.5 million and a loan
forgiveness of approximately $175,000.
Risk Factors
You should consider, in addition to all the other information in this joint
proxy statement/prospectus, the specific risk factors discussed in the section
entitled "Risk Factors" starting on page 15. These risk factors include:
. if the companies have net income in the future, net income per share
will be lower due to the increase in the number of shares as a result
of the issuance of $1 billion of preferred stock to the investors;
. the initial conversion price of the preferred stock sold to the
investors of $8.59 per share of common stock is subject to potential
reduction in the event that Wyndham has to indemnify the investors for
losses;
. following the investment, the investors will hold approximately 41% of
the voting power of Wyndham, rising to approximately 52% six years
after the investment, so long as Wyndham does not issue any other
voting stock and does not complete the $300 million rights offering;
. following the investment, the investors will be entitled to appoint
eight of 19 directors of Wyndham;
. as a result of the termination of Patriot's status as a REIT,
stockholders will not receive at least 95% of Patriot's taxable income
in the form of dividends;
. approval of the $1 billion equity investment may delay or prevent a
change of control of Wyndham because the investors will have
significant voting power following the investment and the dividends on
the investors' preferred stock accelerate in the event of a change of
control;
. some of our officers and directors will receive benefits in connection
with the $1 billion investment that could raise issues concerning
potential conflicts of interest; and
. Wyndham will take a one-time accounting charge of approximately $750
million relating to a deferred tax
3
<PAGE>
liability as a result of the termination of Patriot's REIT status
effective January 1, 1999.
Matters to be Voted on at the Annual Meetings
The $1 billion equity investment can not be completed unless the
stockholders of the companies approve all of the following proposals at the
annual meetings of the stockholders:
. to issue for cash $1 billion of Wyndham preferred stock to the
investors;
. to issue shares of Wyndham common stock to existing holders of
Wyndham's preferred stock and existing limited partners of the
companies' operating partnerships for their preferred stock and
limited partnership interests;
. to merge a subsidiary of Wyndham with Patriot;
. to implement reverse stock splits of the common stock of Wyndham and
Patriot;
. to terminate the agreement between Wyndham and Patriot requiring the
pairing of their common stock; and
. to amend and restate the certificate of incorporation of Wyndham.
You will also be asked to reelect directors to serve on each of the Boards
of Directors. Some of the directors up for reelection will resign at the time
of the closing of the $1 billion equity investment.
The Annual Meetings
You are entitled to vote at the Wyndham annual meeting if you owned Wyndham
common stock on May 24, 1999. You will have one vote for each share of Wyndham
common stock that you owned on May 24, 1999 for each proposal considered at the
annual meeting.
You are entitled to vote at the Patriot annual meeting if you owned Patriot
common stock or Patriot series A preferred stock on May 24, 1999. You will have
one vote for each share of Patriot common stock that you owned on May 24, 1999
for each proposal considered at the annual meeting. You will also have one vote
for each share of Patriot common stock into which the Patriot series A
preferred stock you owned on May 24, 1999 is convertible for each proposal
considered at the annual meeting.
Approval of the $1 billion equity investment and the issuance of shares of
Wyndham common stock to existing holders of Wyndham's preferred stock and
existing limited partners of the companies' operating partnerships, in exchange
for their preferred stock and limited partnership interests, requires the
affirmative vote by the holders of a majority of the outstanding shares of
Wyndham common stock voted on the proposal at the Wyndham annual meeting.
Approval of the merger, the reverse stock splits and the termination of the
pairing agreement between Wyndham and Patriot require the affirmative vote of
the holders of shares representing a majority of the voting power of the
outstanding Wyndham capital stock that is entitled to vote and the holders of a
majority of the outstanding capital stock of Patriot entitled to vote. Approval
of the amendment and restatement of the Wyndham certificate of incorporation
requires the affirmative vote of a majority of the outstanding shares of
Wyndham common stock entitled to vote. Directors are reelected to the Boards of
Directors by a plurality of the votes cast at the applicable meeting.
Directors and executive officers of Wyndham and Patriot and their affiliates
hold approximately 10% of the voting power of Wyndham and approximately 11% of
the voting power of Patriot. Five of these individuals, Karim Alibhai, Harlan
Crow, Milton Fine, Rolf Ruhfus and Sherwood Weiser, and some of their
affiliates, hold approximately 8% of the outstanding shares of stock entitled
to vote on these proposals and have agreed to vote all of their shares of
capital stock in Wyndham and Patriot in favor of the proposals.
If you are a holder of record of Patriot's series A preferred stock or
series B preferred stock and you do not vote in favor of the merger, you may
have appraisal rights. Appraisal rights are the rights to receive the appraised
value of your shares in cash. To exercise appraisal rights, you must deliver a
written request for appraisal to Patriot prior to the vote on the merger,
continuously hold your shares of Patriot series A or series B preferred stock
through the merger, and not vote in favor of the merger.
4
<PAGE>
Wyndham and Patriot Summary Selected Financial Information
We are providing the following summary selected historical and pro forma
financial information to aid you in your analysis of the financial aspects of
the $1 billion equity investment, the restructuring of Wyndham and Patriot and
the related transactions. The following tables set forth separate and combined
historical financial information for Wyndham and Patriot. You should also read
the pro forma financial statements, including the notes, of Wyndham and Patriot
starting on page F-1 of this joint proxy statement/prospectus.
Unless otherwise indicated, all references to the number of shares and per
share amounts of Wyndham, Patriot and Patriot American Hospitality, Inc., a
Virginia corporation and the predecessor to Patriot, have been restated to
reflect the impact of the conversion of each share of common stock of Patriot's
predecessor into 0.51895 paired shares issued in the merger of Patriot's
predecessor with California Jockey Club and the 1.927-for-1 stock split
effected in the form of a stock dividend distributed in July 1997. In addition,
all references to the number of shares and per share amounts have been restated
to reflect the impact of the 2-for-1 stock split of the common stock of
Patriot's predecessor effected in the form of a stock dividend distributed in
March 1997 and the stock dividend of $0.44 per share of Patriot common stock
for the fourth quarter ended December 31, 1998.
5
<PAGE>
PATRIOT AND WYNDHAM
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Period
Three Months October 2, 1995
Ended Year Ended December 31, (Inception of
March 31, ----------------------------------- Operations) through
1999 1998 1997 1996 December 31, 1995
------------ ----------- ----------- --------- -------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenue........... $ 673,850 $ 2,056,341 $ 335,035 $ 76,493 $ 11,095
Income (loss) before
income tax provision,
minority interest and
extraordinary item..... 9,429 (112,508) 4,142 44,813 7,064
Income (loss) before
extraordinary item..... 572 (126,406) 362 37,991 6,096
Net income (loss)....... $ 572 $ (158,223) $ (2,172) $ 37,991 $ 5,359
Per Share Data (1):
Basic earnings per
share:
(Loss) income before
extraordinary item... $ (0.05) $ (1.13) $ 0.01 $ 0.84 $ 0.16
Extraordinary item,
net of minority
interest............. -- (0.23) (0.04) -- (0.02)
---------- ----------- ----------- --------- ---------
Net (loss) income per
paired share......... $ (0.05) $ (1.36) $ (0.03) $ 0.84 $ 0.14
========== =========== =========== ========= =========
Diluted (loss) earnings
per share (2).......... $ (0.13) $ (2.57) $ (0.03) $ 0.83 $ 0.14
========== =========== =========== ========= =========
Dividends per paired
share (3).............. -- $ 1.0362 $ 1.0878 $ 0.9154 $ 0.2236
========== =========== =========== ========= =========
Cash Flow Data:
Cash provided by
operating activities... $ 81,291 $ 244,493 $ 108,110 $ 61,196 $ 7,618
Cash used in investing
activities............. (64,872) (2,076,359) (1,202,124) (419,685) (306,948)
Cash (used in) provided
by financing
activities............. (7,718) 1,943,384 1,134,846 360,324 304,099
<CAPTION>
As of As of December 31,
March 31, --------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ----------- --------- -------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Investment in real
estate and related
improvements and land
held for development,
at cost, net........... $5,576,797 $ 5,585,616 $ 2,044,649 $ 641,825 $ 265,759
Total assets............ 7,459,049 7,415,670 2,507,853 760,931 324,224
Total debt.............. 3,888,569 3,857,521 1,112,709 214,339 9,500
Minority interest in
operating
partnerships........... 256,465 253,970 220,177 68,562 41,522
Minority interest in
consolidated
subsidiaries........... 196,798 229,537 49,694 11,711 --
Shareholders' equity.... 2,609,059 2,603,037 989,892 437,039 261,778
<CAPTION>
Period
Three Months October 2, 1995
Ended Year Ended December 31, (Inception of
March 31, ----------------------------------- Operations) through
1999 1998 1997 1996 December 31, 1995
------------ ----------- ----------- --------- -------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA (4).............. $ 173,881 $ 369,401 $ 105,743 $ 69,558 $ 9,006
Weighted average number
of common shares and
partnership units
outstanding (5)........ 180,644 163,532 76,040 52,259 44,060
Ratio of earnings to
fixed charges.......... 1.10 0.59 1.08 7.00 80.37
Deficiency of earnings
to fixed charges....... -- $112,508 -- -- --
</TABLE>
6
<PAGE>
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period
Three Months October 2, 1995
Ended Year Ended December 31, (Inception of
March 31, --------------------------- Operations) through
1999 1998 1997 1996 December 31, 1995
------------ -------- -------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenue........... $193,898 $595,410 $185,554 $76,493 $11,095
Income (loss) before
income tax, minority
interests and
extraordinary item..... 16,931 (3,404) 3,769 44,813 7,064
Income (loss) before
extraordinary item..... 11,852 (14,328) 382 37,991 6,096
Net income (loss)....... $ 11,852 $(44,888) $ (2,152) $37,991 $ 5,359
Per Share Data (1):
Basic earnings per
share:
Income (loss) before
extraordinary item... $ 0.02 $ (0.30) $ 0.01 $ 0.84 $ 0.16
Extraordinary item,
net of minority
interests............ -- (0.22) (0.04) -- (0.02)
-------- -------- -------- ------- -------
Net income (loss)per
common share......... $ 0.02 $ (0.52) $ (0.03) $ 0.84 $ 0.14
======== ======== ======== ======= =======
Diluted (loss) earnings
per share (2).......... $ (0.06) $ (1.73) $ (0.03) $ 0.83 $ 0.14
======== ======== ======== ======= =======
Dividends per common
share (3).............. -- $ 1.0362 $ 1.0878 $0.9154 $0.2236
======== ======== ======== ======= =======
</TABLE>
WYNHDAM INTERNATIONAL
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Year Six Months
Ended Ended Ended
March 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating Data:
Total revenue........................... $671,517 $2,002,227 $204,134
Income (loss) before income tax
provision and minority interests and
extraordinary item..................... 4,723 (77,826) 373
Loss before extraordinary item.......... (11,153) (111,162) (20)
Net loss................................ $(11,153) $ (112,419) $ (20)
Per Share Data (1):
Basic loss per share:
Loss before extraordinary item.......... $ (0.07) $ (0.83) $ --
Extraordinary item, net of minority
interest............................... -- (0.01) --
Net loss per paired share............... $ (0.07) (0.84) --
======== ========== ========
Diluted loss per share (2).............. $ (0.07) $ (0.84) $ --
======== ========== ========
Dividend per common share............... -- $ -- $ --
======== ========== ========
</TABLE>
See accompanying notes on following page.
7
<PAGE>
Notes to Patriot and Wyndham Selected Financial Information
(1) On January 30, 1997, the Board of Patriot's predecessor declared a 2-for-
1 stock split effected in the form of a stock dividend payable on March 18,
1997 to stockholders of record on March 7, 1997. On July 1, 1997, by operation
of the merger of Patriot's predecessor with California Jockey Club, each issued
and outstanding share of common stock of Patriot's predecessor was converted
into 0.51895 paired shares. In addition, on July 10, 1997, the Boards of
Patriot and Wyndham declared a 1.927-for-1 stock split on their shares of
common stock effected in the form of a stock dividend distributed on July 25,
1997 to stockholders of record on July 15, 1997. All references in this
financial information to the number of shares, per share amounts and market
prices of the paired shares and options to purchase paired shares have been
restated to reflect the impact of the merger of Patriot's predecessor with
California Jockey Club and these stock splits.
In addition, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Statement 128 specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share. We
have retroactively restated our earnings per share amounts to reflect the
impact of Statement 128.
On December 21, 1998, Patriot declared a stock dividend of $0.44 cents per
share of Patriot common stock for the quarter ended December 31, 1998. We have
retroactively restated our earnings per common share, weighted average shares
outstanding, and all stock option activity to reflect this stock dividend.
(2) For the three months ended March 31, 1999, the dilutive effect of:
unvested stock grants of 796,000 shares; options to purchase 15,000 shares of
common stock; and 8,423,000 preferred shares were not included in the
computation of diluted earnings per share because they are anti-dilutive. For
1998, the effect of: unvested stock grants of 880,000 shares; options to
purchase 753,000 shares of common stock; 2,507,000 shares issued in connection
with forward equity contracts; and 6,613,000 preferred shares, were not
included in the computation of earnings per share for the year ended December
31, 1998 because they are anti-dilutive. For 1997, the effect of unvested stock
grants of 804,000 shares and options to purchase 1,017,000 shares of common
stock were excluded from the computation of diluted earnings per share for the
year ended December 31, 1997 because they are anti-dilutive.
(3) Dividends for the year ended 1998 include a $0.44 stock dividend.
Dividends paid for the year ended December 31, 1997 include a special dividend
of $0.06 per share paid by Patriot's predecessor on June 30, 1997. To maintain
its qualification as a REIT prior to consummation of the California Jockey Club
merger, Patriot's predecessor was required to distribute to its stockholders
any of its undistributed "real estate investment trust taxable income" for its
short taxable year ending with the consummation of the California Jockey Club
merger. Wyndham did not pay any dividends for the six months ended December 31,
1997.
8
<PAGE>
(4) EBITDA represents earnings of the companies before interest, taxes,
depreciation and amortization expense. We believe that EBITDA is a widely
accepted financial indicator used by investors and analysts to analyze and
compare companies on the basis of operating performance. EBITDA is not intended
to represent cash flows for the periods presented, nor has it been presented as
an alternative to operating income or as an indicator of operating performance.
You should not consider EBITDA in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. We understand that, while EBITDA is frequently used by securities
analysis in the evaluation of companies, EBITDA is not necessarily comparable
to other similarly titled measures of other companies due to potential
inconsistencies in the methods of calculation. A reconciliation from net income
to EBITDA for the three months ended March 31, 1999 and the years ended
December 31, 1998, 1997 and 1996 and for the period from October 2, 1995
(inception of operations) through December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Three
Months
Ended Years Ended December 31, Period October 2, 1995
March ---------------------------- (inception of operations)
31, 1999 1998 1997 1996 through December 31, 1995
-------- --------- -------- ------- -------------------------
<S> <C> <C> <C> <C> <C>
Net (loss) income....... $ 572 $(158,223) $ (2,172) $37,991 $5,359
Extraordinary loss
(gain)................. 31,817 2,534 -- --
Minority interest in
operating partnership.. (1,958) (12,651) 1,684 6,767 968
Income taxes............ 8,943 17,122 481 -- --
Depreciation and
amortization........... 76,109 231,233 52,685 17,420 2,590
Interest expense........ 90,215 260,103 50,531 7,380 89
-------- --------- -------- ------- ------
EBITDA.................. $173,881 $ 369,401 $105,743 $69,558 $9,006
======== ========= ======== ======= ======
</TABLE>
(5) The number of units of limited partnership interest of the companies'
operating partnerships used in the calculation is based on the equivalent
number of paired shares issuable upon redemption, after giving effect to the
change in the limited partnership interest conversion factor which coincides
with the 2-for-1 stock split, the conversion of shares in the California Jockey
Club merger and the 1.927-for-1 stock split.
9
<PAGE>
PATRIOT AND WYNDHAM
ADJUSTED FOR THE $1 BILLION EQUITY INVESTMENT, THE RESTRUCTURING, NEW CREDIT
FACILITY AND THE INTERSTATE SPIN-OFF
SELECTED CONDENSED COMBINED PRO FORMA FINANCIAL DATA
The following table sets forth pro forma financial information for Patriot
and Wyndham. You should also read the historical financial statements of
Patriot and Wyndham combined incorporated by reference into this joint proxy
statement/prospectus. The pro forma operating information is presented as if
the $1 billion equity investment, the restructuring of Wyndham and Patriot, the
new $2.45 billion credit facility, the Interstate spin-off, as well as those
transactions which occurred in 1998, had occurred as of the beginning of the
period being presented. The pro forma combined balance sheet data of Patriot
and Wyndham is presented as if the $1 billion equity investment, the
restructuring of Wyndham and Patriot and the new $2.45 billion credit facility
as well as the divestiture of the third party hotel management business
formerly operated by Interstate Hotels Company, had occurred at March 31, 1999.
10
<PAGE>
WYNDHAM
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 1999(1) December 31, 1998(1)
----------------- --------------------
<S> <C> <C>
Operating Data:
Total revenue........................... $ 619,234 $2,317,759
Income (loss) before income tax
provision and minority interest........ 22,875 (104,513)
Net income (loss)....................... 12,812 $ (108,812)
Per Share Data:
Basic earnings per share:
Net loss per common share.............. $ (0.07) $ (1.26)
========== ==========
Diluted loss per common share (2)....... $ (0.07) $ (1.26)
========== ==========
Balance Sheet Data:
Investment in real estate and related
improvements and land held for
development, at cost, net.............. $5,443,327 --
Total assets............................ 7,162,540 --
Total debt.............................. 3,396,220 --
Minority interest in operating
partnerships........................... 36,268 --
Minority interest in consolidated
subsidiaries........................... 194,435 --
Shareholders' equity.................... 2,316,963 --
Other Data:
EBITDA (3).............................. $ 167,487 $ 440,125
Cash provided by operating activities... 88,615 263,730
Cash used in investing activities....... (64,872) (2,076,359)
Cash provided by financing activities... 339,848 2,290,950
Ratio of earnings to fixed charges...... 1.29 0.67
Deficiency of earnings to fixed
charges................................ $ -- $ 104,513
</TABLE>
- --------
(1) The pro forma information does not represent what Wyndham's financial
position or results of operations actually would have been if the
transactions which were completed in 1998, the Interstate spin-off and the
$1 billion equity investment had in fact occurred at the beginning of the
periods presented, or to project the results of operations of Wyndham for
any future periods.
(2) For the three months ended March 31, 1999, the dilutive effect of the
series B preferred shares of 118,407,000, unvested stock grants of 796,000
and the option to purchase 15,000 common shares were excluded from the
computation of diluted earnings per share because they are anti-dilutive.
For the year ended December 31, 1998, the dilutive effect of the series B
preferred shares of 124,654,000, unvested stock grants of 880,000 and the
option to purchase 753,000 common shares were excluded from the computation
of diluted earnings per share because they are anti-dilutive.
(3) The reconciliation from pro forma net income to pro forma EBITDA is as
follows:
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Pro forma net (loss)...................... $ 12,812 $(108,812)
Minority Interest in Operating
Partnership.............................. (271) (1,882)
Income taxes.............................. 8,413 (6,441)
Depreciation and amortization............. 69,775 255,633
Interest expense.......................... 76,758 301,627
-------- ---------
Pro forma EBITDA.......................... $167,487 $ 440,125
======== =========
</TABLE>
11
<PAGE>
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth the combined historical per share data, the
unaudited pro forma per share data giving effect to the investment and
restructuring and will be accounted for in a manner similar to that used in
pooling of interest accounting. The pro forma combined data are not necessarily
indicative of actual financial position or future operating results or that
which would have occurred or will occur upon consummation of the investment and
restructuring.
The information shown below should be read in conjunction with (1) the
consolidated financial statements and accompanying notes of Patriot and
Wyndham, incorporated into this joint proxy statement/prospectus by reference,
and (2) the unaudited pro forma financial statements of Wyndham and Patriot,
starting on page F-1 of this joint proxy statement/prospectus.
Unless otherwise indicated, all references to the number of shares and per
share amounts have been restated to reflect the impact of (1) the conversion of
each share of Patriot's predecessor's common stock into 0.51895 paired shares
issued in the California Jockey Club merger, (2) the 1.927-for-1 stock split on
the paired shares effected in the form of a stock dividend distributed on July
25, 1997 to stockholders of record on July 15, 1997, and (3) the 2-for-1 stock
split on Patriot's predecessor's common stock effected in the form of a stock
dividend distributed on March 18, 1997 to stockholders of record on March 7,
1997, as applicable, and (4) a $0.44 stock dividend distributed on January 25,
1999 to stockholders of record on December 30, 1998.
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, 1999 December 31, 1998
---------------------- ----------------------
Historical Pro Forma Historical Pro Forma
---------- ----------- ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Diluted net loss:
Patriot/Wyndham (1)(2)........... $(0.13) $(0.13) $ (2.57) $(2.35)
Wyndham (post-restructuring)
(3)............................. $(0.07) $(1.26)
Cash Distributions/Dividends:
Patriot/Wyndham.................. -- N/A $1.0362 N/A
Wyndham (post-restructuring)..... N/A N/A
Book Value per Common Share:
Patriot/Wyndham (4).............. $10.75 $10.45 $ 11.73 $11.42
Patriot/Wyndham (post-
restructuring) (5).............. $ 8.21 $ 8.29
</TABLE>
Notes to Comparative Per Share Data (in thousands, except per share and hotel
information)
(1) The pro forma combined per share data for Patriot and Wyndham for the year
ended December 31, 1998 are presented as if the acquisition of the Buena
Vista Hotel, the merger with WHG and related acquisition of minority
interests and the Golden Door Spa completed by Patriot during the twelve
months ended December 31, 1998 had been consummated as of January 1, 1998.
The pro forma per share data is also presented as if the Arcadian
acquisition, the Summerfield acquisition, and the Interstate merger and
related financing transactions had been consummated as of January 1, 1998.
(2) The pro forma combined net income per share for Patriot and Wyndham for the
three months ended March 31, 1999 and the year ended 1998 is based on a
weighted average paired shares and paired share equivalents outstanding,
prior to the restructuring of 154,990,000 and 151,313,000, respectively.
(3) The pro forma information is presented as if the investment had occurred as
of January 1, 1998. The pro forma net income per share for Wyndham after
the effect of the restructuring for the three months ended March 31, 1999
and the year ended December 31, 1998 is based on the weighted average
shares outstanding of 165,663,00 for both periods.
(4) Book value per paired share was calculated using stockholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of shares of common stock outstanding (including convertible
preferred securities). The pro forma book value per common share of Patriot
and Wyndham, prior to the merger is based on total outstanding paired
shares (including convertible preferred securities) of 242,648,000 at March
31, 1999 and 221,945,000 at December 31, 1998.
(5) The pro forma book value per common share of Wyndham after the
restructuring is based on a total outstanding shares (including convertible
preferred securities) of 282,077,000 at March 31, 1999 and 281,312,000 at
December 31, 1998.
12
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[CHART OF CURRENT STRUCTURE OF WYNDHAM]
13
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[CHART OF WYNDHAM INTERNATIONAL]
14
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Risk Factors
The $1 billion equity investment will dilute net income per paired share of
Wyndham and Patriot common stock
If the companies have net income in the future, net income per share will be
lower due to the increase in the number of shares as a result of the issuance
of $1 billion of preferred stock to the investors. The issuance of additional
shares of preferred stock to the investors in payment of dividends over at
least the first six years or upon a change of control or liquidation will also
have a dilutive effect on net income per paired share.
The conversion price of the preferred stock to be sold to the investors may be
reduced which may result in significant dilution to current shareholders'
ownership as additional shares of common stock are issued to the investors upon
conversion of the preferred stock
The preferred stock to be sold to the investors has an initial conversion
price of $8.59 per share of common stock. This conversion price may be reduced
in the event Wyndham and Patriot are required to indemnify the investors under
the terms of the purchase agreement relating to the $1 billion equity
investment. A reduction in the conversion price would result in the investors
receiving additional shares of common stock on conversion of their preferred
stock. The conversion price was originally set at $8.75 per share, but was
reduced to $8.59 per share prior to the signing of the purchase agreement in
order to compensate the investors for the dilutive impact of the fourth quarter
1998 stock dividend.
Wyndham and Patriot have agreed to compensate the investors for specified
breaches by Wyndham and Patriot under the terms of the purchase agreement or if
Wyndham and Patriot incur specified losses. Indemnification obligations are
often satisfied by a company through a cash payment to the investing party.
However, to conserve cash, most potential indemnification payments relating to
the $1 billion equity investment were instead structured as a reduction in the
conversion price.
A reduction in the conversion price due to the indemnification obligations
could occur in a number of circumstances, including:
. upon breaches of the representations, warranties and covenants of
Wyndham and Patriot in the purchase agreement generating losses in
excess of $20 million in the aggregate;
. upon Wyndham and Patriot incurring specified costs in excess of $25
million in the aggregate relating to the completion of their
restructuring and related to stockholder litigation; and
. upon sales of paired shares issued as collateral under the forward
equity contracts with net proceeds to Wyndham and Patriot, reflected
as a reduction in Patriot's and Wyndham's obligations to the selling
counterparties under the forward equity contracts, of less than $8.75
per share. If the counterparties to the forward equity contracts sell
paired shares at a price less than $8.75 per share, the investors'
potential investment in Patriot and Wyndham will be diluted. In the
event the forward equity counterparties sell paired shares at a price
of less than $8.75, the conversion price will be adjusted downward to
reduce the dilutive impact of the sales on the investors.
The conversion price would be reduced in connection with most losses by an
amount equal to the amount of the loss above the applicable threshold amount
divided by 167,025,942, the number of paired shares outstanding at the time the
purchase agreement was signed. For example, a $100 million loss above the
applicable threshold amount by Wyndham and Patriot would result in a conversion
price reduction of approximately $0.60 and the conversion price, as reduced,
would then equal $7.99.
Conversion price reductions for breaches of representations and warranties
and special costs related to the restructuring and shareholder litigation may
not exceed $2.27 per share. In order for the total conversion price reductions
to equal $2.27, Wyndham and Patriot would generally have to incur approximately
$380 million in losses above the applicable thresholds. After conversion price
reductions totaling $2.27 per share, the conversion price would be $6.32 per
share. At a conversion price of $6.32 per share, the investors would receive
approximately 158 million shares of common stock on the conversion of $1
billion of preferred stock.
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<PAGE>
Conversion price reductions for the companies' breaches of covenants or for
sales of paired shares by the counterparties to the companies' forward equity
contracts are not subject to a maximum amount. Theoretically, it is possible
that the conversion price could be reduced to $0.01 per share resulting in the
investors receiving 100 billion shares of common stock on the conversion of $1
billion of preferred stock.
The shares of preferred stock issued in the $300 million rights offering
will be entitled to the same conversion price adjustments as the preferred
stock issued to the investors.
The investors will have significant voting power in Wyndham following their $1
billion equity investment
Currently, holders of paired shares and holders of Patriot series A
preferred stock represent 100% of the voting power of Wyndham and Patriot.
Following the $1 billion equity investment, the investors will hold
approximately 41% of the voting power of Wyndham. The investors will be
entitled to vote on all matters voted on by the holders of the capital stock of
Wyndham except that special rules will apply in the case of the election of
directors under which the holders of the Wyndham common stock will effectively
control the election of the class A directors. Each share of preferred stock
issued to the investors will entitle the holder to cast the same number of
votes as the holder would have been able to cast if the shares of preferred
stock were converted into Wyndham common stock. On such an "as converted"
basis, the investors would initially hold approximately 41% of the voting power
of Wyndham. Since a portion of the dividends paid to the investors on their
preferred stock is to be paid in additional shares of preferred stock, assuming
no other voting shares are issued the "as converted" voting power of the
investors would rise to approximately 52% six years after the completion of the
investment. The investors' voting power would be reduced to approximately 29%
initially, and 36% six years after the investment, if the rights offering is
completed and the proceeds are used to redeem $300 million of the investors'
preferred stock.
The investors will have significant influence over the election of directors
If the $1 billion equity investment is completed, the investors will be
entitled to appoint eight of 19 directors of Wyndham. The investors will also
have the right to vote with the holders of the Wyndham common stock on an "as
converted" basis for the election of three additional directors. The investors
will therefore have significant influence over the election of the Wyndham
directors.
Sales relating to existing forward equity contracts could have dilutive effects
on our capital stock
We are parties to forward equity transactions with three counterparties
involving the issuance of an aggregate of 13.3 million paired shares, with
related price adjustment mechanisms. Upon entering into these transactions, we
agreed to issue a varying number of paired shares to each of the counterparties
at future settlement dates at prices adjusted for the then current market price
of the paired shares. None of the forward contracts provided for any floor on
the settlement price per paired share. Under the terms of the forward contract
entered into with UBS AG, London Branch on December 31, 1997, we issued 3.25
million paired shares to UBS at a purchase price per paired share of $28.125,
or aggregate consideration of approximately $93.6 million. Under the terms of
the forward equity contract entered into with NationsBanc Mortgage Capital
Corporation on February 26, 1998, we issued 4.9 million paired shares to
Nations at a purchase price per paired share of $24.8625, or aggregate
consideration of approximately $121.8 million. Under the terms of the forward
equity contract entered into with PaineWebber on April 6, 1998, we issued 5.15
million paired shares to PaineWebber Financial Products, Inc. at a purchase
price per paired share of $27.01125, or aggregate consideration of
approximately $139.1 million. Under the terms of the forward equity
transactions, we issued paired shares to each of the counterparties and
simultaneously entered into a forward contract under which we agreed to
"settle" the transaction at a stated maturity date based upon the adjusted
price of the purchased shares at maturity. During the term of the forward
contract, the price of the purchased shares increases at a rate that
corresponds to an agreed-upon interest rate. At maturity, the forward contracts
provide that each counterparty will sell a number of shares sufficient to
generate proceeds equal to the total adjusted purchase price of the purchased
shares. Shares may be sold to the public through an underwritten public
offering or by other methods, or to private investors. If a counterparty does
not receive sufficient proceeds from its sales of the originally purchased
shares, we must issue more paired shares to that counterparty for resale until
the obligation has been satisfied. The forward equity contracts permit us to
pay our obligations in cash as well as paired shares.
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<PAGE>
As of the date of this joint proxy statement/prospectus, we had delivered an
aggregate of 83.7 million paired shares to the counterparties as collateral,
including approximately 4 million paired shares issued as dividends on
collateral shares. In addition, the counterparties or their affiliates
currently own approximately 13.5 million paired shares, consisting of
approximately 12.5 million purchased shares and approximately 1 million shares
issued as dividends on the purchased shares. Based on the $5.25 closing price
of the paired shares on May 25, 1999 and assuming an average of 2% selling
expenses, the forward counterparties would have to sell approximately 63.1
million paired shares, approximately 26% of total current outstanding paired
shares, to settle all of the forward equity transactions in full.
Each of the forward counterparties has the right to require an immediate
settlement of its forward equity transaction. As of the date of this joint
proxy statement/prospectus, none of the counterparties has sold any paired
shares, other than the sale of 754,525 paired shares by one counterparty in
December 1998, or required settlement of its forward transaction. We cannot
assure you that the forward counterparties will not sell paired shares or
require settlement in the future.
The forward equity contracts permit us to settle the forward transactions by
delivering either cash or paired shares. Sources of cash are not currently
available for us to make the payments that would be required to settle one or
more of the forward transactions in cash. Moreover, we cannot assure you that
our bank lenders would consent to any cash settlements prior to the closing of
the $1 billion equity investment. Generally, we may settle by delivering paired
shares only if a registration statement covering such paired shares is
effective. There are currently effective registration statements covering the
sale by the three forward counterparties of up to 40 million paired shares and
the sale by one counterparty of an additional 4 million paired shares, of which
754,525 paired shares were sold by that counterparty in December 1998. We
cannot assure you that these registration statements will remain effective.
Given the current market price of the paired shares, any settlement in paired
shares would have severely dilutive effects on our capital stock. The number of
shares required would substantially increase if the market price of the paired
shares decreases as a result of the sales of paired shares by the forward
counterparties. If any of the counterparties sells paired shares, the
conversion price of the preferred stock to be issued to the investors will be
adjusted downward to the extent that the price recognized by us on the sale is
less than $8.75 per share.
We currently intend to settle in full all of the forward transactions with a
portion of the cash proceeds of the $1 billion equity investment. The estimated
aggregate dollar value of the settlement on June 30, 1999 is approximately
$333.6 million. As of the date of this joint proxy statement/prospectus, we
have paid an aggregate of $54.3 million in cash to the counterparties under the
forward equity contracts, in addition to cash dividends paid on the purchased
shares. If we settle the forward transactions in cash, the counterparties must
deliver to us all paired shares then owned by them or held by them as
collateral under the forward agreements.
As a result of the termination of Patriot's status as a REIT, stockholders will
no longer receive at least 95% of its annual income in the form of dividends
To maintain its status as a REIT, Patriot distributed at least 95% of its
REIT taxable income each year to its stockholders. As a result of the
termination of its status as a REIT, Patriot will no longer distribute its
taxable income to its stockholders. Patriot's per share distributions on its
common stock equaled $1.04 in 1998, $1.09 in 1997, and $0.92 in 1996. Wyndham
does not intend to make any distributions to holders of its common stock in
1999 following the merger. Following the merger, future distributions will be
at the discretion of the Wyndham Board, and we can not assure you that Wyndham
will make any distributions to its stockholders in future years.
Approval of the $1 billion equity investment may delay or prevent a future
change of control of Wyndham.
Some of the terms of the $1 billion equity investment may have the effect of
discouraging a third party from making an acquisition proposal for Wyndham and,
consequently, may delay or prevent a future change of control of Wyndham. The
investors will hold approximately 41% of the voting power of Wyndham
immediately following the investment. This voting power may increase to as much
as 52% six years after the
17
<PAGE>
investment because of dividends paid in stock, assuming Wyndham does not issue
any other voting stock and does not complete the $300 million rights offering.
Additionally, the investors have special voting rights concerning amendments to
Wyndham's certificate of incorporation affecting Board composition, voting
rights of stockholders and indemnification of stockholders and directors. The
investors also have special voting rights on amendments to Wyndham's
shareholders rights plan and special approval rights over "change of control"
transactions. Upon a change of control, investors may either redeem for cash or
convert for Wyndham common stock, all of their preferred stock, together with
all dividends that would have been paid through the sixth anniversary of the
investment. All accelerated dividends would be treated as if they were paid
solely in the form of additional shares of preferred stock rather than cash.
Some of our officers and directors will receive benefits in connection with the
$1 billion investment that could raise issues concerning potential conflicts of
interest
In considering our recommendation to approve the $1 billion equity
investment, you should be aware that some of our executive officers and
directors will receive benefits as a result of the transaction that could raise
issues concerning potential conflicts of interest. Outstanding stock options
and restricted stock grants held by the companies' executive officers for
887,117 paired shares in the aggregate will vest upon completion of the
investment. Additionally, under the terms of our executive employment
agreements, the companies' executives will be entitled to receive maximum
severance benefits approximating $6.5 million in the aggregate, if their
employment is terminated or if their reporting relationship changes following
the investment so that they report to the chief operating officer as opposed to
the chairman and chief executive officer. Lawrence S. Jones, the companies'
current treasurer, has asserted that he is entitled to receive approximately
$2.4 million in cash severance benefits as a result of the investment. James D.
Carreker will receive 72,222 shares of Wyndham common stock upon the closing of
the investment and the related transactions and 72,222 shares of Wyndham common
stock on each of the first and second anniversaries of the investment. Paul A.
Nussbaum received 83,334 paired shares upon the execution of the purchase
agreement and will receive 83,333 shares of Wyndham common stock on each of the
first and second anniversaries of the investment. William W. Evans III will
receive a bonus of $1.5 million upon the completion of the equity investment,
the refinancing of the debt facilities and the Interstate spin-off. He will
also receive 166,666 paired shares, payable in three installments. If Mr.
Evans' employment should terminate after the completion of the investment, he
will be entitled to a cash severance of approximately $1.5 million and a loan
forgiveness of approximately $175,000.
The Chase Manhattan Corporation and its affiliates, including Chase Securities,
have multiple relationships with the companies.
Chase Securities, one of the financial advisors to the companies, is an
affiliate of The Chase Manhattan Corporation. Chase Manhattan and its
affiliates, including Chase Securities, have multiple relationships with the
companies including, from time to time, providing commercial and investment
banking services to the companies. Chase Manhattan and its affiliates will
receive benefits as a result of the transaction.
Patriot will pay higher federal income taxes after the restructuring of Wyndham
and Patriot
The terms of the restructuring require that Patriot convert from a REIT to a
C corporation. The termination of Patriot's REIT status will be retroactive to
January 1, 1999. As a result, distributions to stockholders will not be
deductible for purposes of computing taxable income, and the consolidated
income of Wyndham and Patriot will be subject to tax at regular corporate
rates, regardless of whether they distribute such income to stockholders. The
companies currently estimate that they will owe between approximately $50
million to $70 million in taxes for the year ending December 31, 1999 as a
result of the termination of Patriot's REIT status. Further, Wyndham will take
a one-time charge of approximately $750 million related to a deferred tax
liability that will result from the change in tax status from a REIT to a C
corporation. Moreover, although Patriot was required to distribute at least 95%
of its net income annually in order to maintain REIT qualification, no such
minimum distribution requirements will apply to Wyndham or Patriot beginning
January 1, 1999, and the annual dividends paid on Wyndham common shares likely
will be substantially less than the dividends
18
<PAGE>
historically paid by Patriot. The termination of Patriot's REIT status will
cause Patriot to lose permanently its status as a grandfathered paired REIT,
and Patriot will not be able to utilize the paired structure for any of its
properties if it were to re-elect REIT status. Moreover, Patriot generally will
be prohibited from re-electing REIT status for four years, and, in any event,
there can be no assurance that Patriot will be in a position to re-qualify as a
REIT at a future date.
No gain or loss will be recognized by Wyndham or Patriot as a result of the
reverse stock splits and the merger. It is likely, however, that the
restructuring and the $1 billion equity investment will trigger certain
limitations on Wyndham's and/or Patriot's ability to use certain net operating
losses and capital loss carry- forwards to offset taxable income generated
following the restructuring and investment. As of December 31, 1998, Wyndham
had net operating loss carryforwards of approximately $77.5 million, and
Patriot had a capital loss carryforward of approximately $49 million.
As a result of the termination of Patriot's REIT status, the Patriot
partnership and certain other lower-tier partnerships of Patriot may have to
depreciate certain assets over longer periods, which could reduce Wyndham's
ability to defer recognition of taxable income with respect to these
properties. In addition, it is possible that certain suspended losses of these
partnerships would no longer be eligible to carryover to future years.
Wyndham will incur higher interest expense if the lenders under the new
$2.45 billion credit facility exercise their "market flex" rights or the
parties agree to an alternative allocation of debt.
The "market flex" provisions of the commitment letter for the new $2.45
billion credit facility permit the lenders to change the allocation of debt
among the senior credit facilities and the increasing rate loan facility, as
well as adjust the interest rate spreads applicable to the debt. If the lenders
allocate debt from a less expensive to a more expensive facility, or if the
lenders increase the interest rate applicable to the debt, Wyndham will incur
higher interest expense under the new $2.45 billion credit facility.
Additionally, Wyndham and the lenders may agree to amend the provisions of the
commitment letter to change the allocation of debt within the facilities or
adjust the interest rate. The lenders have exercised their market flex rights
in May 1999, reducing the revolving credit facility from $800 million to
$600 million increasing the term loan facility from $1 billion to $1.2 billion,
and reducing the maximum amount that Wyndham may draw under the revolving
credit facility at closing from $560 million to $400 million. No assurances can
be given that the lenders will not exercise their market flex provisions again
prior to the closing of the new credit facility.
Note Regarding Forward-Looking Statements
This joint proxy statement/prospectus contains forward-looking statements.
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.
These statements include statements regarding our intent, belief or current
expectations. You are cautioned that any such forward-looking statements are
not guarantees of future performance and involve a number of risks and
uncertainties that may cause our actual results to differ materially from the
results discussed in the forward-looking statements. Among the factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are:
. the availability of debt and equity financing on terms and conditions
favorable to us;
. the willingness of our lenders to refinance, extend or amend the terms
of existing indebtedness;
. the willingness of the counterparties to our forward equity contracts to
refrain from selling paired shares held by them as collateral under
those agreements;
. costs incurred as part of the restructuring;
. our ability to effect sales of assets on favorable terms and conditions;
. risks associated with the hotel industry and real estate markets in
general; and
. other factors detailed in this joint proxy statement/prospectus under
the caption "Risk Factors" and elsewhere.
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The Annual Meetings
Date, Time and Place
The annual meetings of stockholders of the companies will be held on
Tuesday, June 29, 1999, at Morgan Stanley & Co. Incorporated, 1585 Broadway,
New York, NY 10036. The Wyndham annual meeting will begin at 9:00 a.m. local
time and the Patriot annual meeting will begin at 9:30 a.m. local time.
Purpose
At the Wyndham annual meeting, you will be asked to consider and vote upon
the $1 billion equity investment, the exchange offers, the merger, the reverse
stock split, the termination of the pairing agreement with Patriot, and the
amendment and restatement of Wyndham's certificate of incorporation. You will
also be asked to consider and vote upon the reelection of directors to the
Wyndham Board. At the Patriot annual meeting, you will be asked to consider and
vote upon the merger, the reverse stock split, and the termination of the
pairing agreement with Wyndham. You will also be asked to consider and vote
upon the reelection of directors. Some of the directors up for reelection will
resign at the time of the closing of the $1 billion equity investment. The
Boards of Directors are not currently aware of any business to be acted upon at
the annual meetings other than as described in this joint proxy
statement/prospectus. If, however, other matters are properly brought before
the annual meetings, the persons appointed as proxies will have discretion to
vote those matters according to their judgment.
Record Date and Outstanding Shares
The Boards of Directors have fixed the close of business on May 24, 1999 as
the record date for determining the stockholders entitled to notice of, and to
vote at, the annual meetings. As of the record date, there were outstanding
156,245,997 paired shares entitled to vote and 4,860,876 shares of Patriot
series A preferred stock entitled to vote. The holders of paired shares are
entitled to one vote per share of Wyndham common stock on all matters coming
before the Wyndham annual meeting and one vote per share of Patriot common
stock on all matters coming before the Patriot annual meeting. The holders of
Patriot series A preferred stock are entitled to vote, together with the
holders of the Patriot common stock, on all matters coming before the Patriot
annual meeting on the basis of one vote per share of Patriot common stock into
which the Patriot series A preferred stock is convertible. Holders of currently
outstanding Wyndham series A preferred stock, Patriot series B preferred stock
and Wyndham series B preferred stock are not entitled to vote on any of the
matters to be considered at the annual meetings.
Quorum
The holders of shares representing a majority of the voting power of the
outstanding shares of capital stock entitled to vote at each annual meeting,
present in person or represented by proxy, will constitute a quorum for the
transaction of business at that annual meeting. In the absence of a quorum, the
holders of shares representing a majority of the voting power of the shares
represented at each annual meeting have the power to adjourn the annual meeting
without further notice, other than by announcement at the annual meeting at the
time of its adjournment. At any adjourned meeting at which a quorum exists, the
stockholders entitled to vote may transact any business that might have been
transacted at the original meeting. If and when a quorum exists at each of the
annual meetings or any adjourned meeting, the stockholders present and
represented at the meeting may continue to transact business until adjournment,
notwithstanding the withdrawal from the meeting of stockholders counted in
determining the existence of a quorum.
Voting Methods and Proxies
You can vote on the matters to come before the annual meetings in two ways:
. by attending the annual meetings and casting your vote there; or
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. by signing and returning the enclosed proxy card.
If your shares are registered in your name, you may return your proxy card
to us by mailing it in the enclosed envelope or by faxing it to us at (212)
929-0308.
All shares represented by properly executed proxies received prior to or at
the Wyndham annual meeting and not revoked will be voted in accordance with
the instructions indicated on those proxies or, if no instructions are given,
in favor of Proposals 1 through 4 and 6 through 12 and in accordance with the
recommendation of the Wyndham Board of Directors contained in the joint proxy
statement/prospectus. We urge you to mark the box on the proxy card to
indicate how you want your shares of Wyndham common stock to be voted. If
matters other than those described in this joint proxy statement/prospectus
are properly presented at the Wyndham annual meeting, the persons named as the
proxies will vote in accordance with their own judgment with respect to those
matters, unless you withhold authority to do so on the proxy card.
All shares represented by properly executed proxies received prior to or at
the Patriot annual meeting and not revoked will be voted in accordance with
the instructions indicated on those proxies or, if no instructions are given,
in favor of Proposals 3, 5, 6 and 13 and in accordance with the recommendation
of the Patriot Board of Directors. We urge you to mark the box on the proxy
card to indicate how you want your shares of Patriot common stock and Patriot
series A preferred stock to be voted. If matters other than those described in
this joint proxy statement/prospectus are properly presented at the Patriot
annual meeting, the persons named as the proxies will vote in accordance with
their own judgment with respect to those matters, unless you withhold
authority to do so on the proxy card.
Any stockholder who executes and returns a proxy may revoke such proxy at
any time before it is voted by:
. notifying the Secretary of the appropriate company at 1950 Stemmons
Freeway, Suite 6001, Dallas, Texas 75207;
. granting a subsequent proxy; or
. appearing in person and voting at the annual meeting. Attendance at
the annual meeting will not, by itself, constitute revocation of a
proxy.
If your shares are held in the name of your broker, bank or other nominee,
the inspectors will require you to present a power of attorney from such
broker, bank or nominee for you to vote such shares in person at the annual
meeting. Please contact your broker, bank or nominee.
Required Vote
Approval of Proposals 1 and 2 requires the affirmative vote of a majority
of the votes cast on the proposal at the Wyndham annual meeting, provided that
the total votes cast on the proposal represents over 50% in interest of all
securities entitled to vote on the proposal. Approval of Proposals 3 and 6
requires the affirmative vote of the holders of shares representing a majority
of the voting power of the outstanding Patriot common stock and Patriot series
A preferred stock, voting together, that are entitled to vote and the holders
of a majority of the outstanding Wyndham common stock entitled to vote.
Approval of Proposals 4 and 7 through 11 requires the affirmative vote of the
holders of a majority of the outstanding Wyndham common stock entitled to
vote. Approval of Proposal 5 requires the affirmative vote of the holders of a
majority of the outstanding Patriot common stock and Patriot series A
preferred stock, voting together, that are entitled to vote. Directors are
elected by a plurality of the votes cast at the applicable meeting.
Votes cast in person or by proxy will be counted by persons appointed by
the companies to act as inspectors at the annual meetings. The inspectors will
treat shares represented by proxies that reflect abstentions as shares that
are present and entitled to vote for purposes of determining a quorum.
Abstentions will not be deemed to be cast and will have no effect on the
outcome of Proposals 1, 2, 12 or 13. However, because Proposals 3, 5 and 6
require the affirmative vote of the holders of shares representing a majority
of the voting
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power of the outstanding Patriot common stock and Patriot series A preferred
stock, voting together, that are entitled to vote and Proposals 3, 4, and 6
through 11 require the affirmative vote of the holders of a majority of the
outstanding shares of Wyndham common stock entitled to vote, abstentions will
have the same legal effect as a vote against Proposals 3 through 11.
Broker non-votes occur where a broker holding stock in street name votes the
shares on some matters but not on others. The missing votes are deemed to be
"broker non-votes." The inspectors will treat broker non-votes as shares that
are present and entitled to vote for the purpose of determining a quorum.
However, for purposes of determining the outcome of any matter as to which the
broker or nominee has indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as present and
not entitled to vote with respect to that matter, even though those shares are
considered to be entitled to vote for quorum purposes and may be entitled to
vote on other matters.
As of May 21, 1999, directors and executive officers of Wyndham and Patriot
and their affiliates beneficially owned shares representing approximately 10%
of the voting power entitled to vote at the Wyndham annual meeting and
approximately 11% of the voting power entitled to vote at the Patriot annual
meeting. Karim Alibhai, Harlan Crow, Milton Fine, Rolf Ruhfus, and Sherwood
Weiser, who are also significant stockholders, and some of their affiliates,
have agreed to vote, or direct the voting of, all shares of capital stock of
Wyndham and Patriot over which they have voting control in favor of Proposals 1
through 11. These voting agreements represent approximately 8% of the
outstanding shares of stock entitled to vote on these proposals.
Cross Conditionality of Proposals
For the $1 billion equity investment to be completed, stockholders must
approve each of proposals 1 through 11. For the restructuring of Wyndham and
Patriot to occur without completing the $1 billion equity investment,
stockholders must approve each of proposals 3 through 6.
Information Regarding Tabulation of the Vote
We have a policy that all proxies, ballots and votes tabulated at a meeting
of our stockholders are confidential, and the votes will not be revealed to any
of our employees or anyone else, other than the inspectors, unless it is
necessary to meet applicable legal requirements.
Proxy Solicitor
We have retained MacKenzie Partners, Inc. to aid in the solicitation of
proxies. We estimate that the cost of these services will be approximately
$8,000, plus expenses. In addition to solicitation by mail, proxies may also be
solicited by telephone, telegram or otherwise. We will bear the entire cost of
soliciting proxies from our stockholders and will reimburse brokers or other
persons holding stock in their names or in the names of their nominees for
their reasonable expenses incurred in forwarding proxy materials to the
beneficial owners of our capital stock.
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What is the Background of the Investment?
During late October and early November 1998, the Boards of Directors met on
several occasions to review the companies' financial condition and liquidity,
including the forward equity contracts and negotiations with the companies'
lenders. The Boards of Directors concluded that it would be appropriate, in
light of the companies' financial situation, to consider strategic
alternatives. At the request of the independent directors, the Boards
unanimously approved the formation of a coordinating committee of the Boards to
monitor the companies' financial situation and to coordinate with the
companies' advisors regarding the consideration of strategic alternatives. The
Wyndham Board appointed Sue Groenteman, Leonard Boxer and Sherwood Weiser to
the coordinating committee and the Patriot Board appointed Milton Fine, Philip
Ward and John Deterding to the coordinating committee. Milton Fine and Sue
Groenteman were asked to serve as co-point persons of the coordinating
committee. Throughout the process, both the coordinating committee and the
independent directors had an opportunity to meet with private investment firms
or groups and to deliberate without management present. The independent
directors engaged Debevoise & Plimpton to serve as special counsel to the
independent directors in their consideration of strategic alternatives.
Goodwin, Procter & Hoar LLP continued in its capacity as counsel to the
companies concerning the consideration of strategic alternatives.
Additionally, the Boards approved the appointment of Chase Securities Inc.
as co-financial advisor to the companies and the appointment of Morgan Stanley
& Co. Incorporated as co-financial advisor to the companies and financial
advisor to the independent directors. Subsequently, and at the request of the
companies, Chase Securities Inc. and an affiliate of Chase Securities, Chase
Manhattan Bank, signed commitment letters with Patriot for a $2.45 billion
credit facility, which is a key component of this transaction. Under the senior
credit facility, Chase Securities will act as lead arranger for a syndicate of
lenders which will provide Wyndham with $1.2 billion in term loans and up to an
$600 million revolving loan facility. At the same time, Chase Manhattan Bank
agreed that it, together with another syndicate of lenders, will provide a $650
million increasing rate loan facility to Wyndham.
Beginning in early November, Morgan Stanley and Chase Securities contacted
parties who may have had an interest in completing a strategic transaction with
Wyndham and Patriot, including several private equity firms who are in the
business of purchasing the capital stock of other companies. During the weeks
of November 9 and November 16, 1998, Wyndham and Patriot entered into
confidentiality and standstill agreements with seven of the private equity
firms contacted and distributed information to these parties concerning a
possible investment in the companies. The companies received preliminary
inquiries from an additional 14 parties, but none of these parties entered into
a confidentiality and standstill agreement and, as a result, did not receive
any financial diligence materials from the companies.
During the last two weeks of November and the first week of December 1998,
the companies' financial advisors engaged in discussions with the private
equity firms who had received information from the companies, including the
investors. In addition, discussions were held with Hilton Hotels Corporation, a
public company that had indicated an interest in a potential business
combination with the companies. The companies' financial advisors received
preliminary indications of interest from eight private equity investment firms
or groups, including the investors, as well as from Hilton. Each of these
private equity investment firms or groups, including the investors, and Hilton
was invited to make a presentation to the Boards at meetings held on December 3
and 4, 1998.
Four private equity investment firms or groups, including the investors, and
Hilton accepted the invitation and made presentations to the Boards of
Directors on December 3 and 4 regarding their preliminary indications of
interest. One private equity group's presentation involved purchasing $1.1
billion of the companies' convertible preferred stock with cash dividends
payable at an annual rate of 11.0% and a conversion price of $7.44 per share. A
second private equity group's presentation involved purchasing $600 million of
the companies' convertible preferred stock with cash dividends payable at an
annual rate of 12% and a conversion price of $5.00 per share. This private
equity group's presentation also involved majority board representation in
connection with its investment. A third private equity group's presentation
involved purchasing $500 million of the companies' convertible preferred stock
with dividends payable in cash or in additional shares at an annual rate of
10.0% and a conversion price of $9.30 per share. Hilton's presentation
concerned acquiring 100% of the
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companies by merger at an exchange rate that assumed a $15.30 per share price
for Hilton common stock and an $11.00 per share price for the paired shares.
The investors' presentation involved purchasing up to $1.0 billion of the
companies' convertible preferred stock with dividends payable in cash or in
additional shares at an annual rate of 9.75% and a conversion price equal to
the lesser of $10.00 or 122.5% of the 30 day trading average of the paired
shares. The investors also proposed that they appoint six of fifteen directors
with the companies and the investors mutually agreeing on the appointment of
three independent directors.
Following the December 3 and 4, 1998 meetings, the Boards instructed
management of the companies and their financial advisors to pursue discussions
with selected private equity investment firms or groups, including the
investors, whose presentations appeared most promising to the companies and
their stockholders, as well as with Hilton, in an effort to obtain the best
offer available.
On December 11, 1998, Wyndham and Patriot received a draft letter of intent
from the investors regarding a potential $1 billion equity investment by the
investors or their affiliates. Representatives of, and financial advisors and
counsel to, the investors met with members of management of the companies and
representatives of the companies' financial advisors and counsel on December 12
and 13, 1998 to negotiate the draft letter of intent. On the evening of
December 13, 1998, the Boards met to receive an update on the companies'
progress in negotiating the draft letter of intent with the investors, as well
as the companies' discussions with other private equity investment firms or
groups and Hilton. Following this meeting, members of management, along with
the companies' financial advisors and counsel, continued to meet with
representatives of the investors.
On the evening of December 14, 1998, the Boards reconvened to review the
status of the companies' negotiations with the investors. Representatives of
the investors addressed the Boards regarding the investors' proposed letter of
intent and the investors' investment philosophy, and responded to the
directors' questions regarding the proposed investment. Morgan Stanley
delivered its opinion that the consideration to be received by the companies
for the proposed investment was fair, from a financial point of view, to the
stockholders of the companies. In addition, Chase Securities delivered its
opinion, subsequently confirmed in writing as of December 15, 1998, to the
effect that the consideration to be received in the aggregate by the companies
pursuant to the transaction under the letter of intent was fair, from a
financial point of view, to the companies. The Boards decided to pursue the
investors' proposal rather than either the proposed $600 million transaction or
the proposed $500 million transaction discussed with two of the other private
equity groups after concluding that the companies should raise between $800
million and $1 billion to address their liquidity issues. Additionally, the
Boards decided to pursue the investors' proposal rather than the proposed $1.1
billion transaction discussed with one of the private equity groups after
concluding that the dividend rate on the preferred stock proposed by the
investors was lower than the rate for the proposed $1.1 billion transaction and
the conversion price on the preferred stock proposed by the investors was
higher than the conversion price for the proposed $1.1 billion transaction.
While the Boards were interested in pursuing a strategic transaction with
Hilton at that time, they had not yet received a firm proposal from Hilton. At
the conclusion of the meeting, the Boards' authorized management to execute on
behalf of the companies the letter of intent on the terms discussed at the
meeting.
Members of management, along with the companies' financial advisors and
counsel, continued to meet with representatives of the investors and their
financial advisors and counsel and, on December 15, 1998, the companies and the
investors signed the letter of intent relating to the proposed $1 billion
equity investment.
Under the letter of intent:
. the investors agreed to purchase $1 billion of convertible preferred
stock of the companies;
. the companies were allowed to replace up to $400 million of the
investors' preferred stock investment with alternative financing,
including a rights offering;
. the preferred stock to be issued to the investors would be
convertible into common stock of the companies at the lesser of
$10.00 or 122.5% of the average closing price of the paired shares
for the 20 trading days ending 10 days immediately preceding the
stockholders vote on the $1 billion equity investment, but not less
than $7.00;
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. the investors agreed to complete their due diligence review of the
companies and notify the companies of their conclusions by January
14, 1999;
. the companies and the investors agreed that for a 60-day period they
would negotiate in good faith definitive agreements;
. the companies were allowed to continue their negotiations with
Hilton; and
. the companies agreed to pay the investors a break-up fee of $30
million if the companies entered into an agreement for a strategic
transaction with a third party during the pendency of the letter of
intent or 180 days after its termination.
On December 14, 1998, Chase Securities delivered its oral opinion, which
opinion was subsequently confirmed in a written opinion, dated as of December
15, 1998, to the Boards of Directors of Wyndham and Patriot to the effect that,
as of such dates, and based upon the assumptions made, matters considered and
limits of review set forth in the Chase Securities opinion dated as of December
15, 1998, the consideration to be received in the aggregate by the companies
pursuant to the transaction under the letter of intent dated December 15, 1998,
was fair from a financial point of view, to the companies.
The full text of the Chase Securities opinion dated as of December 15, 1998,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached as Annex J to this joint proxy
statement/prospectus. The Chase Securities opinion was limited to the fairness,
from a financial point of view, to Wyndham and Patriot of the consideration to
be received in the aggregate by Wyndham and Patriot pursuant to the transaction
under the letter of intent and Chase Securities expressed no opinion in its
opinion dated as of December 15, 1998, as to the merits of the underlying
decision by the companies to engage in the transaction under the letter of
intent. In addition, Chase Securities expressed no opinion in its opinion dated
as of December 15, 1998, as to the prices at which the paired shares would
trade following the announcement or consummation of the transaction under the
letter of intent. For a more complete description, you should read the full
text of the Chase Securities opinion. The Chase Securities opinion did not
address the proposed $1 billion equity investment that stockholders of Wyndham
and Patriot are being asked to approve, which materially differs from the
transaction under the letter of intent but which does not so materially differ
from the letter of intent so as to have caused the Boards to conclude that they
should not rely on the opinion dated as of December 15, 1998. As noted below,
the companies did not request, nor did Chase Securities provide, any fairness
opinion with respect to the $1 billion equity investment that stockholders are
being asked to approve.
In arriving at the Chase Securities opinion, Chase Securities, among other
things,
. reviewed the letter of intent dated December 15, 1998;
. reviewed certain publicly available business and financial information
that Chase Securities deemed relevant relating to the companies and the
industry in which they operate;
. reviewed certain internal non-public financial and operating data and
forecasts provided to Chase Securities by the management of the
companies relating to the business of the companies;
. discussed, with members of the senior management of the companies, the
companies' operations, historical financial statements and future
prospects, before and after giving effect to the transaction under the
letter of intent, as well as their views of the business, operational
and strategic benefits and other implications of the transaction;
. compared the financial and operating performance of the companies with
publicly available information concerning certain other companies Chase
Securities deemed comparable and reviewed the relevant historical stock
prices and trading volumes of the paired shares and certain publicly
traded securities of such other companies;
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. reviewed the financial terms of certain recent transactions Chase
Securities deemed reasonably comparable to the transaction under the
letter of intent and otherwise relevant to Chase Securities' inquiry;
. discussed with members of senior management of the companies certain
financial restructuring alternatives to the transaction under the letter
of intent;
. reviewed and discussed with members of senior management of the
companies anticipated dividend requirements;
. reviewed the terms of the outstanding debt obligations and forward
equity commitments of the companies; and
. made such other analyses and examinations as Chase Securities deemed
necessary or appropriate.
Because the Chase Securities opinion addressed the terms of the transaction
under the letter of intent, Chase Securities did not have an opportunity to
review any definitive agreements providing for the transaction. Accordingly,
for purposes of rendering the Chase Securities opinion, Chase Securities
assumed that the definitive agreements providing for the transaction under the
letter of intent would contain terms and conditions consistent with those set
forth in the letter of intent and that would not differ from the letter of
intent in any respect material to Chase Securities' analysis. Chase Securities
further assumed with the consent of the boards for purposes of rendering its
opinion that the initial conversion price for the preferred stock to be issued
to the investors would be $10 per share, and that the dividend on the paired
shares would be limited to the minimum amount necessary in order to maintain
the qualification after the transaction under the letter of intent of the
companies, and that the companies would otherwise continue to so qualify, as a
real estate investment trust for federal income tax purposes.
Chase Securities assumed and relied upon, without assuming any
responsibility for verification, the accuracy and completeness of all of the
financial and other information provided to, discussed with, or reviewed by or
for Chase Securities, or publicly available, for purposes of the Chase
Securities opinion and further relied upon the assurance of the management of
Wyndham and Patriot that they were not aware of any facts that would make such
information inaccurate or misleading. Chase Securities neither made nor
obtained any independent evaluations or appraisals of the assets or
liabilities of Wyndham and Patriot, nor did Chase Securities conduct a
physical inspection of the properties and facilities of Wyndham and Patriot.
Chase Securities assumed that the financial forecasts provided to it by
Wyndham and Patriot were reasonably determined on bases reflecting the best
currently available estimates and judgments of the management of Wyndham and
Patriot as to the future financial performance of Wyndham and Patriot. Chase
Securities expressed no view as to such forecast or projection information or
the assumptions on which they were based.
For purposes of rendering its opinion, Chase Securities also assumed that
all material governmental, regulatory or other consents and approvals would be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications
or waivers to any documents to which any of Wyndham, Patriot or the investors
are a party, as contemplated by the letter of intent, no restrictions would be
imposed or amendments, modifications or waivers made that would have any
material adverse effect on the contemplated benefits to Wyndham and Patriot of
the transaction under the letter of intent. The Chase Securities opinion was
necessarily based on market, economic and other conditions as they existed and
could be evaluated as of December 15, 1998.
The following is a brief summary of certain financial and comparative
analyses performed by Chase Securities in arriving at the Chase Securities
opinion with respect to the fairness, from a financial point of view, to
Wyndham and Patriot of the consideration to be received in the aggregate by
Wyndham and Patriot pursuant to the transaction under the letter of intent.
The analyses summarized below did not address the proposed $1 billion equity
investment that stockholders of Wyndham and Patriot are being asked to
approve, which materially differs from the transaction under the letter of
intent but which does not so materially differ from the letter of intent so as
to have caused the Boards to conclude that they should not rely on the opinion
dated as of December 15, 1998.
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Comparable Company Trading Analysis. Chase Securities performed a comparable
public company trading analysis under which it compared publicly available
financial and operating data, projections of future financial performance and
market statistics based upon the closing stock prices on December 14, 1998 of
the paired shares and of the common stock of Starwood Hotels & Resorts, Host
Marriott Corp., FelCor Lodging Trust, MeriStar Hospitality Corp., Hilton Hotel
Corp. and Promus Hotel Corp. Chase Securities compared the enterprise value
(consisting of market capitalization and total net debt) as a multiple of 1998
pro forma EBITDA, where EBITDA means earnings before interest, taxes,
depreciation and amortization, and 1998 pro forma EBITDA means EBITDA adjusted
for all acquisitions and divestitures in 1998. For the selected comparable
companies, such analysis indicated a median 1998 pro forma EBITDA multiple of
8.3x and a mean of 8.7x.
Chase Securities also calculated the implied value per paired share
according to the following multiple ranges. With respect to 1998 pro forma
EBITDA, Chase Securities assumed multiple ranges of 7.5x to 8.5x. Assuming
parameters of 1998 pro forma EBITDA of $656 million, as estimated by Wyndham
and Patriot management, these multiple ranges yielded a range of implied values
per paired share of $5.50 to $9.70.
No company utilized as a comparison in the comparable company trading
analysis is identical to Wyndham and Patriot. In evaluating the comparable
companies, Chase Securities made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Wyndham
and Patriot, such as the impact of competition on Wyndham and Patriot and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Wyndham and Patriot or the
industry or in the financial markets in general. Mathematical analysis (such as
determining the mean or the median) is not in itself a meaningful method of
using comparable company analysis.
Discounted Cash Flow Analysis. Chase Securities performed a discounted cash
flow analysis to calculate a present value of the stand-alone unlevered free
cash flows for Wyndham and Patriot. Chase Securities analyzed two scenarios:
(1) the "Management Base Case," which was based on certain financial forecasts
prepared by Wyndham and Patriot management and (2) the "Sensitivity Case",
which adjusted downward the EBITDA projected by management by $50 to $100
million per year and assumed an effective cash tax rate of between 25.0% to
35.0%. For this analysis, Chase Securities discounted the estimated unlevered
free cash flows using a range of discount rates from 11.0% to 15.0% for the
Management Base Case and using a discount rate of 13.0% for the Sensitivity
Case. The discount rate range was selected based upon a weighted average cost
of capital analysis of Wyndham and Patriot for each scenario. Chase Securities
added to the present values of the cash flows the terminal values of Wyndham
and Patriot in the year 2003, and discounted the terminal value using the range
of discount rates as was used to discount the unleveraged free cash flows in
each case. The terminal value was calculated using the terminal multiple
method, assuming a range of terminal multiples of earnings before interest,
income taxes, depreciation and amortization, or EBITDA, between 7.5x and 8.5x
for the Management Base Case and a terminal multiple of EBITDA of 7.5x for the
Sensitivity Case. Based on this analysis, Chase Securities calculated a per
share equity value of Wyndham and Patriot ranging from approximately $3.95 to
$11.55 based on the Management Base Case and approximately $1.85 to $5.90 based
on the Sensitivity Case.
Pro Forma Analysis. Chase Securities compared to the standalone case for
Wyndham and Patriot certain pro forma effects resulting from the transaction
under the letter of intent assuming that the investors invested between $600
million and $1 billion, including indebtedness to 1998 pro forma EBITDA, 1998
pro forma EBITDA to 1998 pro forma interest charges, and 1999 FFO per share of
the paired shares, where FFO means funds from operations, in each case as
estimated by Wyndham and Patriot management as of December 15, 1998.
These analyses indicated that
. as to indebtedness to 1998 pro forma EBITDA, the transaction under the
letter of intent would result in lower indebtedness ratios compared to
the standalone case,
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. as to 1998 pro forma EBITDA to 1998 pro forma interest charges, the
transaction under the letter of intent would result in higher coverage
ratios compared to the standalone case, and
. as to 1999 FFO per share of the paired shares, the transaction under the
letter of intent would be accretive compared to the standalone case.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Chase Securities considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Chase Securities' analyses, without considering all analyses, would
create an incomplete view of the process underlying the Chase Securities
opinion. In addition, Chase Securities may have deemed some assumptions more or
less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Chase Securities' view of the actual value of Wyndham and Patriot.
In performing its analysis, Chase Securities made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Wyndham and Patriot. The
analyses performed by Chase Securities are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by
such analyses. These analyses were prepared solely as a part of Chase
Securities' analysis of whether the consideration to be received in the
aggregate by Wyndham and Patriot pursuant to the transaction under the letter
of intent was fair from a financial point of view to Wyndham and Patriot. The
analyses do not purport to be appraisals or to reflect the prices at which
Wyndham and Patriot might actually be sold.
From December 15, 1998 forward, representatives of the investors, along with
their financial and legal advisors, conducted an extensive due diligence review
of the operations of the companies. Also during this period, representatives of
Hilton, along with their financial advisors and counsel, conducted an extensive
due diligence review of the operations of the companies. During this period,
representatives of Hilton notified the companies that they were no longer
interested in pursuing a potential business combination with the companies.
Rather, the representatives indicated that Hilton was interested in purchasing
selected assets of the companies. The companies continued their discussions
with Hilton regarding a potential asset sale.
On January 14, 1999, the investors notified the companies that they had
substantially completed their due diligence investigation and were ready to
negotiate and execute documentation regarding their proposed investment.
On January 18, 1999, the Boards met and were informed that the investors had
reported back to the companies regarding their due diligence review.
Representatives of Morgan Stanley and Chase Securities then reviewed with the
directors the financial advisors' preliminary analyses of the companies'
existing strategic alternatives, including restructuring of the companies'
existing credit facility and other debt, a public high-yield debt offering, a
public high-yield debt offering in combination with the sale of various assets,
and the investors' proposed investment at a $1 billion and a $600 million
level. The directors then engaged in a discussion with its financial advisors
regarding the preliminary analyses. The financial advisors indicated that they
would continue their analyses and report back to the directors at their meeting
scheduled for January 21.
On January 20, 1999, the Boards met. During the course of this meeting,
representatives of the investors met with the directors and discussed their due
diligence process and observations, their proposed sources and uses of the
proceeds from their proposed investment, the pro forma capitalization of the
companies following their proposed investment, a proposed corporate structure
for the companies following their proposed investment, management and
governance issues, and a proposed schedule in which to complete their proposed
investment.
On January 21, 1999, the Boards reconvened. Representatives of Morgan
Stanley and Chase Securities then led a discussion with the directors regarding
the companies' strategic alternatives. The alternatives discussed included
restructuring the companies' existing credit facility and other debt,
conducting a public
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high-yield debt offering, conducting a public high-yield debt offering in
combination with the sale of various assets, and issuing preferred stock to the
investors at a $1 billion and a $600 million level. The directors engaged in an
extensive discussion of the advantages and disadvantages of each of the
available strategic alternatives with their financial advisors. At this
meeting, the directors did not specifically accept or reject any of the
strategic alternatives under consideration, but instructed members of
management and the financial advisors to continue to pursue all available
alternatives. Also at the January 21 meeting, the Boards met with
representatives of Hilton to discuss a potential business transaction.
Representatives of the companies, along with their counsel and financial
advisors, negotiated the draft purchase agreement relating to the $1 billion
equity investment with representatives of the investors and their counsel and
financial advisors from their receipt of the agreement on January 21, 1999
through January 29, 1999. On January 29, 1999, the letter of intent expired.
Despite this expiration, the parties continued to negotiate the purchase
agreement. On February 4, 1999, the parties reinstated the letter of intent and
extended it until February 12, 1999. The February 4, 1999 extension set the
initial conversion price on the investors' preferred stock at $8.75 per share,
and increased the break-up fee payable by the companies to the investors to $50
million from $30 million if, during the pendency of the letter of intent or 180
days after its termination, the companies were to enter into an agreement for a
strategic transaction with Hilton.
The companies also continued their negotiations with Hilton.
On February 12, 1999, the Boards met to further discuss the status of the
negotiations with the investors and Hilton. At this meeting, counsel to the
companies provided the directors with a detailed summary of the material terms
of the proposed $1 billion equity investment, as well as a summary of the
proposed terms of the transaction with Hilton. The Hilton proposal consisted of
Wyndham's sale of approximately $315 million of convertible preferred stock to
Hilton on substantially the same economic terms as the shares to be sold to the
investors and Hilton's purchase of approximately $665 million of assets from
Wyndham. Following this discussion, the financial advisors jointly reviewed
with the directors an analysis of the strategic alternatives available to the
companies. This discussion included an overview of the companies' process in
reviewing strategic alternatives to date, as well as an analysis of the
potential advantages and disadvantages of the $1 billion equity investment, the
proposed transaction with Hilton, and a self-help strategy of restructuring the
companies' existing debt and completing a public offering of high-yield debt.
Following this meeting, on February 12, 1999, the companies and the investors
extended the letter of intent relating to the proposed $1 billion equity
investment until February 26, 1999. The February 12, 1999 extension prohibited
the companies from continuing their negotiations with Hilton during the
pendency of the letter of intent.
Representatives of the companies, along with their counsel and financial
advisors, continued to negotiate the draft purchase agreement with the
investors and their financial advisors and counsel.
On February 16, 1999, the Boards met. At this meeting, counsel to the
companies summarized the terms of the draft purchase agreement relating to the
proposed $1 billion equity investment, including that the maximum size of the
rights offering had been reduced to $300 million from $400 million.
Representatives of Morgan Stanley and Chase Securities jointly presented to the
directors their financial analysis regarding the $1 billion equity investment
and the proposal received from Hilton. Morgan Stanley orally rendered its
opinion that as of that date, and subject to the limitations and considerations
discussed with the Boards, the $1 billion equity investment was fair, from a
financial point of view, to the holders of the Wyndham common stock and the
Patriot common stock. Morgan Stanley subsequently confirmed this opinion in
writing. The companies did not request, nor did Chase Securities provide, any
fairness opinion at this meeting of the Boards. Following these presentations,
the directors engaged in an extensive discussion regarding the investors'
proposed $1 billion equity investment, the proposal received from Hilton and
other available alternatives. The directors decided to pursue the $1 billion
equity investment instead of the proposed transaction with Hilton after
concluding that the proposed transaction with Hilton was not in the best
interests of stockholders because, among other things, the significant asset
sales contemplated would impair the companies' business objective of developing
its proprietary hotel brands by increasing distribution. The directors also
rejected the self-help alternative of restructuring the companies' existing
debt and completing a public offering of high-yield debt, in
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part, because of the uncertainty connected with the successful completion of a
high-yield debt issuance. Following this discussion, the directors of both
Patriot and Wyndham adopted the conclusions of Morgan Stanley's fairness
opinion and voted unanimously to approve the $1 billion equity investment. The
directors also authorized Sue Groenteman and Milton Fine to resolve any
remaining issues relating to the proposed $1 billion equity investment.
The purchase agreement relating to the proposed $1 billion equity investment
was executed by the companies and the investors as of February 18, 1999, but
did not become effective until the companies delivered and the investors
accepted the disclosure schedules required by the purchase agreement. Prior to
delivery of the supplementary disclosure letter, Morgan Stanley confirmed that
nothing in the supplementary disclosure letter would alter its view regarding
the fairness, from a financial point of view, of the investment to the holders
of the Wyndham common stock and the Patriot common stock. The purchase
agreement became effective on February 28, 1999.
Our Reasons for the Investment
We believe that the $1 billion equity investment, the restructuring and the
related transactions are fair to and in the best interests of our stockholders.
We believe that the transactions will create short-term stockholder value by
alleviating our current liquidity and capital constraints by permitting
settlement of our forward equity contracts and retirement of approximately $3.0
billion of our existing debt. Additionally, we believe that the transactions
will create long-term stockholder value by providing us with working and growth
capital to fund our strategy of developing our proprietary hotel brands by
increasing distribution, generating greater customer awareness, building brand
loyalty and maintaining customer satisfaction. In contrast, we believe that the
proposed Hilton transaction would have resulted in the sale of several key
assets of the companies.
Each of the Boards unanimously approved the $1 billion equity investment and
the related transactions and unanimously recommends that stockholders of
Wyndham and Patriot vote for all the proposals in this joint proxy
statement/prospectus. In reaching this decision the Boards consulted with
members of management of their respective companies, as well as financial
advisors, legal counsel and accountants of the companies, and considered a
number of factors.
In making its determination with respect to the $1 billion equity investment
and the related transactions, the Boards considered the following factors which
they considered to be favorable:
. A portion of the proceeds of the $1 billion equity investment will be
used to settle the forward equity contracts in cash, avoiding the
substantial dilution that would have resulted if the counterparties
had exercised their remedies under the contracts.
. The proceeds of the $1 billion equity investment, along with the
proceeds of the new $2.45 billion credit facility to be put in place
contemporaneously with the investment, will permit us to retire or
refinance all of our existing bank debt.
. Following the $1 billion equity investment and the closing of the new
credit facility, we will have, on a pro forma basis, $210 million of
available credit under the new revolving credit facility which, in
conjunction with other permitted indebtedness, will permit us to
continue our development and other capital plans.
. The representatives of the investors who will serve on the Wyndham
Board following the $1 billion equity investment are sophisticated
individuals who will contribute valuable financial and operating
expertise to Wyndham.
. The analysis and presentations of Morgan Stanley and Chase
Securities, financial advisors to the companies, and the opinion,
analysis and presentations of Morgan Stanley, financial advisor to
Wyndham and Patriot and the independent directors, including Morgan
Stanley's opinion that, as of the date of such opinion and subject to
the limitations and considerations contained in the opinion, the
$1 billion equity investment is fair, from a financial point of view,
to the companies' common stockholders.
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In making its determination with respect to the $1 billion equity investment
and the related transactions, the Boards also considered the following
potentially negative factors in its deliberations regarding the investment:
. If the companies have net income in the future, net income per share
will be lower due to the increase in the number of shares as a result
of the issuance of $1 billion of preferred stock to the investors.
. The initial conversion price of $8.59 per share of common stock may
be adjusted downward if we are required to indemnify the investors
under the terms of the securities purchase agreement relating to the
$1 billion equity investment. Conversion price reductions for
breaches of representations and warranties, special costs related to
the restructuring and stockholder litigation may not exceed $2.27. If
the conversion price is reduced by $2.27 per share, the conversion
price would equal $6.32 per share and the investors would receive
approximately 158 million shares of common stock on the conversion of
$1 billion of preferred stock. Conversion price reductions for the
companies' breaches of covenants or sales of paired shares by the
counterparties to the forward equity contracts are not subject to a
maximum amount and could reduce the conversion price below $6.32
resulting in the issuance of additional shares of common stock to the
investors on conversion of their preferred stock. Since the
conversion price may be reduced, the current stockholders' ownership
may be significantly diluted.
. Completion of the $1 billion equity investment will require Wyndham
and Patriot to incur approximately $91 million of transaction costs
and will require a substantial amount of management's time. These
resources could have otherwise been used by the companies to further
our business objectives.
. The investors will receive a 9.75% dividend on their preferred stock.
Additionally, Wyndham paid cash fees of $21 million to the investors
as part of the investment.
. Following the $1 billion investment, the investors will hold
approximately 41% of the voting power of Wyndham, increasing to
approximately 52% after six years due to the payment of a portion of
the preferred stock dividends in stock, assuming Wyndham does not
issue any other voting stock and does not complete the $300 million
rights offering. The investors' voting power following the investment
will reduce the voting power currently held by our existing
stockholders.
. Some of the officers and directors of Wyndham and Patriot will
receive benefits in connection with the $1 billion investment that
could raise issues concerning potential conflicts of interest,
including, the vesting of restricted stock grants and stock options
for 887,117 paired shares in the aggregate and potential maximum
severance payments approximating $5.2 million in the aggregate if the
officers are terminated or their reporting relationship changes as
part of the investment.
In the Boards' opinion, the factors listed immediately above, along with the
other factors discussed in this joint proxy statement/prospectus, represent the
material potential risks and adverse consequences to you which could occur as
part of the $1 billion equity investment. The Boards considered the impact of
these risks and consequences to the existing stockholders in evaluating the
$1 billion equity investment. In the Boards' opinion, however, these potential
risks and consequences were outweighed by the potential positive factors
discussed above. Accordingly, the Boards voted unanimously to approve the
$1 billion equity investment.
In view of the wide variety of factors considered by the Boards, the Boards
did not find it practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered in making their
recommendations.
In the event the $1 billion equity investment is not completed for any
reason, we will continue to pursue our business objectives. Additionally, we
may seek additional debt or equity financings or pursue the sale of assets.
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Proposal 1
Proposal to Approve the Issuance of the Wyndham Series B
Preferred Stock to the Investors
(For Wyndham Stockholders Only)
Proposal 2
Proposal to Approve the Issuance of Wyndham Common Stock
in Exchange for Existing Preferred Stock of Wyndham
and Limited Partnership Interests in the Companies' Operating Partnerships
(For Wyndham Stockholders Only)
What is Wyndham asking you to approve?
You are being asked to approve the terms and issuance of Wyndham's series B
preferred stock, which will initially represent more than 41% of the voting
power of the outstanding capital stock of Wyndham. Since a portion of the
dividends paid to the investors on their preferred stock is paid in additional
shares of preferred stock, assuming no other voting shares are issued, the "as
converted" voting power of the investors would rise to approximately 52% six
years after the completion of the investment. The investors' voting power would
be reduced to approximately 29% initially, and 36% six years after the
investment, if stockholders other than the investors purchase the entire $300
million of preferred stock to be offered in the rights offering following the
completion of the $1 billion equity investment. You are also being asked to
approve the issuance of shares of Wyndham common stock to existing holders of
Wyndham's preferred stock and existing limited partners of the companies'
operating partnerships in exchange for their preferred stock and limited
partnership interests.
What does the Board of Directors of Wyndham recommend that you do in response
to Proposal 1 and Proposal 2?
The Board of Directors of Wyndham has unanimously approved the terms and
issuance of the series B preferred stock. The Board believes that Proposal 1 is
in the best interests of Wyndham and its stockholders and recommends that you
vote for the approval of Proposal 1.
The Board of Directors of Wyndham has unanimously approved the terms and
issuance of its common stock in exchange for shares of its existing preferred
stock and limited partnership interests in the companies' operating
partnerships. The Board recommends that you vote for Proposal 2.
What is the opinion of the financial advisor to Wyndham and Patriot of the
$1 billion equity investment?
Morgan Stanley was retained by Wyndham and Patriot to act as their financial
advisor regarding the $1 billion equity investment and related transactions
based upon Morgan Stanley's experience and expertise. On February 27, 1999,
Morgan Stanley rendered to the Boards of Directors of Wyndham and Patriot an
oral opinion, which was confirmed in writing as of February 27, 1999, to the
effect that, as of that date and based on and subject to the limitations and
considerations stated in the opinion, the $1 billion equity investment was fair
from a financial point of view to the holders of shares of Wyndham common stock
and Patriot common stock.
The full text of the Morgan Stanley opinion dated February 27, 1999, which
sets forth the assumptions made, matters considered and limits on the review
undertaken, is attached as Annex E to this joint proxy statement/prospectus.
The Morgan Stanley opinion is directed to the Boards of Directors of Wyndham
and Patriot and addresses only the fairness of the $1 billion equity investment
from a financial point of view to holders of shares of Wyndham common stock and
Patriot common stock, and it does not address any other aspect of the
investment nor does it constitute a recommendation to any holder of paired
shares as to
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how to vote at the Wyndham and Patriot annual meetings. For a more complete
description, you should read the full text of the opinion.
If a material amendment is made to the purchase agreement for the $1 billion
equity investment, the companies will seek to obtain a revised financial
opinion. Such a revised financial opinion, if any, will necessarily be based on
economic, market and other conditions in effect on, and the information made
available as of, the date of the opinion.
In arriving at its opinion, Morgan Stanley, among other things:
. reviewed publicly available financial statements and other
information of Wyndham and Patriot;
. reviewed internal financial statements and other financial and
operating data concerning Wyndham and Patriot prepared by the
managements of Wyndham and Patriot;
. analyzed financial forecasts prepared by the managements of Wyndham
and Patriot;
. discussed with senior executives of Wyndham and Patriot the past and
current operations and financial condition and the prospects of
Wyndham and Patriot;
. reviewed selected alternatives to the $1 billion equity investment
and related transactions, including an alternative transaction
proposed by the Indentified Party;
. reviewed the reported prices and trading activity for the paired
shares;
. compared the financial performance of Wyndham and Patriot and the
prices and trading activity of the paired shares with that of
selected comparable publicly-traded companies and their securities;
. reviewed the financial terms, to the extent publicly available, of
transactions they deemed relevant;
. participated in discussions and negotiations among representatives of
Wyndham and Patriot and the investors and their financial and legal
advisors;
. discussed with the managements and legal advisors of Wyndham and
Patriot the implications of Patriot's conversion from a REIT to a
subchapter C corporation under the Internal Revenue Code;
. reviewed the purchase agreement relating to the $1 billion equity
investment and certain related documents;
. reviewed the terms of the outstanding debt obligations and forward
equity contracts of Wyndham and Patriot; and
. performed such other analyses as they deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to
financial projections, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Wyndham and Patriot. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of Wyndham and Patriot, nor was Morgan Stanley furnished with any
such appraisals. Morgan Stanley assumed that the $1 billion equity investment
and related transactions set forth in the purchase agreement will be completed
in accordance with the terms of the purchase agreement. Morgan Stanley assumed
that the $1 billion equity investment and related transactions will result in
Wyndham being classified as a subchapter C corporation under the Internal
Revenue Code. Morgan Stanley's opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to
Morgan Stanley as of, the date of the Morgan Stanley opinion. Morgan Stanley
does not intend to update its opinion as of any subsequent date.
The following is a brief summary of the material analyses contained in the
joint presentations of the financial advisors and reviewed with the Board of
Directors of Wyndham and Patriot by the financial advisors on February 12, 1999
and February 16, 1999 and the opinion of Morgan Stanley dated February 27,
1999.
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Public Market Overview. Morgan Stanley reviewed the trading information for
Wyndham and Patriot, including market value, market capitalization and
institutional ownership. Morgan Stanley also reviewed historical and forward
trading multiples for Wyndham and Patriot.
Historical Stock Performance. Morgan Stanley reviewed the trading price of
the paired shares. This stock performance review indicated that for the last
twelve months ended February 11, 1999, the high and low closing prices for the
paired shares was $28.25 and $5.00, respectively.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis to calculate a present value of the stand-alone unlevered free
cash flow for Wyndham and Patriot. Morgan Stanley analyzed three scenarios: (1)
the "Management Case," which was based on certain financial forecasts prepared
by Wyndham and Patriot management, (2) the "Financing Case" which adjusted
downward the Management Case based on several contingencies specified by
Wyndham and Patriot management and (3) the "Bankruptcy Case" which adjusted
downward the Management Case based on the potential effects of insolvency on
Wyndham and Patriot specified by Wyndham and Patriot management. For this
analysis, Morgan Stanley discounted the estimated unlevered free cash flows
using a range of discount rates from 11.0% to 13.0% for the Management Case and
Financing Case and from 12.0% to 14.0% for the Bankruptcy Case. The discount
rate range was selected based upon a weighted average cost of capital analysis
of Wyndham and Patriot for each scenario. Morgan Stanley added to the present
values of the cash flows the terminal values of Wyndham and Patriot in the year
2003, and discounted the terminal value using the same range of discount rates
as was used to discount the unleveraged free cash flows in each case. The
terminal value was calculated using the terminal multiple method, assuming a
range of terminal multiples of earnings before interest, income taxes,
depreciation and amortization, or EBITDA, between 7.0x and 8.0x for each case.
Based on this analysis Morgan Stanley calculated a per share equity value of
Wyndham and Patriot ranging from $3.17 to $8.56 based on the Management Case,
$0.96 to $5.94 based on the Financing Case and ($2.84) to $1.59 based on the
Bankruptcy Case. Morgan Stanley observed that the conversion price of $8.75 per
share for the convertible preferred securities underlying the $1 billion
investment was above each of the foregoing ranges.
Comparable Company Trading Analysis. Morgan Stanley performed a comparable
public company trading analysis under which it compared publicly available
financial and operating data, projections of future financial performance and
market statistics based upon the closing stock prices on February 11, 1999 of
the paired shares and of Felcor Lodging Trust, Hilton Hotels Corp., Host
Marriott Corp., Meristar Hospitality Corp., Promus Hotel Corp., and Starwood
Hotels & Resorts Worldwide, Inc. These companies were selected based upon their
comparability in certain respects to Wyndham and Patriot. Morgan Stanley
compared the aggregate value (consisting of market capitalization and total
debt) as a multiple of 1998 and 1999 EBITDA. For the selected comparable
companies, such an analysis indicated: a median aggregate value to 1998 EBITDA
multiple of 8.4x; and a median aggregate value to 1999 EBITDA multiple of 7.4x.
Morgan Stanley calculated an estimated fully diluted aggregate value of Wyndham
and Patriot (assuming a paired share price of $5.88) of $5,303 million as a
multiple of 1998 and 1999 EBITDA. The multiples yielded by such calculations
were: 8.3x, with respect to 1998 EBITDA and 7.4x, with respect to 1999 EBITDA.
Morgan Stanley also calculated the implied value per paired share according
to the following multiple ranges. With respect to 1998 and 1999 EBITDA, Morgan
Stanley assumed multiple ranges of 8.0x to 8.5x and 7.0x to 8.0x, respectively.
Assuming parameters of 1998 EBITDA of $639 million and 1999 EBITDA of $669
million to $717 million, these multiple ranges yielded a range of implied
values per paired share of $2.22 to $8.43. Morgan Stanley observed that the
conversion price of $8.75 per share of convertible preferred stock was above
this range.
No company utilized as a comparison in the comparable company trading
analysis is identical to Wyndham and Patriot. In evaluating the comparable
companies, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions
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and other matters, many of which are beyond the control of Wyndham and Patriot,
such as the impact of competition on Wyndham and Patriot and the industry
generally, industry growth and the absence of any adverse material change in
the financial condition and prospects of Wyndham and Patriot or the industry or
in the financial markets in general. Mathematical analysis (such as determining
the mean or the median) is not in itself a meaningful method of using
comparable company analysis.
Comparable Transaction Analysis. Morgan Stanley reviewed publicly available
information regarding 15 selected transactions from 1996 to 1999 determined to
be comparable to the $1 billion equity investment, and for each transaction,
calculated, where available, the aggregate value (consisting of market
capitalization and total debt) as a multiple of each of historical, forward and
adjusted forward EBITDA (which adjusts for the market average forward EBITDA
multiple at the time of each precedent transaction) and the premium to the
unaffected stock price of the target company. This analysis indicated that
aggregate value as a multiple of historical EBITDA ranged from 10.2x to 21.7x,
with a mean of 13.8x and a median of 13.5x. Such analysis also indicated that
aggregate value as a multiple of forward EBITDA ranged from 8.6x to 14.1x, with
a mean of 11.3x and a median of 11.1x and as a multiple of adjusted forward
EBITDA ranged from 7.5x to 11.3x with a mean of 10.0x and a median of 9.4x. The
analysis also indicated that the premium to the unaffected price ranged from
(2.3)% to 56.8%, with a mean of 3.4% and median of 12.6%. Morgan Stanley then
calculated the implied value per paired share assuming multiple ranges for
historical, forward and adjusted forward EBITDA and the premium to unaffected
price of the paired shares of 11.0x to 13.0x, 9.0x to 11.0x, 7.4x to 10.4x, and
10.0% to 25.0%, respectively. The implied value per paired share using this
methodology ranged from $5.88 to $23.56. Morgan Stanley observed that the
conversion price of $8.75 per share of convertible preferred stock was within
this range.
No transaction utilized in the comparable precedent transaction analysis is
identical to the $1 billion equity investment. In particular, none of the
transactions used in this analysis involved a minority equity investment of the
nature contemplated by the investment, and, as such, may have limited
comparability to the $1 billion equity investment. In evaluating the precedent
transactions, Morgan Stanley considered factors with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Wyndham and Patriot,
such as the impact of competition on the business of Wyndham and Patriot and
the industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Wyndham and Patriot or the
industry or in the financial markets in general. Mathematical analysis (such as
determining the mean or median) is not in itself a meaningful method of using
comparable transaction data.
Break-Up Valuation Analysis. Morgan Stanley performed a break-up valuation
analysis to calculate a value of Wyndham and Patriot based on projected 1999
cash flows from the real estate-related and management-related operations of
Wyndham and Patriot. Morgan Stanley analyzed two scenarios: (1) the "Base Case"
which was based on financial forecasts prepared by Wyndham and Patriot
management and (2) the "Liquidation Case" which adjusted the ranges of
capitalization rates and multiple ranges used to reflect the potential effects
of a bankruptcy-related liquidation of Wyndham and Patriot assets as specified
by Wyndham and Patriot management.
For the Base Case, Morgan Stanley applied a range of capitalization rates to
real estate-related net operating income (which is equivalent to EBITDA
directly derived from Wyndham and Patriot properties less a reserve for
maintenance capital expenditures). The range of capitalization rates used for
this analysis was 9.5% to 12.5%. Morgan Stanley added to the values of the
capitalized net operating income the values of the management company-related
EBITDA (derived from management of Wyndham and Patriot and third-party owned
hotels) calculated as a range of multiples applied to expected 1999 EBITDA. The
range of multiples used for the management company-related EBITDA was 6.5x to
8.5x. Morgan Stanley also calculated the implied value per paired share
according to these multiple ranges. This analysis indicated a range of values
of $3.40 to $9.98 per paired share. For the "Liquidation Case," Morgan Stanley
applied a range of capitalization rates to real estate-related net operating
income of 12.0% to 14.0%. The range of multiples used for the
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management company-related EBITDA was 3.0x to 5.0x. Such analysis indicated a
range of values of $2.75 to $3.94 per paired share based on these assumptions.
Morgan Stanley observed that the conversion price of $8.75 per share of
convertible preferred stock was above this range.
Pro Forma Net Present Value Analysis. Morgan Stanley performed a net present
value analysis of the paired share price based on financial forecasts prepared
by Wyndham and Patriot management. Morgan Stanley analyzed three scenarios:
. the "Standalone Case" which assumed that the $1 billion equity
investment was not completed and that the forward equity contracts
were satisfied by selling paired shares;
. the "$1 billion Investment Case" which assumed that the $1 billion
equity investment was completed and that no rights offering was
executed; and
. the "$700 million Investment Case" which assumed that the $1 billion
equity investment was completed and that a $300 million rights
offering was executed, decreasing the amount of the investment to
$700 million.
For this analysis, Morgan Stanley discounted the estimated future equity
value of Wyndham and Patriot at a range of discount rates from 12.5% to 17.5%.
The estimated future equity value of Wyndham and Patriot was calculated by
subtracting the outstanding debt of Wyndham and Patriot at the end of the
terminal year (2003) from its terminal value. The terminal value was calculated
using the terminal multiple method, assuming a range of terminal multiples of
EBITDA between 7.0x and 9.0x for each case. Based on this analysis Morgan
Stanley calculated a per paired share value of Wyndham and Patriot ranging from
$5.65 to $11.80 in the Standalone Case, $5.72 to $11.10 in the $1 billion
Investment Case and $5.76 to $12.83 in the $700 million Investment Case. Morgan
Stanley observed that the per paired share values indicated by the $700 million
and $1 billion Investment Case were comparable to those indicated in the
Standalone Case.
Theoretical Common Stock Valuation Analysis. Morgan Stanley performed a
theoretical common stock valuation analysis to calculate the value of the
paired shares implied by the value of the convertible preferred securities
underlying the $1 billion equity investment. For this analysis, Morgan Stanley
calculated the range of internal rates of return of the investment to the
investors based on the terms of the convertible preferred securities and
certain financial forecasts prepared by Wyndham and Patriot management. Morgan
Stanley then calculated the paired share purchase price which would yield the
same internal rates of return as the $1 billion equity investment based on the
financial forecasts prepared by Wyndham and Patriot management. Such analysis
indicated a range of values for the paired shares from $4.89 to $4.99. Morgan
Stanley observed that the conversion price of $8.75 per share of convertible
preferred stock was above this range.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley opinion.
In addition, Morgan Stanley may have deemed some assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Wyndham and Patriot. Of the factors
considered for purposes of its opinion, Morgan Stanley did not find any factor
that did not support the conclusion of its opinion regarding the fairness of
the $1 billion equity investment from a financial point of view.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Wyndham and Patriot. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by
such analyses. These analyses were prepared solely as a part of Morgan
Stanley's analysis of whether the $1 billion equity
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investment is fair from a financial point of view to the holders of shares of
Patriot common stock and Wyndham common stock and were provided to the Boards
of Directors of Wyndham and Patriot in connection with the delivery of Morgan
Stanley's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which Wyndham and Patriot might actually be sold. In addition, as
described above, the Morgan Stanley opinion, including Morgan Stanley's
presentation to the Boards of Directors of Wyndham and Patriot, was one of many
factors taken into consideration by the Boards of Directors of Wyndham and
Patriot in making its determination to approve the $1 billion equity
investment.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the ordinary
course of its trading, brokerage and financing activities, Morgan Stanley or
its affiliates may at any time hold long or short positions, and may trade or
otherwise effect transactions, for its own account or the accounts of
customers, in debt or equity securities of Wyndham and Patriot. In the past,
Morgan Stanley and its affiliates have provided financial advisory and
financing services to Wyndham and Patriot and have received fees for rendering
these services.
In a letter agreement dated as of November 10, 1998 and amended February 11,
1999, Wyndham and Patriot have agreed to pay Morgan Stanley fees for its
services as financial advisor equal to approximately $11.1 million, all of
which is payable at the completion of the investment, plus additional fees if
Wyndham and Patriot complete certain financing transactions in connection with
the $1 billion equity investment. In addition, Wyndham and Patriot have agreed
to reimburse Morgan Stanley for its expenses including the fees and expenses of
outside counsel, and to indemnify Morgan Stanley for liabilities and expenses
arising out of the engagement and the transactions in connection therewith
including liabilities under federal securities laws. Morgan Stanley may also
act as an underwriter in financings for the companies in the future.
Pursuant to a letter agreement dated as of November 10, 1998, Wyndham and
Patriot have agreed to pay Chase Securities for its services as financial
advisor as follows:
. monthly advisory fees in the aggregate amount of $350,000;
. an additional fee of $1,000,000 payable upon delivery of its opinion
letter dated as of December 15, 1998, and
. additional fees of $8.75 million payable at the completion of the
investment (against which the fees described above will be credited).
In addition, Wyndham and Patriot have agreed to reimburse Chase Securities
for its reasonable expenses, including the fees and expenses of outside
counsel, and to indemnify Chase Securities for liabilities and expenses arising
out of the engagement and the transactions in connection therewith including
liabilities under federal securities laws. The Chase Manhattan Corporation and
its affiliates, including Chase Securities, in the ordinary course of business,
have provided commercial banking services to Wyndham and Patriot, and have
signed commitment letters with Patriot with respect to the new $2.45 billion
credit facility.
Chase Securities, as part of its financial advisory business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and valuations for estate, corporate and other
purposes. The Chase Manhattan Corporation and its affiliates, including Chase
Securities (collectively, "Chase"), in the ordinary course of business, have,
from time to time, provided commercial and investment banking services to the
companies and certain of the investors for which Chase received usual and
customary compensation and in the future may continue to provide such
commercial and investment banking services. In addition, Chase had the
following other relationships with the companies and the investors as of the
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date of the Chase Securities opinion: (1) Chase was the arranger,
administrative agent and a lender under a $2.7 billion Amended and Restated
Credit Agreement among Patriot, Patriot American Hospitality Partnership, L.P.
and various lenders, dated June 2, 1998, as amended and restated, which
indebtedness (including approximately $134 million in indebtedness owed to
Chase) may be repaid, in part, from the proceeds of the $1 billion equity
investment; (2) Chase was a holder of a demand note of Patriot American
Hospitality Partnership, L.P. in the aggregate principal amount of $49.2
million, which indebtedness may be repaid in whole, or in part, from the
proceeds of the $1 billion equity investment; and (3) Chase was an investor in,
and from time to time has provided commercial and investment banking services
to, certain of the investors. In the ordinary course of business, Chase
Securities or its affiliates may trade in the debt and equity securities of the
companies for their own accounts and for the accounts of their customers and,
accordingly, may at any time hold a long or short position in such securities.
What are the terms of Wyndham's series B preferred stock?
The following summarizes material terms of Wyndham's series B preferred
stock. We have attached a copy of the certificate of designation establishing
the series B preferred stock as Annex D. This discussion is not a complete
description of the terms of Wyndham's series B preferred stock, so you should
read it together with the series B certificate of designation.
The series B certificate of designation designates 31,840,000 shares of
Wyndham's preferred stock as series B preferred stock, and fixes a stated
amount of $100.00 per share. Wyndham's series B preferred stock will rank equal
as to dividends and liquidation preference to Wyndham's series A preferred
stock and will rank senior or equal to any future preferred stock of Wyndham.
Dividends
Wyndham will pay dividends on its series B preferred stock quarterly, on a
cumulative basis at an annual rate of 9.75%, compounded quarterly. Until the
sixth anniversary of the completion of the $1 billion equity investment, the
dividends will be payable partially in cash and partially in additional shares
of series B preferred stock with the cash component initially equal to 30% for
the first dividend and declining over the six year period to approximately
19.8% for the final dividend. This dividend structure is intended to ensure an
aggregate fixed cash dividend payment of $29,250,000 per year, assuming no
redemption or conversion of the series B preferred stock. From the sixth
anniversary of the completion of the investment through the tenth anniversary
of the completion of the investment, the dividends may be paid by Wyndham
either in cash or in additional shares of series B preferred stock. Following
the tenth anniversary of the completion of the investment, the dividends will
be paid by Wyndham entirely in cash. In addition, holders of the series B
preferred stock will, except for dividends payable in additional shares of
Wyndham common stock, be entitled to receive all dividends paid on the Wyndham
common stock on an as-converted basis. Wyndham may elect to pay a portion of
these dividends in the form of additional shares of series B preferred stock.
Conversion into Wyndham common stock at the option of the holder
Each share of Wyndham's series B preferred stock may, at the option of its
holder, be converted into shares of Wyndham common stock at any time. For each
share of series B preferred stock converted into Wyndham common stock, the
holder will receive that number of shares of Wyndham common stock equal to
$100.00 divided by the conversion price of the series B preferred stock, which
is initially $8.59 per share, and will also receive accrued but unpaid cash
dividends. If a holder of series B preferred stock elects to convert his or her
shares of series B preferred stock in connection with a "change in control"
that occurs prior to the sixth anniversary of the closing of the investment,
all dividends on the shares of series B preferred stock held by the holder that
would have accrued through the sixth anniversary will be accelerated and paid
in the form of additional shares of series B preferred stock, assuming that all
such subsequent dividends would have been paid solely in shares of series B
preferred stock rather than cash.
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For so long as Wyndham class B common stock remains a separate class of
Wyndham's common stock, any conversion of series B preferred stock into Wyndham
common stock will be into shares of class B common stock. This right of the
holders of series B preferred stock to convert into class B common stock is
designed to preserve the investors' rights to vote as a class for the class B
directors.
The conversion price is subject to adjustment if any of the following events
happen:
. the issuance of Wyndham common stock as a dividend or distribution on
the Wyndham common stock;
. a subdivision, combination, consolidation or reclassification of the
Wyndham common stock;
. the issuance of Wyndham common stock, or options, rights, warrants or
other securities convertible into or exchangeable for shares of
Wyndham common stock, at a price per share less than the then current
market price of the Wyndham common stock, except for issuances
authorized by employee benefit plans and other options of Wyndham and
issuances in private placements at not less than 95% of the then
current market price of the Wyndham common stock; and
. any reductions in the conversion price as Wyndham deems advisable to
prevent any distribution of stock or stock rights, or similar
transactions, from being taxable to the holders of Wyndham common
stock which could occur if a stock or stock rights distribution
increased the interest of the common shareholders relative to the
preferred shareholders as a result of the failure to adjust the
conversion ratio.
The conversion price is subject to reduction in the event Wyndham and
Patriot are required to indemnify the investors under the terms of the purchase
agreement relating to the $1 billion equity investment. We have attached a copy
of the purchase agreement as Annex A. A reduction in the conversion price would
result in the investors receiving additional shares of common stock upon
conversion of their preferred stock.
The requirement to indemnify the investors means that Wyndham and Patriot
have agreed to compensate the investors for specified breaches by Wyndham and
Patriot under the terms of the purchase agreement or if Wyndham and Patriot
incur specified losses. Indemnification obligations are often satisfied by a
company through a cash payment to the investing party. However, to conserve
cash, most potential indemnification payments relating to the $1 billion equity
investment were instead structured as a reduction in the conversion price. The
exception is that the indemnification obligation regarding the Wyndham Anatole
hotel described below would be satisfied with a cash payment.
In order to understand the possible extent of the conversion price
reductions that may result from the indemnification obligations of Wyndham and
Patriot, it is important that you first understand the general features of the
indemnification obligations of Wyndham and Patriot. The general features of the
indemnification obligations of Wyndham and Patriot to the investors are as
follows:
. If Wyndham or Patriot breaches the general representations and
warranties set forth in the purchase agreement, the indemnification
obligation of Wyndham and Patriot arises after, and only to the
extent that, losses exceed a threshold amount of $20 million.
. If Wyndham or Patriot incurs losses in connection with special costs
related to the completion of the transactions described in the
restructuring plan that we have attached as Annex B or in connection
with stockholder suits, the indemnification obligation of Wyndham and
Patriot arises after, and only to the extent that, losses exceed $25
million. These "special costs" include the following:
. costs of obtaining consents in connection with the restructuring
of Wyndham and Patriot;
. uninsured payments relating to stockholder suits;
. cash payments made to redeem shares of the Patriot series B
preferred stock in excess of $25.00 per share; and
. the fair market value of any excess shares of Wyndham common stock
issued in order to complete the restructuring of Wyndham and
Patriot.
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. If losses related to breaches by Wyndham and Patriot of general
representations and warranties do not exceed $20 million, Wyndham and
Patriot may apply the difference between the losses and the $20
million threshold to increase the $25 million threshold applicable to
losses incurred in connection with special costs.
. Wyndham and Patriot must indemnify the investors for any breaches of
the covenants set forth in the purchase agreement, and this
obligation is not subject to any threshold.
. Wyndham and Patriot must indemnify the investors in the event any of
the counterparties to the forward equity contracts sells paired
shares released as collateral under the forward equity contracts
after December 31, 1998 with net proceeds to Wyndham and Patriot of
less than $8.75 per share. The net proceeds to Wyndham and Patriot
would be reflected as a reduction in their obligations to the selling
counterparties under the forward equity contracts. The amount of the
reduction would be equal to the proceeds received by the
counterparties upon the sale of the paired shares. This obligation is
not subject to any threshold.
. Wyndham and Patriot must pay the investors a cash indemnity of $1.25
million per three month period, pro-rated for any partial three month
period, in the event the owners of the Wyndham Anatole hotel
terminate Wyndham's management agreement for the Wyndham Anatole
hotel prior to May 10, 2004 because of either James Carreker ceases
to be an executive officer of the companies or Paul Nussbaum
continues on the Board of Directors of Wyndham following Wyndham's
annual meeting of stockholders in 2000. Mr. Nussbaum has notified
Wyndham in writing that if his standing for reelection in 2000 would
give the owners of the Wyndham Anatole the right to terminate the
hotel's management agreement, he will not stand for reelection at
that time. This obligation is not subject to any threshold, but any
payments made under this obligation would apply to the $2.27 per
share maximum reduction amount described below.
. The representations and warranties and covenants of Wyndham and
Patriot in the purchase agreement survive the closing as follows:
. most representations and warranties survive until the 90th day
following the filing by Wyndham of a Form 10-K for the fiscal year
ending December 31, 1999;
. some of the representations and warranties, like those addressing
the organization of the companies and the companies' authority to
complete the $1 billion equity investment, survive indefinitely;
. the representations and warranties of Wyndham and Patriot
regarding tax matters survive until 90 days after the expiration
of the applicable statute of limitations; and
. the covenants and agreements, other than those applicable during
the period between the effectiveness of the purchase agreement and
the completion of the $1 billion equity investment, survive
indefinitely.
Once it has been determined that Wyndham and Patriot have an obligation to
compensate the investors under the indemnification provisions of the purchase
agreement, the amount of the conversion price reduction must be determined. The
mechanism that Wyndham and Patriot and the investors agreed upon for purposes
of determining the amount of a conversion price reduction is designed to keep
the investors' economic value in Wyndham constant despite the relevant loss to
the companies. This is generally achieved by reducing the conversion price upon
a loss by the amount of the loss divided by 167,025,942, the number of paired
shares outstanding at the time the purchase agreement was signed. For example,
a $100 million loss in excess of any applicable threshold would result in a
conversion price reduction of approximately $0.60.
With respect to indemnification for breaches by Wyndham and Patriot of
general representations and warranties and for special costs, there is a
maximum reduction amount on the conversion price of
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approximately $2.27 per share. In order for the total conversion price
reductions relating to indemnification to equal $2.27 per share, Wyndham and
Patriot would generally have to incur approximately $380 million in losses in
excess of any applicable thresholds. After reductions to the conversion price
totaling $2.27 per share, the conversion price would be approximately $6.32 per
share. There is no maximum amount on conversion price reductions relating to
breaches of covenants or to sales of paired shares by the counterparties to the
companies' forward equity contracts of paired shares.
Conversion into series A preferred stock
Each share of series B preferred stock of Wyndham may, at the option of its
holder, also be converted into one share of Wyndham's series A preferred stock
at any time. Wyndham's series A preferred stock is the security to be offered
to Wyndham's stockholders in a rights offering to be completed following the
completion of the $1 billion equity investment. This right of the holders of
series B preferred stock to convert into series A preferred stock is designed
to allow the holders to convert into a listed, trading security with the same
economic rights as the series B preferred stock. The primary difference between
the series A preferred stock and the series B preferred stock is that the
series A preferred stock is non-voting, except as required by law.
Also, in the event of any transfer of any share of Wyndham series B
preferred stock to any person other than an investor, the share will
automatically convert into one share of series A preferred stock.
Optional Redemption
For a period of 170 days following the completion of the $1 billion equity
investment, Wyndham will have the option to redeem up to 3 million shares of
series B preferred stock at a redemption price of $102.00 per share (102% of
the stated amount of $100.00) plus all accrued dividends. This redemption would
be authorized by the vote of the Wyndham Board, except that it may be
authorized solely by the vote of the directors who are not elected by the
investors, to the extent the redemption uses the proceeds of the sale of series
A preferred stock pursuant to a rights offering and the proceeds, if any, in
excess of specified amounts from the sale of particular assets.
At any time after the sixth anniversary of the completion of the $1 billion
equity investment, Wyndham will have the right to redeem all or any portion of
the outstanding series B preferred stock at a redemption price of $101.00 per
share (101% of the stated amount of $100.00) plus all accrued dividends.
Wyndham may redeem only a portion of the outstanding series B preferred stock
provided that at least one million shares of series B preferred stock remain
outstanding following the partial redemption. The holders of series B preferred
stock will have the right, however, to convert their shares into Wyndham common
stock rather than having them redeemed by Wyndham in this redemption.
Voting Rights
So long as the total of the shares of series B preferred stock and shares of
Wyndham common stock issued upon conversion of the series B preferred stock
owned by the investors represents at least the percentage of the shares of
series B preferred stock originally issued to them indicated below, the holders
of a plurality of the shares of series B preferred stock and class B common
stock, voting together as a single class, will be entitled to elect the
indicated number of "class B directors" to the Wyndham Board:
<TABLE>
<CAPTION>
Percentage Number of Directors
---------- -------------------
<S> <C>
(greater than or =) 50.00 8
50.00 (less than) and (greater than or =) 43.33 7
43.33 (less than) and (greater than or =) 36.66 6
36.66 (less than) and (greater than or =) 30.00 5
30.00 (less than) and (greater than or =) 23.33 4
23.33 (less than) and (greater than or =) 16.66 3
16.66 (less than) and (greater than or =) 10.00 2
(less than) 10 0
</TABLE>
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Note that immediately following the completion of the $1 billion equity
investment, there will be a total of 19 directors on the Wyndham Board. Except
for the limitations concerning the election of directors the holders of the
series B preferred stock will be entitled to vote on all matters voted on by
holders of the Wyndham common stock, voting with such other holders as a single
class. Regarding a vote on any matter other than the election of directors,
each share of series B preferred stock will entitle its holder to cast the same
number of votes he or she would have been able to cast if the share of series B
preferred stock had been converted into Wyndham common stock on the record
date.
For so long as any shares of series B preferred stock remain outstanding,
the vote or consent of two-thirds of the outstanding shares of series B
preferred stock, in addition to any other consent or approval required by law,
will be required to:
. authorize, create or issue any class of stock having any preference
or priority senior to the series B preferred stock;
. authorize, create or issue any stock, other than the series A
preferred stock, ranking on a parity with the series B preferred
stock with respect to dividends or upon redemption, liquidation,
dissolution or winding up of Wyndham;
. reclassify any shares of capital stock of Wyndham into senior stock
or parity stock;
. authorize any security exchangeable for, convertible into or
evidencing the right to purchase any shares of senior stock or parity
stock;
. alter or change the rights, preferences or privileges of the series B
preferred stock, series A preferred stock or class B common stock;
. alter or change the rights of the class A common stock in a way that
would be adverse to the holders of the series B preferred stock;
. increase or decrease the authorized number of shares of series B
preferred stock or series A preferred stock;
. issue shares of series B preferred stock or series A preferred stock
other than to holders of series B preferred stock or series A
preferred stock, respectively, under each series' terms, and other
than sales of series A preferred stock through a rights offering as
contemplated by the purchase agreement;
. amend, modify or waive any provision of the certificate of
incorporation or by-laws of Wyndham affecting any of the following:
. the composition of, or other matters relating to, the Wyndham
Board;
. the voting rights of the stockholders of Wyndham; or
. the indemnification of directors or officers of Wyndham;
. amend, modify or waive any provision of the shareholder rights
agreement of Wyndham; or
. enter into or authorize any transaction constituting a "change in
control."
Consolidation or Merger
In the event of any capital reorganization or reclassification that does not
cause an adjustment of the conversion price, any consolidation or merger of
Wyndham with or into another corporation, or any sale or conveyance to another
corporation of all or substantially all of the property of Wyndham, prior to
the consummation of the transaction, each share of series B preferred stock
will be convertible into, instead of the Wyndham common stock issuable upon the
conversion, the kind and amount of shares of stock and other securities and
property receivable in the transaction by a holder of that number of shares of
Wyndham common stock into which one share of series B preferred stock was
convertible immediately prior to the transaction.
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Ability to receive preferential cash payment or convert upon change of control
or liquidation
Upon the occurrence of the events described below, the holders of the series
B preferred stock will be entitled to receive preferential payments in exchange
for their shares of series B preferred stock. If any of these events occur
prior to the sixth anniversary of the completion of the $1 billion investment,
each holder of the series B preferred stock will be entitled to either convert
its shares of series B preferred stock into shares of Wyndham common stock or
receive in cash the preferential payment due with respect to the series B
preferred stock. The payment or conversion would be made both in respect of the
shares of series B preferred stock he or she then holds, including any shares
issuable as accrued dividends through the date of the event, and, on an
accelerated basis, in respect of the shares of series B preferred stock he or
she would have received as dividends from the date of the event through the
sixth anniversary of the completion of the $1 billion equity investment. All
accelerated dividends would be treated as if they were paid solely in the form
of additional shares of series B preferred stock rather than cash. The table
below outlines the preferential payments on the series B preferred stock to be
received by holders of series B preferred stock in the specified events:
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Event Series B Preferential Payment
- --------------------------------------------------------------------------------
Change in control The greatest of:
prior to the sixth
anniversary of the . the aggregate stated amount (i.e., $100.00 per
completion of the $1 share) of the shares held and the accelerated
billion equity dividend shares, plus accrued but unpaid cash
investment dividends; and
. the amount the holders of series B preferred stock
would have received had they converted all of the
shares held and the accelerated dividend shares
into Wyndham common stock and sold the shares for
the effective price being paid by the Acquiring
Person (as defined below) in the change in
control, plus accrued but unpaid cash dividends;
and
. the fair market value of the cash, securities and
other property the holders of series B preferred
stock would have received had they converted all
of the shares held and the accelerated dividend
shares into Wyndham common stock and received the
consideration paid per share of Wyndham common
stock by the Acquiring Person in the change in
control, plus accrued but unpaid cash dividends.
- --------------------------------------------------------------------------------
Change in control The greatest of:
after the sixth
anniversary of the . the aggregate stated amount of the shares held,
completion of the $1 plus accrued but unpaid cash dividends; and
billion equity
investment . the amount the holders of series B preferred stock
would have received had they converted all of the
shares held into Wyndham common stock and sold the
shares for the effective price being paid by the
Acquiring Person in the change in control, plus
accrued but unpaid cash dividends; and
. the fair market value of the cash, securities and
other property the holders of series B preferred
stock would have received had they converted all
of the shares held into Wyndham common stock and
received the consideration paid per share of
Wyndham common stock by the Acquiring Person in
the change in control, plus accrued but unpaid
cash dividends.
- --------------------------------------------------------------------------------
Liquidation or The greater of:
winding up prior to
the sixth . the aggregate stated amount of the shares held and
anniversary of the the accelerated dividend shares, plus accrued but
completion of the $1 unpaid cash dividends; and
billion equity
investment . the fair market value of the cash, securities and
other property the holders of series B preferred
stock would have received had they converted all
of the shares held and the accelerated dividend
shares into Wyndham common stock immediately prior
to the liquidation or winding up, plus accrued but
unpaid cash dividends.
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Event Series B Preferential Payment
- --------------------------------------------------------------------------------
Liquidation or The greater of:
winding up after the
sixth anniversary of . the aggregate stated amount of the shares held,
the completion of plus accrued but unpaid cash dividends; and
the $1 billion
equity investment . the fair market value of the cash, securities and
other property the holders of series B preferred
stock would have received had they converted all
of the shares held into Wyndham common stock
immediately prior to the liquidation or winding
up, plus accrued but unpaid cash dividends.
Please note that the definition of "change in control" is quite detailed and
complex. You should read its definition in the series B certificate of
designation which is attached as Annex D. Generally a "change in control" means
any of the following have occurred:
. the acquisition by any individual, entity or group (an "Acquiring
Person"), other than Wyndham or any of its subsidiaries or any
investor or Excluded Group (as defined in the series B certificate of
designation), of beneficial ownership of 35% or more of the combined
voting power or economic interests of the then outstanding voting
securities of Wyndham. However, any transfer from any investor or
Excluded Group will not result in a change in control if the transfer
was part of a series of related transactions the effect of which,
absent the transfer to the Acquiring Person by the investor or
Excluded Group, would not have resulted in the acquisition of 35% or
more of the combined voting power or economic interests of the then
outstanding voting securities;
. during any period of 12 consecutive months after the completion of
the $1 billion equity investment, the individuals who at the
beginning of the 12-month period constituted a majority of the
directors who are not elected by the investors, and any successors
nominated or elected by them, cease for any reason to constitute at
least a majority of the directors who are not elected by the
investors;
. the approval by the stockholders of Wyndham of a reorganization,
merger or consolidation following which all or substantially all of
the beneficial owners of the voting securities of Wyndham immediately
prior to the reorganization, merger or consolidation do not
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 Wyndham
resulting from the reorganization, merger or consolidation; or
. the sale or other disposition of assets representing 50% or more of
the assets of Wyndham in one transaction or series of related
transactions.
However, a change in control will not be deemed to have occurred if a
majority of the class B directors otherwise determine.
What other rights or limitations do the investors have?
Registration Rights
Wyndham has agreed to file a registration statement on Form S-3, or any
successor form, for a public resale offering of the series B preferred stock
and the Wyndham common stock into which the series B preferred stock is
convertible. Wyndham will pay all registration expenses, exclusive of
underwriting discounts and commissions or sales agent fees.
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Equity Purchase Rights
Until the fifth anniversary of the completion of the $1 billion equity
investment, as long as the investors own more than 15% of the fully-diluted
Wyndham common stock, in the event Wyndham proposes to sell Wyndham common
stock or securities convertible into or exchangeable for Wyndham common stock,
each of the investors will have the right to purchase a portion of the
securities equal to its percentage ownership of the outstanding securities of
Wyndham. To the extent that one or more of the investors does not exercise its
purchase rights in full, the unexercised portion of the investor's purchase
rights will be allocated pro rata among the other investors. These equity
purchase rights do not extend to Wyndham's sale of series A preferred stock in
the rights offering or any other equity issuances during the initial six month
period following the completion of the $1 billion investment.
Standstill Provisions
At any time prior to the sixth anniversary of the completion of the $1
billion equity investment, each of the investors has agreed not to:
. acquire or hold, either directly or indirectly, any shares of Wyndham
common stock or securities convertible into or exchangeable for
Wyndham common stock, unless the securities are acquired in one of
the following ways:
. an acquisition made directly from Wyndham, excluding purchases
under the equity purchase rights, in a transaction approved by a
majority vote of the directors other than the class B directors;
. as a dividend on the series B preferred stock or a conversion of
the series B preferred stock;
. an acquisition made as part of Wyndham's sale of series A
preferred stock or upon conversion of those securities;
. an acquisition made by an affiliate of an investor over whom the
investor does not control voting decisions or investment decisions
and the investor does not hold over 50% of the outstanding voting
securities of the affiliate;
. an acquisition of non-voting preferred stock of Wyndham;
. an acquisition in the ordinary course of an investor's market-
making activities or in an investor's capacity as an investment
advisor or broker-dealer; or
. an acquisition made by an employee, partner or stockholder of an
investor for his or her individual account if the individual does
not acquire beneficial ownership of in excess of 100,000 shares of
Wyndham common stock.
. make any public announcement or proposal or offer whatsoever,
including any "solicitation" of "proxies", as the terms are defined
or used in Regulation 14A under the Securities Exchange Act of 1934,
as amended, concerning any form of business combination or similar or
other extraordinary transaction involving Wyndham or any affiliate of
Wyndham or any form of restructuring, recapitalization or similar
transaction regarding Wyndham or any affiliate of Wyndham or make any
proposal to seek representation on the Board of Directors or
otherwise seek to control or influence the management, Board of
Directors or policies of Wyndham or any affiliate of Wyndham.
Ability to transfer purchase rights
Each investor is permitted to assign its right to purchase the series B
preferred stock to one or more of its directors, officers, employees,
affiliates and investment funds or customer accounts which are under the
management of the investors or their affiliates.
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Each investor is also permitted to assign its right to purchase the series B
preferred stock to one or more of the other investors. The investors must
notify the companies of any assignment to such a "permitted assignee," but the
companies' consent to the assignment is not required. With the companies'
consent, which consent shall not be unreasonably withheld, the investors may
transfer up to 25% in interest in the aggregate of their rights to purchase
series B preferred stock to persons other than permitted assignees.
Beacon Capital Partners has notified the companies that it may transfer the
right to purchase $135 million of series B preferred stock to a voting trust so
that Beacon may continue to comply with regulations applicable to it as a real
estate investment trust. In addition, Beacon may seek permission from the
companies to delay until July 1, 1999 Beacon's purchase of approximately $45
million of series B preferred stock.
Who are the investors?
The investors are investment funds managed by affiliates of Apollo Real
Estate Management III, L.P., Apollo Management IV, L.P., Thomas H. Lee Equity
Fund IV, L.P. Beacon Capital Partners L.P. and Strategic Real Estate
Investments I, LLC.
Apollo Real Estate Management III, L.P. and Apollo Management IV, L.P.
comprise a private merchant banking firm that specializes in leveraged
acquisitions, recapitalizations and other principal investing activities
including both private equity and debt transactions. Since its inception in
1990, Apollo has overseen the investment of more than $8 billion. Apollo's four
private equity funds have held interests in more than 65 companies, including
Vail Resorts, Inc. and Telemundo Group, Inc. Recent investments include Rent-A-
Center, Inc. (formerly known as Renters Choice), CD Radio, Berlitz
International, Allied Waste Industries, United Rentals, Inc. and Allright
Parking, Inc.
Thomas H. Lee Equity Fund IV, L.P. is affiliated with Thomas H. Lee Company,
a Boston-based investment firm focused on acquiring substantial investments in
growth companies. Founded in 1974, the firm currently manages approximately $6
billion in committed capital. Recent investments include Fisher Scientific,
Rayovac, HomeSide Lending, The Learning Company and Metris Companies.
Beacon Capital Partners, L.P. is the Boston-based operating partnership of
Beacon Capital Partners, Inc., a real estate investment trust. Beacon currently
owns and operates 25 operating properties, consisting of 42 buildings and
approximately 3.3 million rentable square feet and an additional 1.0 million
square feet of development. Beacon was formed in January 1998.
Strategic Real Estate Investment I, LLC is affiliated with Lend Lease Real
Estate Investments, a major global real estate investment advisor to pension
funds.
What are the other terms of the Purchase Agreement?
The following summarizes material terms of the purchase agreement relating
to the $1 billion equity investment. We have attached a copy of the purchase
agreement as Annex A. The discussion below is not a complete description of the
terms of the purchase agreement, so you should read it in conjunction with the
purchase agreement.
Conditions
Each of the conditions described below may be waived by the party that has
the benefit of the condition. At the date of this proxy statement, none of the
conditions to the obligations of the investors or the companies to consummate
the $1 billion equity investment have been waived. If, following the
stockholders' meeting, the investors waive one or more conditions to the
obligations of the investors to consummate the $1 billion equity investment,
the companies do not intend to notify stockholders of the waiver or resolicit
proxies. If the companies waive one or more conditions to the obligations of
the companies to consummate the $1 billion
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<PAGE>
equity investment, the companies may resolicit proxies if management determines
that the waiver of the condition or conditions is material to stockholders. The
companies would consider a waiver of the condition that the investors perform
in all material respects all obligations required to be performed by them under
the purchase agreement. Thus, for example, the companies would consider a
significant reduction in the size of the investment to be material to
stockholders.
The obligations of each of Wyndham and Patriot and the investors to complete
the $1 billion equity investment and the related transactions are subject to
the satisfaction of the following conditions at or prior to the completion of
the investment:
. approval of Proposals 1 through 11 by the requisite vote of
stockholders of each of Wyndham and Patriot, as applicable, must have
been obtained;
. no temporary restraining order, injunction or other court order
preventing the completion of the $1 billion equity investment and the
related transactions is in effect; and
. any waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, must have expired or been terminated.
The obligations of Wyndham and Patriot to complete the $1 billion equity
investment and the related transactions are further subject to the satisfaction
or waiver of the following other conditions at or prior to the completion of
the investment:
. the representations and warranties of the investors contained in the
purchase agreement relating to the investment must be true and
correct in all material respects as of the date of the purchase
agreement and as of the date of the completion of the investment as
though made on and as of each such date;
. the investors must have performed in all material respects all
obligations required to be performed by them under the purchase
agreement; and
. Wyndham and Patriot must have received at the completion of the
investment opinions of counsel to the investors.
The obligations of the investors to consummate the $1 billion equity
investment and the related transactions are further subject to the satisfaction
or waiver of the following other conditions on or prior to the completion of
the investment:
. the representations and warranties of Wyndham and Patriot contained
in the purchase agreement must be true and correct in all material
respects as of the date of the purchase agreement and the date of the
completion of the $1 billion equity investment as though made on and
as of each such date;
. Wyndham and Patriot must have performed in all material respects all
obligations required to be performed by them under the purchase
agreement;
. since September 30, 1998 there must have not occurred any event that
could reasonably be expected to result in a material adverse change
in the business, properties, prospects, operations, financial
condition or results of operations of Wyndham and Patriot, taken as a
whole;
. Wyndham and Patriot must have obtained at least $160 million of
earnings before interest, taxes, depreciation and amortization per
calendar quarter, a condition which the companies believe was
satsified in the first quarter of 1999;
. Wyndham and Patriot must have received specified consents to the $1
billion equity investment and the related transactions;
. Wyndham and Patriot must have made capital expenditures in specified
amounts;
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. the central reservation system of Wyndham and Patriot must be Year
2000 compliant, and Wyndham and Patriot must have implemented a plan
to make specified other facilities and systems Year 2000 compliant
and must have substantially achieved the performance goals specified
in that plan;
. the restructuring plan that we have attached as Annex B must have
been completed;
. Wyndham and Patriot must have completed the divestiture of the third
party hotel management business previously conducted by Interstate as
described in the settlement agreement among Wyndham, Patriot,
Interstate Hotels Corporation and Marriott International, Inc.,
without incurring any penalties, fees or damages under the settlement
agreement for failure to complete the divestiture in a timely fashion
or modifying the transactions contemplated by the settlement
agreement without the consent of the investors; the settlement
agreement imposes significant penalties on the companies if the
divestiture is not completed in a timely fashion;
. Wyndham must have entered into definitive agreements for the new
$2.45 billion credit facility;
. the shares of class A common stock issued in the restructuring of
Wyndham and Patriot and shares of class A common stock issuable upon
conversion of the series B preferred stock must have been approved
for listing on the NYSE;
. the investors must have received at the completion of the investment
opinions of counsel to Wyndham and Patriot; and
. either (1) Wyndham and Patriot must have completed the divestiture of
the "Project D" assets as described in the purchase and sale
agreement, originally dated December 15, 1998, as amended, among
Patriot and PW Holding I, LLC without incurring any penalties, fees
or damages under the Project D agreement for failure to complete the
divestiture in a timely fashion or modifying the transactions
contemplated by the Project D agreement without the consent of the
investors, or (2) the divesture of the Project D assets must not have
been completed due to a failure of the conditions to the divestiture
that was not caused by a breach of the Project D agreement by Wyndham
and Patriot.
Covenants
Acquisition Proposals. Unless permitted by the investors or specifically
permitted under the purchase agreement relating to the $1 billion equity
investment, neither Wyndham nor Patriot nor any of their subsidiaries or
representatives are permitted to do any of the following prior to the
completion of the $1 billion equity investment:
. solicit, initiate, encourage, respond to or take any other action
designed to facilitate, any inquiries or the making of any proposal
regarding any merger, consolidation, transfer of substantial assets,
sale or exchange of shares or similar competing transaction;
. participate in any substantive discussions or negotiations regarding
any competing transaction; or
. enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any competing
transaction.
However, if and to the extent that the Boards of Wyndham and Patriot
reasonably determine in good faith after consultation with outside counsel that
they are required to do so by their fiduciary duties, Wyndham and Patriot will
not be precluded from providing information to, or discussing, negotiating and
executing agreements with, any person or entity that makes a written proposal
under which the other person or entity would do one of the following:
. make a significant equity investment in Wyndham and Patriot;
. acquire all or a substantial portion of the assets of Wyndham and
Patriot; or
. acquire Wyndham and Patriot.
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Wyndham and Patriot have also agreed to promptly, but in any event within 24
hours, advise the investors in writing of any inquiries, discussions,
negotiations, proposals or requests for information received by them relating
to any competing transaction, the material terms and conditions of the
competing transaction and the identity of the person making the request or
competing transaction. Wyndham and Patriot also agreed to promptly advise the
investors of any development relating to any of those inquiries.
Conduct of Business. Except as permitted by the purchase agreement relating
to the $1 billion equity investment or as consented to by the investors in
writing, during the period from the date of the purchase agreement through and
including the completion of the investment, Wyndham and Patriot have agreed
that they will, and they will cause their subsidiaries to, carry on their
respective businesses in the ordinary course consistent with past practice and
in compliance in all material respects with all applicable laws and regulations
and have agreed to use reasonable efforts to preserve intact their current
business organizations, keep available the services of their current officers
and other employees and preserve their relationships with those people and
companies doing business with them. Wyndham and Patriot have also agreed,
except as permitted by the purchase agreement relating to the $1 billion equity
investment or as consented to by the investors in writing, that they will not,
and that they will not permit any of their subsidiaries to, take any of the
corporate actions listed in the purchase agreement.
Fees and Expenses
General. Wyndham and Patriot have agreed to pay all costs and expenses
relating to the performance of their obligations under the purchase agreement
relating to the $1 billion equity investment. Wyndham and Patriot have also
agreed to pay all out-of-pocket costs and expenses up to an aggregate of $25
million incurred by the investors in evaluating, negotiating and completing the
$1 billion equity investment and the other transactions contemplated by the
purchase agreement and the other documents relating to the $1 billion equity
investment or incurred by them in any litigation that relates to the $1 billion
equity investment and related transactions. Wyndham and Patriot have already
reimbursed the investors for a total of $2.5 million of their expenses and are
required to pay an additional $7.5 million as soon as practicable using the
first proceeds from mortgage indebtedness to be incurred by Wyndham and Patriot
or their subsidiaries. The balance of the expenses will be paid to the
investors by Wyndham and Patriot upon the closing of the $1 billion equity
investment or the termination of the purchase agreement.
Equity Transaction Funding Fee. Wyndham and Patriot have agreed to pay the
investors an equity transaction funding fee equal to $21 million, which is
comprised of a 1.5% fee for the first $600 million of the $1 billion equity
investment (i.e., $9 million) and 3% of the next $400 million of the $1 billion
equity investment (i.e., $12 million). The equity transaction funding fee will
be paid by Wyndham and Patriot upon the earliest of the completion of the $1
billion equity investment, the termination of the purchase agreement relating
to the $1 billion equity investment, or the date Wyndham and Patriot enter into
any agreement regarding a competing transaction.
Break-up Fee. If, prior to the completion of the $1 billion equity
investment or during the 180-day period following any termination of the
purchase agreement relating to the $1 billion equity investment, either Wyndham
or Patriot or any of their subsidiaries enters into an agreement with a third
party, without the prior consent of the investors, for the issuance of equity
securities with aggregate net proceeds of at least $50 million or for any
merger, consolidation, transfer of substantial assets, any tender or exchange
offer to acquire securities of Wyndham and Patriot or similar transaction
involving Wyndham and Patriot, Wyndham and Patriot have agreed to pay to the
investors within five business days after signing such agreement with a third
party an aggregate amount in cash equal to $30 million. However, if the third
party is the "Identified Party," any agreement contemplating an asset purchase
from or provision of financing to or financial support in favor of Wyndham or
Patriot would also be considered to be a third party agreement and the amount
payable would be $50 million. Wyndham and Patriot will not be required to pay
any amount if the investors are unwilling to proceed with the consummation of
the $1 billion equity investment despite the fact that the conditions to their
obligations set forth in the purchase agreement relating to the $1 billion
equity investment have been satisfied.
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Closing
The investors and the companies currently anticipate that the $1 billion
equity investment will be completed on or before June 30, 1999. However, to
comply with regulations applicable to it as a real estate investment trust,
Beacon Capital Partners may seek permission from Wyndham to delay until July 1,
1999 its purchase of approximately $45 million of the series B preferred stock.
Indemnification
See "Conversion into Wyndham common stock at the option of the holder" above
for a description of the indemnification obligations of Wyndham and Patriot
under the purchase agreement relating to the $1 billion equity investment.
Termination
The purchase agreement relating to the $1 billion equity investment may be
terminated at any time prior to the completion of the investment in the
following circumstances:
. by the mutual written consent of the investors and Wyndham and
Patriot;
. by the investors or Wyndham and Patriot if the completion of the $1
billion equity investment has not occurred by July 31, 1999, except
that the right to terminate the purchase agreement will not be
available to any party whose failure to fulfill any obligation under
the purchase agreement resulted in the failure of the completion of
the investment to occur by July 31, 1999; or
. by the investors or Wyndham and Patriot if stockholder approval of
the $1 billion equity investment is not obtained.
Amendments
The purchase agreement relating to the $1 billion equity investment may not
be amended, waived, discharged or terminated other than by a written instrument
signed by Wyndham and Patriot and by investors who have made commitments to
purchase at least two-thirds of the shares of series B preferred stock to be
purchased by the investors under the purchase agreement. Any amendment, waiver
or other modification to the purchase agreement that would adversely affect any
investor may be made only with the approval of all of the investors.
Are there any risks or disadvantages to Wyndham and Patriot if the stockholders
do not approve the $1 billion equity investment?
If Wyndham's stockholders do not approve the $1 billion investment, there
are potential negative consequences to Wyndham and Patriot and their
stockholders, including:
. $443 million of debt will mature on June 30, 1999. Wyndham and
Patriot would have to raise capital from another source or sell
assets to produce proceeds sufficient to pay these debt obligations.
. Wyndham and Patriot may have to sell significant amounts of assets
including, perhaps, resort properties or Wyndham-managed properties
in major cities, to meet debt obligations. Such sales could
negatively impact Wyndham's strategy to expand its brand and build
its hotel portfolio.
. Wyndham and Patriot would have to secure other sources of capital to
fund their hotel development program. In the absence of such capital,
Wyndham may have to terminate or reduce its development activities.
If Wyndham and Patriot terminate or otherwise fail to perform their
obligations under development contracts, or discontinue development
activities they may be required to forfeit an aggregate maximum of
$1.6 million in deposits and related costs made under those
agreements.
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. Wyndham and Patriot would be required to write-off approximately
$11.6 million of costs incurred in negotiating the $1 billion equity
investment.
You should also consider the factors discussed in the section captioned
"Risk Factors."
Are there any risks or disadvantages to Wyndham and Patriot if the stockholders
approve the $1 billion equity investment?
If Wyndham's stockholders approve the $1 billion equity investment, there
are potential negative consequences to Wyndham and Patriot and their
stockholders, including:
. if the companies have net income in the future, net income per share
will be lower due to the increase in the number of shares as a result
of the issuance of $1 billion of preferred stock to the investors;
. the initial conversion price of $8.59 per share of common stock may
be adjusted downward if Wyndham and Patriot are required to indemnify
the investors under to terms of the securities purchase agreement
relating to the $1 billion equity investment;
. completion of the $1 billion equity investment will require Wyndham
and Patriot to incur approximately $91 million of transaction costs
and will require a substantial amount of management's time;
. following the $1 billion investment, the investors will hold
approximately 41% of the voting power of Wyndham, increasing to
approximately 52% after six years due to the payment of a portion of
the preferred stock dividends in stock;
. if the investors refuse to close the $1 billion equity investment
because the conditions to their obligation to close are not
satisfied, the commitment letter for the $2.45 billion credit
facility will terminate; and
. some of the officers and directors of Wyndham and Patriot will
receive benefits in connection with the $1 billion investment that
could raise issues concerning potential conflicts of interest,
including, in the aggregate the vesting of restricted stock grants
and stock options for 887,117 paired shares in the aggregate and
potential maximum severance payments approximating $5.2 million in
the aggregate if the officers are terminated or their reporting
relationship changes as part of the investment.
You should also consider the factors discussed in the section captioned
"Risk Factors."
Do the officers and directors of Patriot and Wyndham have any conflicts of
interest in recommending that you approve the $1 billion equity investment?
In considering the recommendation of the Wyndham Board and the Patriot Board
to approve the $1 billion equity investment, you should be aware that some of
the executive officers of Wyndham and Patriot will receive benefits as a
consequence of the investment and therefore may be considered to have a
conflict of interest in recommending that you approve the investment.
Under the companies' existing stock compensation plans and a special
retention and incentive plan, certain outstanding stock options and restricted
stock grants, including those held by executive officers, will vest upon the
completion of the investment. Specifically, Mr. Carreker will receive 72,222
shares of Wyndham common
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stock upon the closing of the investment and the related transactions and
72,222 shares of Wyndham common stock on each of the first and second
anniversaries of the investment pursuant to the special retention plan.
Mr. Nussbaum received 83,334 paired shares upon the execution of the purchase
agreement and will receive 83,333 shares of Wyndham common stock on each of the
first and second anniversaries of the investment pursuant to the special
retention plan. Mr. Evans was granted 166,666 restricted paired shares pursuant
to the special retention plan payable in three installments over two years,
contingent upon the closing of the investment and the related transactions. Mr.
Evans' employment agreement was amended in late 1998 to, among other things,
provide for an incentive performance bonus of $1.5 million payable upon
successful completion of specified goals established by the compensation
committee which include successful completion of the investment and related
transactions. Additionally, under the terms of the companies' executive
employment agreements, if an executive subject to such an agreement is
subsequently terminated after the completion of the investment, he or she may
be entitled to receive severance benefits under his or her employment
agreement. Under Mr. Carreker's employment agreement, Wyndham would be required
to pay a lump sum amount equal to three times the sum of Mr. Carreker's average
base compensation and average incentive compensation. Under Mr. Alibhai's
employment agreement, Wyndham would be required to pay a severance payment
equal to the sum of his average base compensation and average incentive
compensation for the remaining term of his employment agreement or 24 months,
whichever is greater, subject to specified offsets. In addition, under Mr.
Carreker's and Mr. Alibhai's employment agreement, all stock options and other
stock-based awards would become immediately exercisable or non-forfeitable upon
a "change in control." In addition, Patriot would provide Mr. Carreker and Mr.
Alibhai with a tax gross-up payment to cover any excise tax due. Messrs. Evans,
Bentley, Koonce, Holtzman and Jones and Ms. Raymond are entitled to the same
benefits as Mr. Carreker in the event of a "change in control."
Several officers hold capital stock of Wyndham or Patriot, or limited
partnership interests in the companies' operating partnerships and will receive
consideration in the restructuring of Wyndham and Patriot on the same terms as
other holders of similar securities.
Has any litigation been filed as a result of the $1 billion equity investment?
Charles Fraschilla v. Paul A. Nussbaum, et al.
On January 12, 1999, a purported class action lawsuit was filed on behalf of
the stockholders of Wyndham and Patriot in the Delaware Chancery Court. The
lawsuit, captioned Charles Fraschilla v. Paul A. Nussbaum, et al., No. 16895NC,
names as defendants the directors of Patriot, as well as the investors. The
lawsuit alleges that the directors breached their fiduciary duties to Patriot's
stockholders by "effectively selling control" of Patriot to the investors for
inadequate consideration and without having adequately considered or explored
all other alternatives to this prospective sale or having taken steps to
maximize stockholder value. The lawsuit also alleges that the investors aided
and abetted the directors in their purported breaches of fiduciary duty. The
plaintiffs seek an unspecified amount of monetary damages from the directors as
well as an injunction preventing the completion of the $1 billion equity
investment. On January 19, 1999, three nearly identical purported class action
lawsuits were filed in the same court on behalf of different purported class
representatives: (1) Sybil R. Meisel and Steven Langsam, Trustees, No. 16905NC;
(2) Crandon Capital Partners, No. 16906NC; and (3) Robert A. Staub, No.
16907NC.
In April 1999, the parties entered into a memorandum of understanding to
settle these lawsuits. In the memorandum of understanding Wyndham agreed to
make the proposed $300 million rights offering no earlier than 60 days after
the closing of the $1 billion equity investment and to hold the rights offering
open for a period of not less than 30 days. Wyndham also agreed to use good
faith efforts to commence the rights offering no later than 120 days after the
closing of the $1 billion equity investment. Wyndham will not be required to
make the rights offering if: (1) the $1 billion equity investment is not made;
(2) the SEC does not declare effective any registration statement with regard
to securities of Wyndham to be offered in the rights offering; (3) there is a
pending court order, motion, legal proceeding or other action to enjoin,
prevent or delay the rights offering; or (4) the rights offering cannot be
completed, despite Wyndham's good faith efforts, within 170 days of the closing
of the $1 billion investment.
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The memorandum of understanding and the proposed settlement are conditioned
on:
. the completion of the $1 billion investment;
. the drafting and execution of a stipulation of settlement and related
documents;
. the completion by plaintiffs of reasonable and appropriate discovery;
and
. final court approval of the settlement and dismissal of the action
with prejudice by the court.
In the stipulation, the parties will request that the court certify, for
purposes of settlement, a non-opt out, binding class of all persons, exclusive
of defendants and their affiliates, who owned shares of Patriot on or after
December 15, 1998, and their successors in interest and transferees, through
and including the closing of the $1 billion investment; that the court approve
the settlement, including the release of all claims by class members against
the defendants; and that the court enter final judgment dismissing with
prejudice all claims of the plaintiffs and the class against the defendants.
Patriot has agreed to pay an award of attorney's fees and expenses not to
exceed $1.25 million to counsel for class plaintiffs if ordered by the court.
Johnson, et al. v. Patriot American Hospitality, Inc., et al.
On May 7, 1999, a purported 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
who subsequently became shareholders of the companies. The 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. The lawsuit alleges that the defendents made false and misleading
statements concerning the proposed merger of California Jockey Club and Bay
Meadows with Patriot and Wyndham in the joint proxy statement and prospectus
that was delivered to California Jockey Club and Bay Meadows Operating Company
stockholders in 1997, including among other things, allegedly not disclosing
the companies' forward equity contracts which allegedly forced the companies to
enter into the investment and related restructing. The plaintiffs seek only an
unspecified amount of monetary damages. The companies plan to vigorously defend
the lawsuit, and, since the lawsuit is in its preliminary stages, the companies
are not able to evaluate potential liability in this matter.
On or about May 14, 1999, a similar purported class action lawsuit, which
alleges substantially the same claim as Johnson, et al. v. Patriot American
Hospitality, Inc. et al., was filed in the same court, also on behalf of former
shareholders of California Jockey Club and Bay Meadows Operating Company who
subsequently became shareholders of the companies. The lawsuit, captioned
Ansell, et al. v. Patriot American Hospitality, Inc., names as defendants
Patriot American Hospitality, Inc., PaineWebber Group, Inc., Wyndham
International, Inc., PAH, Inc., PAH LP, Inc., Patriot American Hospitality
Partnership, L.P., and Wyndham International Operating Partnership, L.P. The
lawsuit alleges that the defendants made false and misleading statements
concerning the proposed merger of California Jockey Club and Bay Meadows with
Patriot and Wyndham in the joint proxy statement and prospectus that was
delivered to California Jockey Club and Bay Meadows Operating company
stockholders in 1997. The plaintiffs seek only an unspecified amount of
monetary damages. The companies plan to vigorously defend the lawsuit, and,
since the lawsuit is in its preliminary stages, the companies are not able to
evaluate potential liability in this matter.
Are there any take-over implications of the series B preferred stock issuance?
The proposed issuance of series B preferred stock may have anti-takeover
implications. If the $1 billion equity investment is completed, the investors
will be entitled to appoint eight of 19 directors of Wyndham. Under the terms
of the series B preferred stock, a vote of investors holding at least two-
thirds of the shares of series B preferred stock would be required to approve
any change in control. In the event of a change in control, as previously
described, the investors will have the right to put their shares of series B
preferred stock to Wyndham for the applicable series B preferential payment.
Wyndham cannot optionally redeem the series B preferred stock prior to the
sixth anniversary of the completion of the $1 billion equity investment. As a
consequence of these provisions, it would be impossible for another party to
successfully acquire Wyndham
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without the concurrence of investors holding at least two-thirds of the shares
of series B preferred stock as long as such stock is outstanding.
Why is stockholder approval being sought for Proposal 1 and Proposal 2?
Since Wyndham's common stock is listed on the NYSE, Wyndham must comply with
rules of the NYSE in order to maintain its listing. Under one of the NYSE
rules, Wyndham must obtain stockholder approval prior to an issuance of common
stock, or securities convertible into common stock, if the securities issued
equal or exceed 20% of the number of shares of Wyndham common stock outstanding
before such issuance. The series B preferred stock to be issued to the
investors plus the Wyndham common stock to be issued in exchange for shares of
Wyndham's existing preferred stock and limited partnership interests in
Patriot's and Wyndham's operating partnership exceed this 20% threshold.
Because of this rule, approval of Wyndham's stockholders is required prior
to the issuance of the series B preferred stock.
The proposed Rights Offering
Wyndham has agreed to conduct, within 170 days of the completion of the $1
billion equity investment, a single rights offering in which the holders of the
Wyndham common stock and, if the approvals sought from the limited partners of
Patriot's and Wyndham's operating partnerships are received, the limited
partners of those partnerships will be eligible to participate. Wyndham has
agreed to make the rights offering no earlier than 60 days after the closing of
the $1 billion equity investment and to hold the rights offering open for not
less than 30 days. Wyndham also agreed to use good faith efforts to commence
the rights offering no later than 120 days after the closing of the $1 billion
equity investment. Participants in the rights offering will be offered
transferable rights to purchase for cash at $100 per share up to $300 million
in series A preferred stock. However, if Wyndham has sold prior to or at the
closing of the rights offering specified assets for net proceeds in excess of
specified amounts, and Wyndham uses the excess proceeds to redeem a portion of
the shares of series B preferred stock, then the maximum offering amount of the
rights offering will be reduced by the amount of the excess proceeds.
The rights to purchase will be allocated among the participants pro rata
based on the respective numbers of shares of Wyndham common stock held by the
participants on the record date of the rights offering or that would be
received by the participants upon redemption of their limited partner interest
in Patriot's and Wyndham's operating partnerships as of the record date, and
the rights to purchase will not be reallocated in the event that not all
participants exercise their right to purchase in full. Unless otherwise
determined by a vote of a majority of the non-class B directors, voting
together, the shares of series A preferred stock will be listed on the NYSE or
another national securities exchange or the NASDAQ National Market System,
subject to satisfying applicable eligibility requirements.
The terms of the series A preferred stock are identical to those of the
series B preferred stock, including the right to receive the indemnification-
related conversion price adjustments, except as follows:
. since dividends on the series A preferred stock will be payable on
the same dates as dividends on the series B preferred stock, the
first dividend payment on the series A preferred stock will be pro
rated based on the portion of the first quarterly dividend period
that the shares of series A preferred stock are actually outstanding;
. the series A preferred stock will only be convertible into class A
common stock;
. the series A preferred stock will not be subject to a possible
redemption by Wyndham during the 170 day period following the
completion of the rights offering;
. the series A preferred stock is not entitled to any voting rights,
including the special class approval rights of the series B preferred
stock, except as required by law;
. the holders of the series A preferred stock will not have any
registration rights; and
. the holders of the series A preferred stock will not be subject to
any standstill restrictions.
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Proposal 3
Proposal to Approve the Merger of a Subsidiary of Wyndham with Patriot
(For Wyndham and Patriot Stockholders)
Proposal 4
Proposal to Implement a Reverse Stock Split of Wyndham Common Stock
(For Wyndham Stockholders Only)
Proposal 5
Proposal to Implement a Reverse Stock Split of Patriot Common Stock
(For Patriot Stockholders Only)
Proposal 6
Proposal to Terminate the Pairing Agreement
(For Wyndham and Patriot Stockholders)
What are you being asked to approve?
You are being asked to approve the merger of a wholly-owned subsidiary of
Wyndham with Patriot, the amendment of the certificates of incorporation of
Wyndham and Patriot to effect a reverse stock split of the Wyndham common stock
and the Patriot common stock immediately prior to the merger, and the
termination of the pairing agreement that currently requires that Wyndham
common stock and Patriot common stock be paired and trade together. The effect
of the transactions contemplated by Proposals 3 through 6 would be to convert
each outstanding paired share and share of Patriot series A preferred stock
into a single share of Wyndham common stock and to convert each outstanding
share of Patriot series B preferred stock into $25 of cash. Additionally,
Patriot's status as a REIT will terminate effective January 1, 1999, and the
common stock of Patriot and Wyndham will no longer be paired.
What does the Board of Directors recommend with respect to Proposals 3 through
6?
The Board of Directors of each of Wyndham and Patriot have unanimously
approved the proposed merger, the reverse stock splits and the termination of
the pairing agreement. The Boards believe that Proposals 3 through 6 are in the
best interests of their respective company and its stockholders and recommend
that you vote for the approval of each of Proposals 3 through 6.
What are the terms of the reverse stock splits?
In Proposal 4, Wyndham is asking its stockholders to approve a one-for-
twenty reverse stock split of Wyndham common stock which will be effective
immediately prior to the merger of a subsidiary of Wyndham with Patriot.
Wyndham will effect this reverse stock split by amending article IV of its
amended and restated certificate of incorporation to provide that each twenty
shares of Wyndham common stock outstanding will be reclassified and converted
into one share of Wyndham common stock. The text of this proposed amendment is
in Annex G. The proposed reverse stock split will reduce the number of shares
of Wyndham common stock outstanding. However, the number of authorized shares
of Wyndham common stock will stay at 650 million.
In Proposal 5, Patriot is asking its stockholders to approve a one-for-
twenty reverse stock split of Patriot common stock which will be effective
immediately prior to the merger of a subsidiary of Wyndham and Patriot. Patriot
will effect this reverse stock split by amending article IV of its amended and
restated certificate of incorporation to provide that every twenty shares of
Patriot common stock outstanding will be reclassified and converted into one
share of Patriot common stock. The text of this proposed amendment is in Annex
H. The proposed reverse stock split will reduce the number of shares Patriot
common stock outstanding. However, the number of authorized shares of Patriot
common stock will stay at 650 million.
The reverse stock splits will have the effect of reducing the number of
paired shares owned by each stockholder, while proportionately increasing the
price per share. Accordingly, the aggregate value of your
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stock ownership, calculated by multiplying the number of paired shares you own
by the market price of the paired shares, immediately before and after the
reverse stock splits will not change as a result of the splits.
The reverse stock splits will occur automatically upon the filing of the
amendments to the certificates of incorporation of Wyndham and Patriot with the
Delaware Secretary of State. Wyndham and Patriot expect this to occur promptly
after the approval of the reverse stock splits by the Wyndham and Patriot
stockholders and immediately prior to the merger. The effect of the reverse
stock splits and the merger will be to convert each then outstanding paired
share into a single share of Wyndham common stock.
What are the terms of the Merger?
Conversion Ratios. Wyndham and Patriot have agreed that 95% of the value of
a paired share is allocable to the Patriot component share and 5% of the value
of a paired share is allocable to the Wyndham component share. This asset
allocation results in each share of Patriot common stock being converted into
19 shares of Wyndham common stock in the merger. Each share of Patriot series A
preferred stock is the economic equivalent of one paired share. Consequently,
each share of Patriot series A preferred stock will be converted into one share
of Wyndham common stock in the merger. Each share of Patriot series B preferred
stock has a stated value of $25.00 per share and will be converted into the
right to receive $25.00 per share in cash in the merger.
Effective Time of the Merger. Under the Delaware General Corporation Law,
the effective time of the merger will occur when the Delaware Secretary of
State accepts the certificate of merger for recording, unless the parties
specify a later effective time in the certificate of merger. It is expected
that the merger will be completed as soon as practicable following the approval
of the merger by the stockholders of Patriot and Wyndham at their annual
meetings.
Charters and Bylaws. At the effective time, Wyndham's subsidiary will merge
with and into Patriot, with Patriot as the surviving entity. At that time, the
charter and bylaws of Wyndham's subsidiary will become the charter and bylaws
of Patriot.
Treatment of Stock Options. At the effective time, Wyndham will assume
Patriot's obligations under each existing option to purchase shares of Patriot
common stock that is outstanding immediately prior to the effective time. The
assumed options will not terminate in connection with the merger and will
continue to have, and be subject to, the same terms and conditions set forth in
the stock option plans and agreements in effect immediately prior to the
effective time. All references to Patriot in the assumed options will be deemed
to be references to Wyndham and each option will be exercisable for one share
of Wyndham common stock. As a result of existing employment contracts, certain
stock options and restricted stock grants will fully vest and become
nonforfeitable.
Condition to the Merger. The merger must be approved by the affirmative vote
of the holders of a majority of the outstanding stock of Patriot and Wyndham
entitled to vote.
What will happen if Patriot terminates its REIT status?
As a consequence of the restructuring, Patriot will terminate its paired-
share REIT status and continue business as a wholly-owned, corporate subsidiary
of Wyndham. Under applicable tax rules, Patriot's REIT status will terminate as
of January 1, 1999. As a result of the termination of Patriot's status as a
REIT, beginning in 1999, Patriot's stockholders will no longer receive at least
95% of Patriot's net income in the form of dividends each year. Patriot's
distributions per share of common stock equaled $ 1.04 in 1998, $ 1.09 in 1997,
and $ .92 in 1996, after giving effect to mergers and stock splits.
Additionally, we estimate that Wyndham will take a one-time accounting charge
of approximately $750 million relating to a deferred tax liability as a result
of the termination of Patriot's REIT status. The termination of Patriot's
status as a REIT will cause Patriot to lose permanently its status as a
grandfathered paired REIT. Patriot will not be able to
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utilize the paired structure for any of its properties if it were to reelect
REIT status. Moreover, Patriot generally will be prohibited from reelecting
REIT status for four years.
The termination of the REIT status would result in the following non-cash
charges to operations.
. a one-time accounting charge of approximately $750 million relating
to a deferred tax liability on the termination of Patriot's REIT
status.
. the write-off of the net book value of the intangible asset related
to the paired share structure of approximately $83.6 million.
In addition, the company will incur an ongoing charge to the results of
operations for the income tax provision on the net taxable income of Patriot
and Wyndham based on effective tax rates, which takes into account the
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the tax bases of assets and liabilities using enacted
tax rates in effect in the years the differences are expected to reverse.
The termination of the REIT status would have the following impact to
liquidity and capital resources.
. Patriot would no longer be required to distribute at least 95% or
more of its taxable income to its shareholders. Patriot's
distributions per share of common stock equaled $1.04 in 1998, $1.09
in 1997, and $0.92 in 1996. Wyndham does not intend to make any
distributions to holders of its common stock in 1999 following the
restructuring.
. Patriot and Wyndham would be required to pay income taxes on a
quarterly basis based upon its income tax liability each year.
. impact on capital resources will be that the companies will either
retain or distribute cash to the extent that income tax payments are
less than or exceed previous dividend distributions.
What will happen if the pairing agreement is terminated?
If the pairing agreement is terminated, Wyndham and Patriot will terminate
their status as a paired share REIT and the mutual agreements restricting the
companies' issuance of stock and other business operations will terminate.
The Pairing Agreement. The pairing agreement currently restricts the
conditions under which shares of Wyndham or Patriot common stock may be issued
or transferred. Shares of Wyndham and Patriot common stock may not be issued or
transferred on the books of one company unless a simultaneous issue or transfer
is made of an equal number of shares of common stock of the other company. If
the pairing agreement is terminated, Wyndham will be permitted to issue its
common stock without a corresponding issuance of Patriot common stock.
The Cooperation Agreement. Although Wyndham and Patriot operate under a
paired-share REIT structure, they are each separate corporate entities with
separate boards of directors and separate management teams. To minimize
potential conflicts between the companies during the course of business,
Wyndham and Patriot entered into a cooperation agreement governing their
relationship. Under the cooperation agreement, Wyndham and Patriot are
obligated to cooperate to the fullest extent possible in the conduct of their
respective operations and to preserve and maximize the economic and tax
advantages of the paired-share REIT structure. If the pairing agreement is
terminated, Wyndham and Patriot will also terminate the cooperation agreement.
If the cooperation agreement is terminated, the Board of Directors of Patriot
will no longer participate in the conduct of Wyndham's business. As a wholly-
owned subsidiary of Wyndham following the merger, Patriot's operations will be
subject to Wyndham's Board's approval.
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How do stockholders' rights as Wyndham stockholders differ from rights as
holders of paired shares?
If the merger is approved by Wyndham and Patriot stockholders, stockholders
of Patriot will exchange that portion of their paired share representing
Patriot common stock for additional shares of Wyndham common stock. Since both
Wyndham and Patriot are Delaware corporations, stockholder rights following the
merger will continue to be governed by Delaware law and the Wyndham certificate
of incorporation and bylaws.
After the merger, the following REIT related restrictions in the Wyndham
certificate of incorporation will terminate:
. the provisions restricting the ownership and transfer of Wyndham
common stock; and
. the provisions providing that shares of Wyndham capital stock held in
violation of the ownership limitations in the certificate of
incorporation be automatically converted into shares of "excess stock"
without voting or dividend rights retained by the stockholder.
The Wyndham certificate of incorporation and bylaws are substantially
similar to the Patriot certificate of incorporation and bylaws. As such, the
Patriot stockholders who receive additional shares of Wyndham common stock in
the merger will maintain substantially similar rights after the merger. These
rights include, but are not limited to:
. The right to amend the certificate of incorporation, generally, in
the manner prescribed by the Delaware General Corporation Law; and
. The right of stockholders to amend the bylaws at any meeting of
stockholders by the affirmative vote of at least two-thirds of the
shares present in person or represented by proxy at such meeting and
entitled to vote. If the Board recommends that stockholders approve
such amendment at such meeting of stockholders, such amendment shall
only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled
to vote.
Currently, each of Patriot's Board and Wyndham's Board consists of ten Board
seats classified into three classes such that one class of Directors on each
Board is subject to reelection at the annual meeting of stockholders each year.
Holders of Patriot common stock are entitled to one vote per share, and holders
of Patriot series A preferred stock are entitled to one vote per share of
Patriot common stock into which their Patriot series A preferred stock is
convertible for each nominee to the Patriot Board. Holders of Wyndham common
stock are entitled to one vote per share for each nominee to the Wyndham Board.
If the $1 billion equity investment is approved, the Wyndham Board will consist
of nineteen directors, eight of whom will be classified as "class B" directors.
The investors will be entitled to elect the "class B" directors. The holders of
Wyndham common stock will have the right to elect the eight "class A"
directors. The investors will also have the right to vote with the holders of
the Wyndham common stock on an "as converted" basis for the election of three
additional directors.
Will the Wyndham common stock be listed on the NYSE?
After the merger, the Wyndham common stock will be listed on the New York
Stock Exchange under the symbol "WYN." Each holder of paired shares under the
symbol "PAH" will receive on a one-for-one basis newly-issued shares of Wyndham
common stock under the symbol "WYN".
What is the accounting treatment of the Merger?
The restructuring will be accounted for as a reorganization of two companies
under common control. There will be no revaluation of the assets and
liabilities of the combining companies. Wyndham will take a one-time charge of
approximately $750 million, related to a deferred tax liability and the write-
off of intangibles of approximately $83.6 million that will result from the
reorganization, as required by SFAS No. 109.
After the restructuring, Wyndham financial statements will be presented on a
consolidated basis representing the operations of Wyndham and its subsidiaries,
including Patriot.
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Do stockholders have appraisal rights?
Only holders of shares of Patriot series A or B preferred stock will be
entitled to appraisal rights in connection with the merger.
If you are a holder of Patriot's current series A preferred stock, you may
have appraisal rights as part of the merger because your existing securities
are not listed on a national exchange or held of record by more than 2,000
holders. If you are a holder of Patriot's current series B preferred stock, you
may have appraisal rights because you will receive cash in the merger. In order
to exercise appraisal rights, you must take the actions required by the
relevant provisions of the Delaware General Corporation Law, which are
reprinted in their entirety as Annex I to this joint proxy
statement/prospectus.
The following is a discussion of material terms of Delaware law relating to
appraisal rights. You should review Annex I carefully if you wish to exercise
statutory appraisal rights. Failure to comply with the required procedures will
result in the loss of appraisal rights.
If you are a record holder of shares of Patriot series A or B preferred
stock, you may be entitled to an appraisal by the Delaware Court of Chancery of
the fair value of your shares of this stock if you:
. deliver to Patriot a written demand for appraisal of your shares
prior to the vote of the stockholders of Patriot on Proposal 3;
. continuously hold the shares as the record holder through the
completion of the merger; and
. do not vote in favor of the merger.
If you elect to demand the appraisal of your shares of Patriot series A or
series B preferred stock, you must deliver to Patriot a written demand for
appraisal before the shareholder vote on Proposal 3. The demand will be
sufficient if it reasonably informs Patriot of your identity and notifies
Patriot that you intend to demand the appraisal of your shares. A vote against
Proposal 3, in person or by proxy, does not constitute a demand for appraisal.
You must provide Patriot with a separate written demand for appraisal of your
shares. After providing Patriot with the demand, you must continuously hold
your shares through the completion of the merger.
Holders of shares of Patriot series A or B preferred stock who desire to
exercise their appraisal rights must not vote in favor of the merger. A
stockholder who signs and returns a proxy without expressly directing by
checking the applicable boxes on the reverse side of the proxy card that his or
her shares of Patriot series A or B preferred stock be voted against the merger
or that an abstention be registered with respect to his or her shares of
Patriot series A or B preferred stock in connection with the proposal will
waive his or her appraisal rights as to those shares of Patriot series A or B
preferred stock because, in the absence of express contrary instructions, such
shares will be voted in favor of Proposal 3. A stockholder who desires to
perfect appraisal rights with respect to any of his or her shares of Patriot
series A or B preferred stock must refrain from executing and returning the
enclosed proxy card and from voting in person in favor of the merger, or check
either the "Against" or the "Abstain" box next to the merger or affirmatively
vote in person against the merger or register in person an abstention with
respect to the merger.
A person having a beneficial interest in shares of Patriot series A or B
preferred stock that are held of record in the name of another person, such as
a broker, fiduciary or other nominee, must act promptly to cause the record
holder to follow the steps necessary to perfect whatever appraisal rights are
available. If the shares of Patriot series A or B preferred stock are owned of
record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian) or other nominee, such
demand must be executed by or for the record owner. If the shares of Patriot
series A or B preferred stock are owned of record by more than one person, as
in a joint tenancy or tenancy in common, such demand must be executed by or for
all joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such person is acting as agent for the
record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Patriot series A or B preferred stock as a nominee for others, may
exercise appraisal rights with respect to the shares held for all or
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less than all beneficial owners of shares as to which such person is the record
owner. In such case, the written demand must set forth the number of shares
covered by such demand. Where the number of shares is not expressly stated, the
demand will be presumed to cover all shares of Patriot series A or B preferred
stock outstanding in the name of such record owner.
A stockholder who elects to exercise appraisal rights should mail or deliver
his or her written demand to: Patriot American Hospitality, Inc., 1950 Stemmons
Freeway, Suite 6001, Dallas, TX 75207, Attention: John P. Bohlmann, Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Patriot series A or B preferred stock
owned, and that the stockholder is thereby demanding appraisal of his or her
shares. A proxy or vote against Proposal 3 will not by itself constitute such a
demand. Within ten days after completion of the merger, the surviving
corporation must provide notice of the completion of the merger to all
stockholders who have complied with Section 262.
Within 120 days after the completion of the merger, either the surviving
corporation or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court of Chancery, with a copy
served on the surviving corporation in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of all
dissenting stockholders. You should not assume that the surviving corporation
will file a petition or that the surviving corporation will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
Patriot stockholders who desire to have their shares appraised should initiate
any petitions necessary for the perfection of their appraisal rights within the
time periods and in the manner prescribed in Section 262. Within 120 days after
the completion of the merger, any stockholder who has complied with the
provisions of Section 262 will be entitled, upon written request, to receive
from the surviving corporation a statement setting forth the aggregate number
of shares of Patriot series A preferred stock not voting in favor of Proposal 3
and with respect to which demands for appraisal were received by Patriot and
the number of holders of such shares. Such statement must be mailed within 10
days after the written request has been received by the surviving corporation.
If a petition for an appraisal is filed within the 120 day period, at the
hearing on such petition, the Delaware Court of Chancery will determine which
stockholders, if any, are entitled to appraisal rights. The Delaware Court of
Chancery may require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court of Chancery may dismiss the proceedings
as to such stockholder. Where proceedings are not dismissed, the Delaware Court
of Chancery will appraise the shares of Patriot series A or B preferred stock
owned by such stockholders, determining the fair value of such shares exclusive
of any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining fair value, the Delaware
Court of Chancery is to take into account all relevant factors. In Weinberger
v. UOP Inc., the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered, and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that in making this determination of fair value a court must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the
merger which throw light on future prospects of the merged corporation. In
Weinberger, the Delaware Supreme Court stated that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered." Section 262, however, provides that fair value is to be "exclusive
of any element of value arising from the accomplishment or expectation of the
merger."
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Holders of shares of Patriot series A or B preferred stock considering
seeking appraisal should recognize that the fair value of their shares
determined under Section 262 could be more than, the same as or less than the
consideration they are entitled to receive in the merger if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court of Chancery and taxed against the parties as
the Delaware Court deems equitable in the circumstances. Upon application of a
dissenting stockholder of Patriot, the Delaware Court may order that all or a
portion of the expenses incurred by any dissenting stockholder concerning the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of common stock entitled to appraisal.
Any holder of shares of Patriot series A or B preferred stock who has
demanded appraisal in compliance with Section 262 will not, after the
completion of the merger, be entitled to vote for any purpose any shares
subject to such demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the completion of the merger.
At any time within 60 days after the completion of the merger, any
stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the merger. After this period, the stockholder may
withdraw such demand for appraisal only with the consent of the surviving
corporation. If no petition for appraisal is filed with the Delaware Court of
Chancery within 120 days after the effective time, stockholders' rights to
appraisal shall cease, and all holders of shares of Patriot series A or B
preferred stock will be entitled to receive the consideration offered in the
merger. Any holder of shares of Patriot series A or B preferred stock who
desires to file such a petition should file it within the specified 120 day
period. Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the surviving corporation a written withdrawal of his or her
demand for appraisal and acceptance of the merger, except (1) that any such
attempt to withdraw made more than 60 days after the completion of the merger
will require written approval of the surviving corporation and (2) that no
appraisal proceeding in the Delaware Court of Chancery shall be dismissed as to
any stockholder without the approval of the Delaware Court of Chancery, and
such approval may be conditioned upon such terms as the Delaware Court of
Chancery deems just.
What is the impact of the approval or disapproval of Proposals 3 through 6?
If you do not approve Proposals 3 through 6, the $1 billion investment will
not occur. Each proposal involves different steps in connection with the
investment, as follows:
If you approve Proposal 3, a wholly-owned subsidiary of Wyndham will merge
with Patriot and Patriot will become a wholly-owned subsidiary of Wyndham.
Patriot will also terminate its status as a REIT effective January 1, 1999.
Following the termination of Patriot's REIT status, Patriot will no longer
distribute 95% of its taxable income to stockholders.
If you approve Proposal 4, Wyndham will effect a reverse stock split
converting each 20 shares of Wyndham common stock into one share of Wyndham
common stock.
If you approve Proposal 5, Patriot will effect a reverse stock split
converting each 20 shares of Patriot common stock into one share of Patriot
common stock.
If you approve Proposal 6, Wyndham and Patriot will terminate the pairing
agreement and their status as a paired share REIT.
Until the $1 billion equity investment is completed, the directors elected
under Proposals 8 and 9 will serve on the Boards of Directors of Wyndham and
Patriot. When the $1 billion equity investment is completed, all of the Patriot
directors and some of the Wyndham directors will resign and the remaining
directors will appoint the nominees named in this joint proxy
statement/prospectus to fill the vacancies on the Wyndham Board.
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Proposals to Adopt the Restated Certificate of Incorporation of Wyndham, Which
Includes:
(For Wyndham Stockholders Only)
Proposal 7--An Increase in Authorized Common Stock
Proposal 8--An Increase in Authorized Preferred Stock
Proposal 9--Designation of "class A common stock"
Proposal 10--Designation of "class B common stock"
Proposal 11--Changes in Board Structure and Composition
What is Wyndham asking you to approve?
Wyndham is asking you to approve the adoption of the proposed restated
certificate of incorporation of Wyndham. We have attached a copy of the
proposed Wyndham certificate of incorporation as Annex C. The proposed Wyndham
certificate of incorporation includes the following:
. an increase in the authorized number of shares of Wyndham common
stock from 650 million to 1.5 billion;
. an increase in the authorized number of shares of preferred stock
from 100 million to 150 million;
. the creation of a class of common stock designated as "class A common
stock;"
. the creation of a class of common stock designated as "class B common
stock;" and
. changes in the structure and composition of the Board of Directors of
Wyndham.
What does the Board of Directors of Wyndham recommend that you do in response
to Proposals 7 through 11?
The Board of Directors of Wyndham has unanimously approved the adoption of
the proposed Wyndham certificate of incorporation. The Board believes that
Proposals 7 through 11? are in the best interests of Wyndham and its
stockholders and recommends that you vote for the approval of Proposals 7
through 11?
Why is Wyndham requesting an increase in the number of authorized shares of
common stock and preferred stock?
The current certificate of incorporation of Wyndham, authorizes the issuance
of 650 million shares of Wyndham common stock. As of the date of this joint
proxy statement/prospectus 239,901,230 shares of Wyndham common stock were
outstanding, including approximately 83.7 million shares held as collateral by
the counterparties to the forward equity contracts. Additionally, approximately
9.7 million shares of Wyndham common stock were reserved for issuance upon
conversion or redemption of securities convertible into or redeemable for
Wyndham common stock.
As part of the $1 billion equity investment, an additional 519 million
shares of Wyndham common stock will be reserved for issuance, consisting of 159
million shares issuable upon conversion of the series B preferred stock
assuming a conversion price of $6.32 and 360 million shares issuable upon
conversion of all dividends that could be issued on the series B preferred
stock over a ten year period assuming that all such dividends will be paid in
additional shares of series B preferred stock.
The current Wyndham certificate of incorporation authorizes the issuance of
100 million shares of preferred stock. As of the date of this joint proxy
statement/prospectus, 1,781,173 shares of Wyndham series A
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preferred stock and 1,781,181 shares of Wyndham series B preferred stock were
outstanding. The currently outstanding shares of Wyndham series A and B
preferred stock will be exchanged or redeemed immediately before the $1 billion
equity investment. After this exchange or redemption, the authorized and
unissued shares of Wyndham preferred stock will return to 100 million shares.
The series B certificate of designation designates 31,840,000 shares of
Wyndham's preferred stock as series B preferred stock, and the series A
certificate of designation designates 31,840,000 shares of Wyndham's preferred
stock as series A preferred stock. The new series A preferred stock will be
issued in the rights offering and the new series B preferred stock will be
issued to the investors. After giving effect to the completion of the
investment and the filing of the series B certificate of designation and the
series A certificate of designation, 36,320,000 additional shares of preferred
stock will be available for future stock issuances.
The Wyndham Board has adopted the proposed restated certificate of
incorporation that, subject to stockholder approval, increases the authorized
number of shares of Wyndham common stock to 1.5 billion and the authorized
number of shares of preferred stock to 150 million. The Board believes that the
authorization of the additional shares of common and preferred stock will give
Wyndham added flexibility to address future capital and financing needs, stock
distributions and stock splits, business acquisitions, management incentive and
employee benefit plans and other general corporate purposes. By increasing the
number of authorized shares of common and preferred stock now, the Board may
issue additional shares of Wyndham common stock or Wyndham preferred stock in
the future without further stockholder approval, subject to applicable laws and
regulatory requirements. The Board believes that the availability of the
additional shares of common and preferred stock would enable Wyndham to act
promptly to take advantage of corporate opportunities as such opportunities
arise without the delay or cost of calling a special meeting of stockholders.
The Board of Directors also believes the additional authorized shares of
preferred stock, along with the ability to vary features such as dividend rates
and conversion rights of the stock to meet the needs of a particular
transaction, will allow Wyndham advantages in negotiations and the flexibility
to structure transactions involving the issuance of preferred stock.
What are the terms of the preferred stock?
The proposed Wyndham certificate of incorporation allows the Board to
provide for the terms of any series of preferred stock prior to issuance,
including terms which give a series of preferred stock preference over the
Wyndham common stock with respect to the payment of dividends and voting and
other rights.
What are the possible negative effects of the adoption of the proposed restated
certificate of incorporation and the increase of the authorized Wyndham common
stock and preferred stock?
Anti-takeover Implications
The additional authorized shares of Wyndham common stock and preferred stock
could be issued to make any attempt to acquire control of Wyndham more
difficult and costly and therefore discourage attempts to acquire Wyndham. For
example, additional shares of Wyndham common stock or preferred stock could be
sold in private placement transactions to purchasers who support the Board and
who are opposed to a takeover bid which the Board believes is not in the best
interests of Wyndham and its stockholders. Additionally, the Board could
authorize holders of a series of preferred stock to vote either separately as a
class or with the holders of the Wyndham common stock on any merger, sale or
exchange of assets by Wyndham or any other extraordinary corporate transaction.
Additional shares of Wyndham common stock or securities convertible into or
exchangable for Wyndham common stock could also be issued to increase the
aggregate number of outstanding shares of Wyndham common stock, which would
dilute the interest of parties attempting to obtain control of Wyndham.
Dilution
If an issuance of additional shares of Wyndham common stock or preferred
stock is made on other than a pro rata basis to all stockholders, dilution of
ownership interest and voting power of existing stockholders may
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occur and, depending on the consideration for which the shares were issued,
could dilute earnings per share. In addition, you should expect that any shares
of preferred stock which may be issued would have dividend and liquidation
preferences superior to those of the Wyndham common stock. Holders of Wyndham
common stock do not have preemptive rights to subscribe for additional
securities which may be issued by Wyndham.
Why does the proposed Wyndham certificate of incorporation create the class A
common stock and class B common stock?
As described above under Proposal 1, if the issuance of the series B
preferred stock is approved, the class B common stock will be issued upon
conversion of the series B preferred stock in some circumstances. You should
read Proposal 1 and the following sections of this Proposal for more
information on the intended use of the class B common stock.
What are the terms of the class A common stock and class B common stock?
The following summarizes important terms of the proposed Wyndham certificate
of incorporation. We have attached a copy of the proposed Wyndham certificate
of incorporation as Annex C. This discussion is not complete, and you should
read it together with the proposed Wyndham certificate of incorporation.
Under the proposed Wyndham certificate of incorporation, new classes of
common stock designated as "class A common stock" and "class B common stock"
will be created. Except as described below, all shares of class A common stock
and class B common stock will be identical and will entitle the holders of the
class A common stock and class B common stock to the same rights and
privileges. The class A common stock and class B common stock are referred to
collectively below as "common stock."
Voting Rights. Except as described below regarding the election of
directors, each share of Wyndham common stock will be entitled to one vote on
each matter submitted to a vote at any meeting of stockholders and the holders
of shares of Wyndham common stock will vote together as one class on all
matters submitted to a vote of stockholders of Wyndham or, if any holders of
shares of preferred stock are entitled to vote together with the holders of
Wyndham common stock on any matter, as a single class with the holders of
preferred stock on the matter.
Dividend Rights. Subject to the rights of holders of preferred stock,
holders of Wyndham common stock will be entitled to receive dividends and other
distributions in cash, stock or property of Wyndham as determined by the Board
of Directors from time to time. The holders of the class A common stock and the
class B common stock will be entitled to receive, and generally to share
equally and ratably, such dividends. However, if dividends are payable in
shares of class A common stock or class B common stock, the dividends will be
declared at the same rate on each class of stock, and the dividends payable to
holders of class A common stock will be paid in class A common stock and the
dividends payable to holders of class B common stock will be paid in class B
common stock.
Liquidation Rights. Upon the voluntary or involuntary liquidation,
dissolution, distribution of assets or other winding up of Wyndham, after
distribution in full of preferential amounts to be distributed to the holders
of preferred stock or any other class or series of stock having a preference as
to liquidating distributions over the Wyndham common stock, the holders of the
class A common stock and the class B common stock will be entitled to share
equally and ratably in all of the remaining assets of Wyndham available for
distribution to stockholders.
Voluntary Conversion of Class B Common Stock into Class A Common Stock.
After the earlier of such time as (1) the investors beneficially own no shares
of series B preferred stock and less than 20% of the then outstanding common
stock, or (2) Wyndham has exercised its right to redeem the series B preferred
stock, each share of class B common stock will be convertible, at the option of
its holder, into one share of class A common stock. However, this conversion
right will not apply if at the time the investors have any agreement or
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understanding among themselves regarding the mandatory voting of their shares
of preferred stock or common stock other than regarding the election and
removal of directors or the selection or allocation of the class B directors.
In addition, as to any particular investor, all, but not less than all, shares
of class B common stock beneficially owned by the investor will be convertible,
at the option of the investor, into the same number of shares of class A common
stock, but only if at the time of conversion the investor does not beneficially
own any shares of series B preferred stock, does not have any agreement or
understanding with the other investors regarding the voting of their or the
investor's shares of preferred stock or Wyndham common stock, and has so
notified Wyndham in writing.
Automatic Conversion of Class B Common Stock into Class A Common Stock.
Each share of class B common stock will automatically be converted into one
share of class A common stock upon the sale or other transfer of the share of
class B common stock to any individual or entity other than an investor.
Automatic Termination of Separate Classes of Common Stock. When there are
no remaining outstanding shares of series B preferred stock or class B common
stock, the class B common stock will no longer be an authorized class of
Wyndham common stock and the class A common stock will be redenominated as the
"common stock."
How will the proposed Wyndham certificate of incorporation change the
composition of the Board of Directors?
The proposed Wyndham certificate of incorporation will increase the number
of directors to 19 from 10 and change who may nominate individuals to be
elected to each class of directors and who may vote for individuals to be
members of each class. If Proposals 1 through 11 are approved by the
stockholders of Wyndham and the $1 billion equity investment closes, eight of
Wyndham's 19 Directors will be designated as class A directors, eight will be
designated as class B directors and three will be designated as class C
directors. Currently, all of Wyndham's stockholders are entitled to vote for
individuals nominated by the Board of Directors or by stockholders to serve as
directors of one of the three staggered classes of directors at each annual
meeting of Wyndham's stockholders. The proposed Wyndham certificate of
incorporation will change this.
Beginning with Wyndham's 2000 annual meeting of stockholders, who may select
nominees and who may vote for individuals to serve as directors will be
determined as follows:
Class A Directors: Wyndham's nominees to be elected as class A directors
at any meeting of Wyndham's stockholders will be selected by a committee of
the Board of Directors that consists of each of the class C directors then
in office and the same number, but not less than one, of class A directors
then in office who will be selected by a majority vote of the class A
directors then in office. Prior to the date the investors may voluntarily
convert their class B common stock to class A common stock, the class A
directors will be elected by the affirmative vote of the holders of a
plurality of the shares of class A common stock. From and after the date
the investors may voluntarily convert their class B common stock to class A
common stock, the class A directors will be elected by the affirmative vote
of holders of a plurality of the votes represented by the shares of class A
common stock, class B common stock and series B preferred stock, voting
together as a single class.
Class B Directors: Wyndham's nominees to be elected as class B directors
at any meeting of Wyndham's stockholders will be nominated by a majority of
the class B directors then in office. The class B directors will be elected
by the affirmative vote of holders of a plurality of the votes represented
by the shares of series B preferred stock and class B common stock, voting
together as a single class.
Class C Directors: Wyndham's nominees to be elected as class C directors
at any meeting of Wyndham's stockholders will be selected by a majority of
the class C directors then in office. The class C directors generally will
be elected by the affirmative vote of holders of a plurality of the votes
represented by the shares of class A common stock, class B common stock and
series B preferred stock, voting
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together as a single class. However, until the date the investors may
voluntarily convert their class B common stock to class A common stock, if
the only persons nominated for election as class C directors are those
nominated for election by the class C directors then in office, and if
there are more votes against any person's election than in favor of that
person's election, then that person will not be elected to the Board of
Directors. Also, until the date the investors may voluntarily convert their
class B common stock to class A common stock, the proposed Wyndham
certificate of incorporation provides that if there is any other person
nominated for election as a class C director in addition to those nominated
for election by the class C directors then in office, then all shares of
series B preferred stock and class B common stock, and all shares of class
A common stock held by class A directors or their affiliates voted at the
meeting, will be voted for all of the nominees in proportion to the votes
cast for such nominees by other holders of class A common stock.
If Proposals 1 through 11 are approved by the stockholders of Wyndham and
the $1 billion equity investment closes, some of the members of the current
Board of Directors of Wyndham will resign and the remaining directors will
appoint the nominees described above to fill the vacancies on the Board of
Directors.
Who will the Directors be if the proposed Wyndham certificate of incorporation
is approved?
Class A Directors
Eight of Wyndham's 19 Directors will be class A directors. Under the terms
of the purchase agreement, it is anticipated that the following individuals
will be the initial class A directors:
Karim Alibhai--term expiring in 2002
Leonard Boxer--term expiring in 2000
James D. Carreker--term expiring in 2001
Milton Fine--term expiring in 2002
Susan T. Groenteman--term expiring in 2002
Paul A. Nussbaum--term expiring in 2000
Rolf E. Ruhfus--term expiring in 2000
Sherwood M. Weiser--term expiring in 2001
See Proposals 12 and 13 below for more information regarding each of the
individuals named above. Each of the class A directors listed above is
currently a director of either Wyndham or Patriot.
Class B Directors
Eight of Wyndham's 19 Directors will be class B directors. The number of
class B directors will decrease when the investors no longer own specified
percentages of the shares of series B preferred stock originally sold to them.
Under the terms of the purchase agreement, the investors have proposed that the
following individuals be the initial class B directors:
Leon Black--term expiring in 2001
Thomas H. Lee--term expiring in 2002
Alan Leventhal--term expiring in 2002
William Mack--term expiring in 2002
Lee Neibart--term expiring in 2001
Marc Rowan--term expiring in 2000
Scott Schoen--term expiring in 2001
Scott Sperling--term expiring in 2000
See Proposals 12 and 13 below for more information regarding each of the
individuals named above.
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Class C Directors
Three of Wyndham's 19 Directors will be class C directors. Under the terms
of the purchase agreement, the investors and Wyndham and Patriot have jointly
selected Norman Brownstein, Stephen T. Clark and Paul Fribourg to be the
initial class C directors. See Proposals 12 and 13 below for more information
regarding each of the individuals named above.
Who will the executive officers be if the $1 billion investment and related
restructuring are approved?
The following individuals will be the principal executive officers of
Wyndham following the $1 billion investment and related restructuring. Proposal
9 below contains biographical information of these individuals.
James D. Carreker--Chief Executive Officer
Richard Mahoney--Chief Financial Officer
Anne L. Raymond--Chief Investment Officer
Leslie V. Bentley--Executive Vice President
Robert R.A. Breare--Executive Vice President
Michael A. Grossman--Executive Vice President
Richard A. Holtzman--Executive Vice President
Stanley M. Koonce, Jr.--Executive Vice President
Carla S. Moreland--Executive Vice President
Will Wyndham have a staggered board under the proposed Wyndham certificate of
incorporation?
Until the 2002 annual meeting, the Board of Directors of Wyndham under the
proposed Wyndham certificate of incorporation will be divided into three sub-
classes. The terms of each sub-class will be staggered so that each year, only
one sub-class of directors will be elected. At the annual meeting held in 2000
three class A directors, three class B directors and one class C director will
be up for reelection for a three year term. At the annual meeting held in 2001
two class A directors, two class B directors and one class C director will be
up for reelection for a two year term. At the annual meeting held in 2002 three
class A directors, three class B directors and one class C director will be up
for reelection for a one year term. After the annual meeting held in 2002, all
directors will be up for reelection each year for a one year term.
What is the impact of the approval or disapproval of Proposals 7 through 11?
The amendments to the Wyndham certificate of incorporation contained in
Proposals 7 through 11 that are related to the creation of the class A common
stock and class B common stock are necessary for the issuance described in
Proposal 1 since the series B preferred stock is convertible into class B
common stock. If you do not approve Proposals 7 through 11, the $1 billion
investment will not occur. The Board of Directors intends to file the proposed
Wyndham certificate of incorporation only if Proposal 1 is approved by the
stockholders and the $1 billion equity investment is about to close. If the
stockholders approve Proposals 1 through 11 and the $1 billion equity
investment is about to close, Wyndham will file the proposed Wyndham
certificate of incorporation and it will become effective immediately upon
acceptance of the filing by the Secretary of State of the State of Delaware.
Each of Proposals 7 through 11 must be approved for the $1 billion equity
investment to close.
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Proposal No. 12
Election of Directors for Wyndham
(For Wyndham Stockholders Only)
Currently, the Board of Directors of Wyndham is divided into three classes.
Each class has a term of three years and the terms are staggered so that each
year, only one class of directors is elected.
At the Wyndham annual meeting, the Wyndham stockholders will elect four
directors of Wyndham who will serve until the 2002 Wyndham annual meeting and
until their successors are elected and qualified to serve. The Wyndham Board
has nominated Burton C. Einspruch, M.D., Arch K. Jacobson, Leonard Boxer and
Susan T. Groenteman to serve as directors for Wyndham. The Board anticipates
that each of their nominees will serve, if elected, as a director. However, if
any person nominated by the Wyndham Board is unable to accept election as a
director, the proxies will be voted for another person recommended by the
Wyndham Board.
The Board of Directors of Wyndham recommends a vote for Burton C. Einspurch,
M.D., Arch K. Jacobson, Leonard Boxer and Sue Groenteman.
You should note that if the Wyndham stockholders approve the $1 billion
equity investment, each of Burton C. Einspruch, M.D., Arch K. Jacobson, and
James C. Leslie will resign from the Wyndham Board when the investment is
completed. James D. Carreker, Sherwood M. Weiser, Leonard Boxer, Susan T.
Groenteman, Karim Alibhai and Paul A. Nussbaum will continue on after the
investment is completed as directors of Wyndham. The other directors of Wyndham
following the completion of the investment are listed below under the caption
"Directors of Wyndham Following the Investment."
Proposal No. 13
Election of Directors for Patriot
(For Patriot Stockholders Only)
Currently, the Board of Directors of Patriot is also divided into three
classes. Each class has a term of three years and the terms are staggered so
that each year, only one class of directors is elected.
At the Patriot annual meeting, the Patriot stockholders will elect three
directors of Patriot who will serve until the 2002 Patriot annual meeting and
until their successors are elected and qualified to serve. The Patriot Board
has nominated John H. Daniels, Gregory R. Dillon and Philip J. Ward to serve as
directors for Patriot. The Patriot Board anticipates that each of their
nominees will serve, if elected, as a director. However, if any person
nominated by the Patriot Board is unable to accept election as a director, the
proxies will be voted for another person recommended by the Patriot Board.
The Board of Directors of Patriot recommends a vote for John H. Daniels,
Gregory R. Dillion and Philip J. Ward.
You should note that if the Wyndham stockholders approve the $1 billion
equity investment, each of the Patriot directors will resign from the Patriot
Board when the investment is completed. The Directors of Wyndham following the
completion of the investment will be the individuals listed below under the
caption "Directors of Wyndham Following the Investment."
Principal Executive Officers of Wyndham and Patriot
The following individuals are the principal executive officers of Wyndham
and Patriot:
James D. Carreker has served as the Chairman of the Board of Directors and
Chief Executive Officer of Wyndham as well as a director of Patriot since
January 1998. In February 1999, Mr. Carreker was also named
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Chief Executive Officer of Patriot. Prior to the merger of Wyndham Hotel
Corporation with the companies in January 1998, Mr. Carreker had served as
President and Chief Executive Officer of Wyndham Hotel Corporation from May
1988 to January 1998 and as a director of Wyndham Hotel Corporation from
February 1996 to January 1998. He also served as Chief Executive Officer of
Trammell Crow Company, a national real estate company, from August 1994 to
December 1995. Prior to 1988, Mr. Carreker served as President of Burdine's,
the Miami based division of Federated Department Stores. Mr. Carreker also
serves as a director of Trammell Crow Company and of Carreker-Antinori, Inc., a
computer service company that completed its initial public offering in May
1998. Mr. Carreker holds a B.S. and a Master of Business Administration from
Oklahoma State University. Mr. Carreker is 51 years old.
William W. Evans III currently serves as the President and Chief Operating
Officer and a director of Patriot. He also serves as an Executive Vice
President of Wyndham. Mr. Evans has been an executive officer of the companies
since March 1997, and a director since July 1997. Prior to joining the
companies, Mr. Evans was a Managing Director in PaineWebber's Real Estate
Group. He joined PaineWebber as a result of the firm's acquisition of Kidder,
Peabody and Co. Incorporated in December 1994. Prior to joining Kidder, Peabody
in 1992, Mr. Evans was a First Vice President and head of the Real Estate
Financing Division of Swiss Bank Corporation. Mr. Evans is a graduate of the
University of Virginia. Mr. Evans is 48 years old.
Richard Mahoney became Chief Financial Officer of Wyndham in May 1999.
Before joining Wyndham, Mr. Mahoney served as Executive Vice President and
Chief Operating Officer of Starwood Hotels & Resorts' gaming division. From
1995 to 1998, Mr. Mahoney served as Executive Vice President and Chief
Financial Officer of Westin Hotels & Resorts. From 1988 to 1993, he served as
Vice President and Controller of Carnival Hotels and Casinos. Mr. Mahoney holds
an M.S. in Finance from Boston College. Mr. Mahoney is 46 years old.
Anne L. Raymond became Chief Investment Officer of Wyndham in May 1999. Ms.
Raymond became an Executive Vice President of Patriot in January 1998 in
connection with the closing of the Wyndham merger. In addition, Ms. Raymond
served as Chief Financial Officer of Patriot from the closing of the Wyndham
merger in January 1998 until May 1999. Ms. Raymond also served as Treasurer of
Patriot from January 1998 to March 1998. Ms. Raymond joined Wyndham Hotel
Corporation in 1983 as Controller and served in that and other financial
capacities through September 1987. From September 1987 to July 1994, she served
as Investment Manager for Crow Family Holdings, where her responsibilities
included managing and overseeing Crow Family Holdings' interest in the Trammell
Crow Company and Wyndham Hotel Corporation. Upon the formation of the Crow
Investment Trust in August 1994, Ms. Raymond was named Director--Capital
Markets and had responsibility for developing and maintaining investment
relationships with real estate capital sources. In March 1995, Ms. Raymond
rejoined Wyndham Hotel Corporation as Executive Vice President and Chief
Financial Officer, and was elected a director of Wyndham Hotel Corporation in
April 1996. Ms. Raymond holds a B.S. in Business Administration from the
University of Missouri. Ms. Raymond is 41 years old.
Leslie V. Bentley became an Executive Vice President of Wyndham in January
1998. He was employed by Wyndham Hotel Corporation since March 1985, served as
Executive Vice President and President of the Wyndham Garden Division since May
1990 and was elected a director of Wyndham Hotel Corporation in January 1997.
From January 1987 to June 1988, Mr. Bentley served as Regional Vice President
of Wyndham Hotel Corporation. From June 1988 to December 1988, Mr. Bentley
served as Vice President of Operations of Wyndham Hotel Corporation and from
December 1988 to May 1990, he served as Senior Vice President of Operations of
Wyndham Hotel Corporation. Prior to joining Wyndham Hotel Corporation, Mr.
Bentley was employed by Marriott International Hotels for eight years. Mr.
Bentley holds a B.S. in Hotel and Restaurant Administration from Pennsylvania
State University. Mr. Bentley is 47 years old.
Robert R.A. Breare serves as Executive Vice President of Wyndham and is the
divisional President of the Companies European division, which includes
Arcadian and Malmaison. Mr. Breare founded Arcadian
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International PLC in April 1990 with an initial focus on leisure resort
development and served as its chief executive officer until the acquisition of
Arcadian by the companies. Previously, Mr. Breare served in the publishing
industry and joined Parkdale Holdings PLC in 1987 as CEO. He was educated at
Eton before completing an MA in law at Cambridge University. Mr. Breare is 46
years old.
Michael A. Grossman serves as Executive Vice President of Wyndham and
divisional president of the management services division of the Companies. From
1977 to 1993, Mr. Grossman owned and operated Grossman and Associates, a hotel
management company. Mr. Grossman joined Patriot American in August 1993 as a
Senior Vice President heading up its hotel division. Mr. Grossman was
subsequently appointed Chief Operating Officer of Gencom American Hospitality
(GAH), which initially served as a third party manager for Old Patriot and was
subsequently acquired by Patriot. Mr. Grossman holds a B.B.A. from the
University of Texas and a J.D. from Southern Methodist University. Mr. Grossman
is 46 years old.
Richard A. Holtzman serves as Executive Vice President of Wyndham and is the
divisional President of Grand Bay Hotels and Resorts which is a division of
Wyndham International, Inc. in January 1997. Mr. Holtzman served as president
and chief operating officer with Westcor Resorts from July 1998. Mr. Holtzman
is a graduate of Cornell University with a B.A. in hotel administration.
Mr. Holtzman is 45 years old.
Lawrence S. Jones was named Executive Vice President and Treasurer of
Patriot and Wyndham in March 1998. Mr. Jones joined Coopers & Lybrand in 1972
and continued there as a partner until March 1998 where he served as Chairman
of the firm's REIT industry practice. Mr. Jones holds a B.S. from the
University of Berkeley and an M.S. from UCLA. Mr. Jones is a certified public
accountant. Mr. Jones is 52 years old.
Stanley M. Koonce, Jr. became Executive Vice President--Marketing and
Strategic Planning of Wyndham in January 1998. He served as Executive Vice
President--Marketing, Planning and Technical Services of Wyndham Hotel
Corporation since October 1994, was elected a director of Wyndham Hotel
Corporation in January 1997 and served as Senior Vice President of Sales and
Marketing of Wyndham Hotel Corporation from October 1989 to October 1994. Mr.
Koonce served as President of CUC Travel Services, a division of CUC
International, in Stamford, Connecticut from 1986 to 1989, as Vice President of
the Marketing Department with American Express from 1979 to 1986 and as a
Director of Finance and Planning for American Airlines from 1976 to 1979. Mr.
Koonce holds a B.S. in Mathematics and an M.B.A. from the University of North
Carolina. Mr. Koonce is 50 years old.
Thomas W. Lattin became an Executive Vice President of Wyndham Hotel
Corporation in October 1997. He became President and Chief Operating Officer of
Patriot American Hospitality, Inc., a Virginia corporation, in April 1995 and
continued in such capacity for Patriot American Hospitality Operating Company
from July 1997. From 1987 through 1994, he served as the National Partner of
the hospitality industry consulting practice of Laventhol & Horwarth and
subsequently as a partner in the national hospitality consulting group of
Coopers & Lybrand L.L.P. In 1994, he joined the Hospitality Group of Kidder,
Peabody & Co. Incorporated as a Senior Vice President and later served as a
Senior Vice President with PaineWebber Incorporated. Mr. Lattin holds a B.S.
and M.S. in Hotel Management from the Cornell School of Hotel Administration.
He is a certified public accountant. Mr. Lattin is 54 years old.
Carla S. Moreland was named Executive Vice President-General Counsel of
Wyndham in April 1999. She served as Senior Vice President-General Counsel of
Wyndham since January 1998. Ms. Moreland served as general counsel of Wyndham
Hotel Corporation since April 1994. From 1987 to 1994 she practiced law with
the firm of Weil Gotshol and Manges. Ms. Moreland holds a B.A. and J.D. from
The College of William and Mary. Ms. Moreland is 40 years old.
Paul Novak was named Executive Vice President--Acquisitions and Development
of Patriot in January 1998. From June 1997 through January 1998, Mr. Novak
served as Executive Vice President--Acquisitions
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and Development of Wyndham. From 1994 through June 1997, Mr. Novak was
President and Chief Executive Officer of Bedrock Partners, a private investment
group established in 1994 to acquire hotel properties and convert them to
Wyndham Hotels or Wyndham Garden Hotels. From 1992 through 1994, Mr. Novak was
a principal in his own consulting firm where he directed real estate
development, marketing and acquisition assignments for numerous clients. Prior
thereto, he served as a Senior Vice President of Marriott International from
1981 until 1992 with responsibility for developing more than 400 properties.
Mr. Novak is a member of the Urban Land Institute, The National Realty
Committee and the Travel and Tourism Research Association. He holds a B.A. from
Michigan State University. Mr. Novak is 52 years old. Mr. Novak's employment
with the companies terminated effective May 1999.
Current Directors of Wyndham
The following is a biographical summary of the experience of the directors
of Wyndham:
Karim Alibhai served as the President and Chief Operating Officer of Wyndham
until his resignation on May 21, 1999. He has served as a director of Wyndham
since October 1997. Prior to joining Wyndham in October 1997, Mr. Alibhai was
the President and Chief Executive Officer of the Gencom Group, an affiliated
group of companies that acquired, developed, renovated, leased and managed
hotel properties in the United States and Canada through Gencom American
Hospitality. He holds a B.A. from Rice University. Mr. Alibhai is 34 years old.
Leonard Boxer has served as a director of Wyndham since July 1997. He had
served as a director of Patriot and its predecessor from September 1995 to July
1997. He has been a partner and chairman of the real estate department of the
law firm of Stroock & Stroock & Lavan in New York, New York since 1987.
Previously, he was a founder and managing partner and head of the real estate
department of Olnick Boxer Blumberg Lane & Troy, a real estate law firm in New
York. Mr. Boxer is a member of the Board of Trustees of New York University Law
School. He is a member of the New York Regional Cabinet of the United States
Holocaust Memorial Museum. Mr. Boxer holds a B.A. and an LL.B. from New York
University. Mr. Boxer is 60 years old.
James D. Carreker has served as Chairman of the Board of Directors of
Wyndham since January 1998. For biographical information on Mr. Carreker, see
"--Principal Executive Officers of Wyndham and Patriot."
Burton C. Einspruch, M.D. has served as a director of Wyndham since July
1997. Dr. Einspruch is a physician and corporate medical consultant and has
practiced medicine since 1960. He holds a B.A. and Sc.B. from Southern
Methodist University and an M.D. from Southwestern Medical School of the
University of Texas. Dr. Einspruch is the Medical Director of First Southwest
Company, a national brokerage firm, and also currently serves as a director of
Dallas National Bank. He has served as a board member and advisor to numerous
corporations and philanthropies and is currently Chairman of the Holocaust
Studies Program Advisory Board at the University of Texas at Dallas, as well as
the Executive Board of the Libraries of Southern Methodist University. Dr.
Einspruch has attained the academic rank of Clinical Professor of Psychiatry of
Southwestern Medical School and Clinical Associate Professor of Psychiatry at
New York University Medical Center. Dr. Einspruch is 64 years old.
Susan T. Groenteman has served as a director of Wyndham since January 1998.
Ms. Groenteman had served as a director of Wyndham Hotel Corporation from April
1996 to January 1998. Ms. Groenteman is a Director and chief operating officer
of Crow Family Holdings, an investment company managing investments in a
variety of real estate related businesses, along with other industries, a
position she has held since 1988. In any given year within the past five years,
Ms. Groenteman has served as an executive officer or director in over 1,000
partnerships (or affiliates of partnerships) or corporations. In the past five
years, Ms. Groenteman has served as an executive officer or director of
approximately 57 partnerships or corporations, or for affiliates of such
entities, that filed for protection under federal bankruptcy laws. In addition,
in the past five years, Ms. Groenteman served as an executive officer or
director in approximately 15 partnerships or corporations, or
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affiliates of such partnerships or corporations, that were placed in
receivership. Ms. Groenteman holds a Bachelor of Business Administration from
the University of Texas at Arlington. Ms. Groenteman is 45 years old.
Arch K. Jacobson has served as a director of Wyndham since July 1997. He has
served as President of Jacobson-Berger Capital Group, Inc., a commercial
mortgage banking firm, since 1993. From 1986 to 1993, Mr. Jacobson was Chairman
of Union Pacific Realty Co., a real estate management and development company.
He served in various capacities with the Real Estate Department of the
Prudential Insurance Company from 1955 to 1980 and was President and Chief
Executive Officer of the Prudential Development Company (a subsidiary of the
Prudential Insurance Company) from 1982 to 1986. Mr. Jacobson currently serves
as a director of Walden Residential Properties, Inc., a publicly traded,
multifamily apartment REIT. He was formerly a director of La Quinta Limited
Partners, and chaired the committee of independent directors that negotiated
the tender offer for and purchase of that company in 1994. Mr. Jacobson holds a
B.S. from Texas A&M University. Mr. Jacobson is 71 years old.
James C. Leslie has served as a director of Wyndham since January 1998. He
had served as a director of Wyndham Hotel Corporation from June 1996 to January
1998. Mr. Leslie has served as President and Chief Operating Officer of The
Staubach Company since March 1996. Mr. Leslie served as Chief Financial Officer
of The Staubach Company from 1982 to 1992 and President-Staubach Financial
Services from January 1992 to March 1996. Mr. Leslie is also President and a
board member of Wolverine Holding Company and serves on the board of Columbus
Realty Trust, FM Properties, Inc., Forum Retirement Partners, L.P. and The
Staubach Company, as well as other private corporations and charitable
organizations. Mr. Leslie is a certified public accountant. Mr. Leslie holds a
B.S. from the University of Nebraska and an M.B.A. from the University of
Michigan. Mr. Leslie is 43 years old.
Paul A. Nussbaum has served as a director of Wyndham since January 1998.
Currently, he serves as Chairman Emeritus of the Board of Directors of Wyndham
and Patriot. Prior to his association with Patriot, Mr. Nussbaum practiced real
estate and corporate law in New York for 20 years, the last 12 years of which
he was chairman of the real estate department of Schulte Roth & Zabel. Mr.
Nussbaum serves as a member of the Board of Directors of the Dallas Symphony
and is a member of the Urban Land Institute, the American College of Real
Estate Lawyers and the Advisory Board of the Real Estate Center of the Wharton
School of Business, University of Pennsylvania. Mr. Nussbaum is a member of the
Board of Visitors of the Georgetown University Law Center and a Trustee of
Colby College, Waterville, Maine. He also serves on the Board of Directors of
Mack-Cali Realty Corporation. He holds a B.A. from the State University of New
York at Buffalo and a J.D. from the Georgetown University Law Center. Mr.
Nussbaum is 51 years old.
Rolf E. Ruhfus became a director of Wyndham in June 1998. Mr. Ruhfus served
as Chairman of the Board of Directors and Chief Executive Officer of
Summerfield Hotel Corporation from 1987 through June 1998 when Summerfield was
acquired by Wyndham. Prior to founding Summerfield, Mr. Ruhfus served as
President of Residence Inn Corporation from 1983 until the franchise and
management system assets were sold to Marriott Corporation. Mr. Ruhfus holds a
B.A. from Western Michigan University, an M.B.A. from the Wharton School of
Business and a Ph.D. in Marketing from the University of Munster, Germany. Mr.
Ruhfus is 54 years old.
Sherwood M. Weiser has served as a director of Wyndham since October 1997.
Currently, Mr. Weiser is the Chairman and Chief Executive Officer of Carnival
Hotels & Casinos, a hotel and gaming management and development firm. In 1970,
Mr. Weiser founded The Continental Companies. Carnival Hotels & Casinos was a
successor to The Continental Companies. In June 1998, Wyndham acquired the
hospitality-related businesses of CHCI, the parent corporation of Carnival
Hotels & Casino. Mr. Weiser is a director of Carnival Corporation, United
National Bank and Winsloew Furniture Group. He is a graduate of the Ohio State
University School of Business and holds a J.D. from the Case Western Reserve
University School of Law. Mr. Weiser is 68 years old.
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Current Directors of Patriot
The following is a biographical summary of the experience of the directors
of Patriot:
James D. Carreker has served as a director of Patriot since January 1998.
For biographical information on Mr. Carreker, see "--Principal Executive
Officers of Wyndham and Patriot."
John H. Daniels has served as a director of Patriot and its predecessor
since September 1995. He has served as President of The Daniels Group Inc., a
real estate development and management company, since 1984. Prior to forming
The Daniels Group Inc., Mr. Daniels served as Chairman and Chief Executive
Officer of Cadillac Fairview Corporation, a publicly held real estate
development and management company. Mr. Daniels is also a director of Cineplex-
Odeon Corporation, Consolidated H.C.I. Corporation, Samoth Capital Corporation
and Anitech Enterprises Inc. Mr. Daniels holds a B.S. in Architecture from the
University of Toronto. Mr. Daniels is 73 years old.
John C. Deterding has served as a director of Patriot and its predecessor
since September 1995. He has been the owner of Deterding Associates, a real
estate consulting company, since June 1993. From 1975 until June 1993, he
served as Senior Vice President and General Manager of the Commercial Real
Estate division of General Electric Capital Corporation. From November 1989 to
June 1993, Mr. Deterding served as Chairman of the General Electric Real Estate
Investment Company, a privately held REIT. He served as Director of GECC
Financial Corporation from 1986 to 1993. He holds B.S. from the University of
Illinois. Mr. Deterding is 67 years old.
Gregory R. Dillon has served as a director of Patriot and its predecessor
since September 1995. He has been Vice Chairman Emeritus of Hilton Hotels
Corporation since 1993. He has been a director of Hilton since 1977 and was
elected Vice Chairman in 1990. Mr. Dillon served as an Executive Vice President
of Hilton from 1980 until 1993. Mr. Dillon was also Executive Vice President of
Hilton's franchise company, Hilton Inns, Inc., from 1971 to 1986. He is a
director of the Conrad N. Hilton Foundation and is a founding member of the
American Hotel Association's Industry Real Estate Financing Advisory Council
and the National Association of Corporate Real Estate Executives. In addition
to his undergraduate degree, Mr. Dillon holds an LL.B. from DePaul University.
Mr. Dillon is 76 years old.
William W. Evans III has served as a director of Patriot since July 1997.
For biographical information on Mr. Evans, see "--Principal Executive Officers
of Wyndham and Patriot."
Milton Fine became a director of Patriot in June 1998. Mr. Fine co-founded
Interstate Hotels Company in 1961 and was Chairman of the Board of Interstate
prior to Wyndham's acquisition of Interstate in June 1998. Mr. Fine also served
as the Chief Executive Officer of Interstate through March 1996. He is a life
trustee of the Carnegie Institute and Chairman of the Board of Trustees of the
University of Pittsburgh and a member of the Board of Directors of the Andy
Warhol Museum in Pittsburgh, Pennsylvania. Mr. Fine completed his undergraduate
studies magna cum laude, and also holds a J.D., from the University of
Pittsburgh. Mr. Fine is 72 years old.
Arch K. Jacobson has served as a director of Patriot and its predecessor
since September 1995. For biographical information on Mr. Jacobson, see "--
Directors of Wyndham."
Paul A. Nussbaum founded Patriot in 1991 and served as its Chief Executive
Officer and Chairman of its Board until February 1999. For biographical
information on Mr. Nussbaum, see "--Directors of Wyndham."
Philip J. Ward has served as a director of Patriot since January 1998. Prior
to such time, he had served as a director of Wyndham Hotel Corporation since
June 1996. Mr. Ward is the Senior Managing Director in charge of the Real
Estate Investment Division of CIGNA Investments, Inc., a division of CIGNA
Corporation, a position he has held since December 1985. Mr. Ward joined
Connecticut General's Mortgage and Real Estate Department (a predecessor of
CIGNA) in 1971 and became an officer in 1987. Mr. Ward is also a director of
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<PAGE>
the Simon DeBartolo Group, Inc., and a director of the Connecticut Housing
Investment Fund. Mr. Ward holds a Bachelor of Arts from Amherst College. Mr.
Ward is 50 years old.
Directors of Wyndham Following the Investment
Following the completion of the $1 billion investment, Karim Alibhai,
Leonard Boxer, James Carreker, Milton Fine, Susan Groenteman, Paul Nussbaum,
Rolf Ruhfus and Sherwood Weiser will serve on the Board of Directors of
Wyndham. Additionally, following the completion of the investment, Leon D.
Black, Norman Brownstein, Stephen T. Clark, Paul Fribourg, Thomas H. Lee, Alan
M. Leventhal, William Mack, Lee Neibert, Marc Rowan, Scott Schoen and Scott
Sperling will join the Board of Directors of Wyndham. The following is
biographical information on each of these individuals:
Class B Directors
Leon D. Black is one of the founding principals of (1) Apollo Advisors,
L.P., which, together with its affiliates, acts as the managing general partner
of the Apollo Investment Funds, private securities investment funds; (2) Apollo
Real Estate Advisors, L.P. which, together with its affiliates, acts as the
managing general partner of the Apollo Real Estate Investment Funds, private
real estate investment funds; and (3) Lion Advisors, L.P., a financial advisor
to, and representative of, institutional investors with respect to securities
investments. Mr. Black is also a director of Samsonite Corporation, Sequa
Industries, Inc., Telemundo Group Inc., United Rentals, Inc. and Vail Resorts,
Inc. He also serves as a trustee of The Museum of Modern Art, Mount Sinai--NYU
Medical Center, Lincoln Center for the Performing Arts and Vail Valley
Foundation. Mr. Black holds an M.B.A. from Harvard University and a B.A. from
Dartmouth College. Mr. Black is 47 years old.
Thomas H. Lee founded Thomas H. Lee Company in 1974 and since that time has
served as its President. From 1966 through 1974, Mr. Lee was with First
National Bank of Boston where he directed the bank's high technology lending
group from 1968 to 1974 and became a Vice President in 1973. Prior to 1966, Mr.
Lee was a securities analyst in the institutional research department of L.F.
Rothschild & Co. in New York. Mr. Lee serves or has served as a director of
numerous public and private corporations including Finlay Enterprises, Inc.,
General Nutrition Companies, Inc., Playtex Products, Inc., Safelite Glass
Corp., Snapple Beverage Corp. and Vail Resorts, Inc. In addition, Mr. Lee
serves as a trustee or overseer of a number of civic and charitable
organizations including, in Boston, Beth Israel Deaconess Medical Center,
Brandeis University, Harvard University and the Museum of Fine Arts, as well as
in New York, Lincoln Center for the Performing Arts, Mount Sinai-NYU Medical
Center and the Whitney Museum of American Art in New York City. Mr. Lee is a
1965 graduate of Harvard College. Mr. Lee is 55 years old.
Alan M. Leventhal is co-founder of Beacon Capital Partners and serves as
Chairman and Chief Executive Officer. Prior to founding Beacon, Mr. Leventhal
served as President and Chief Executive Officer of Beacon Properties
Corporation, a publicly traded REIT. Mr. Leventhal received his Bachelor's
degree in Economics from Northwestern University in 1974 and a Master of
Business Administration from the Amos Tuck School of Business Administration at
Dartmouth College in 1976. Mr. Leventhal is a trustee of Boston University,
Northwestern University and the New England Aquarium Corporation and recently
served as First Vice Chair of the National Association of Real Estate
Investment Trusts. He is also a member of the Board of Overseers of WGBH and
Beth Israel Deaconess Medical Center. Mr. Leventhal has lectured at the Amos
Tuck School of Business Administration at Dartmouth College and the
Massachusetts Institute of Technology Center for Real Estate. Mr. Leventhal has
been awarded the Realty Stock Review's "Outstanding CEO Award" for 1996, 1997
and 1998, and the Commercial Property News' "Office Property Executive of the
Year" for 1996. Mr. Leventhal is 46 years old.
William L. Mack is a founding principal and managing partner of Apollo Real
Estate Advisors, L.P., which, together with its affiliates, acts as the
managing general partner of the Apollo Real Estate Investment Funds, private
real estate investment funds. Beginning in 1969, Mr. Mack served as Managing
Partner of the Mack Company, where he oversaw the growth of the Mack Company's
real estate portfolio to approximately 20 million square feet of office,
industrial, retail and hotel facilities, a portion of which was merged with the
Cali Realty Corporation (now Mack-Cali Realty Corporation) of which Mr. Mack
has served as a director
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since 1997. Mr. Mack is also a director of The Bear Stearns Companies, Inc., an
investment banking firm, Koger Equity, Inc., a publicly-traded REIT which owns
and operates suburban office parks in the Southeast and the Southwest, and Vail
Resorts, Inc., an owner and operator of Colorado ski resorts. Mr. Mack attended
the Wharton School of Business and Finance at the University of Pennsylvania
and received a B.S. degree in business administration, finance and real estate
from New York University. Mr. Mack is 59 years old.
Lee S. Neibart has been a principal since 1993 of Apollo Real Estate
Advisors, L.P., which together with its affiliates, acts as the managing
general partner of the Apollo Real Estate Investment Funds, private real estate
investment funds. From 1979 to 1993, he was Executive Vice President and Chief
Operating Officer of the Robert Martin Company, a private real estate
development and management firm, with which he was associated for over 14
years. Mr. Neibart is a director of Atlantic Gulf Communities Corp., a land
development company, Koger Equity, Inc., NextHealth, Inc., an owner and
operator of spa and wellness facilities, and Roland International Corporation,
a land development company. Mr. Neibart received a B.A. from the University of
Wisconsin and an M.B.A. from New York University. Mr. Neibart is 48 years old.
Marc J. Rowan is one of the founding principals of (1) Apollo Advisors,
L.P., which, together with its affiliates, acts as the managing general partner
of the Apollo Investment Funds, private securities investment funds; (2) Apollo
Real Estate Advisors, L.P. which, together with its affiliates, acts as the
managing general partner of the Apollo Real Estate Investment Funds, private
real estate investment funds; and (3) Lion Advisors, L.P., a financial advisor
to, and representative of, institutional investors with respect to securities
investments. Mr. Rowan is also a director of Samsonite Corporation, the leading
manufacturer of luggage; Vail Resorts, Inc., the owner and operator of the
Vail, Beaver Creek, Keystone and Breckenridge ski areas; National Financial
Partners Corp., a company involved in the consolidation of financial services
companies serving high net worth individuals and medium-sized businesses; and
NRT Incorporated, a leading national real estate brokerage company. Mr. Rowan
is also active in charitable activities and is a founding member and serves on
the executive committee of the Youth Renewal Fund and is a member of the board
of directors of National Jewish Outreach Program and the Undergraduate
Executive Board of The Wharton School. Mr. Rowan is 36 years old.
Scott A. Schoen, a Managing Director at Thomas H. Lee Company, joined the
firm in 1986. Prior to joining the firm, Mr. Schoen was in the Private Finance
Department of Goldman, Sachs & Co. Mr. Schoen received a B.A. in History from
Yale University, a J.D. from Harvard Law School and an M.B.A. from the Harvard
Graduate School of Business Administration. He is a member of the New York Bar.
Mr. Schoen is or has been a Director of First Alert, Inc., LaSalle Re Holdings
Ltd, Rayovac Corporation, Signature Brands, Inc., Syratech Corporation,
TransWestern Publishing, United Industries, and a number of private companies.
Mr. Schoen is also a director of United Way of Massachusetts Bay. Mr. Schoen is
40 years old.
Scott M. Sperling is a Managing Director at Thomas H. Lee Company. In this
capacity he is or has been a director of PriCellular Corp., Experian (the
former TRW credit and information business), Safelite Glass Corp., The Learning
Company, Fisher Scientific International, Inc., General Chemical Corp., Livent,
Inc., and a number of private companies. For ten years prior, Mr. Sperling was
Managing Partner of the Aeneas Group, the private capital affiliate of the
Harvard Management Company, Inc. Prior to 1984, Mr. Sperling was a Senior
Consultant with the Boston Consulting Group, Inc. focusing on business and
corporate strategies. He holds an M.B.A. degree from Harvard University and a
B.S. from Purdue University. Mr. Sperling is 41 years old.
Class C Directors
Norman Brownstein has been Chairman of the Board of the law firm Brownstein
Hyatt & Farber, P.C. Mr. Brownstein is nationally recognized for his extensive
experience in real estate law and commercial transactions. Mr. Brownstein is a
member of the American College of Real Estate Lawyers and the American,
Colorado, and Denver Bar Associations and numerous other professional
organizations. Mr. Brownstein is presently a director of the National Jewish
Center for Immunology and Respiratory Medicine, a Trustee of the Simon
Wiesenthal Center and a Vice President of the American Israel Public Affairs
Committee. Mr. Brownstein received a B.S. and a J.D. from the University of
Colorado at Boulder. Mr. Brownstein is 56 years old.
Stephen T. Clark Since 1995, Mr. Clark has been President of Cypress Realty,
Inc., a real estate investor and developer based in Houston, Texas and serves
as a director of Beacon Capital Partners, Inc. Previously,
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Mr. Clark served as Managing Director of Harvard Private Capital Group where he
directed the group responsible for real estate investment and management
activities. Prior to joining Harvard, Mr. Clark was a partner in Clark-Pilgrim
Limited Partnership and in Trammell Crow Company where he was in charge of
office and industrial activities in Philadelphia and Delaware. Mr. Clark has
extensive investment experience in developmental and distressed real estate
assets. He received a Masters in Business Administration degree from Harvard
Business School and received his undergraduate degree from Duke University. Mr.
Clark serves as Chairman of the Board of Abacoa Development Company. Mr. Clark
is 43 years old.
Paul Fribourg has been Chief Executive Officer of Continental Grain Company
since July 1997. Since 1976, Mr. Fribourg has held numerous positions with
Continental Grain including President and Chief Operating Officer from 1994 to
1997 and Executive Vice President of the Commodity Marketing Group from 1990 to
1994. Mr. Fribourg also serves on the boards of Loews Corporation, the YMCA of
Greater New York, The Browning School, New York University and the America-
China Society. Mr. Fribourg holds a B.A. from Amherst College and completed the
Advanced Management Program at Harvard Business School. Mr. Fribourg is 44
years old.
Information Regarding the Board of Directors of Wyndham and Its Committees
Meetings. The Board of Directors of Wyndham held 20 meetings during 1998. No
director attended less than 75% of the aggregate number of meetings held during
1998 of the board of directors and any board committee of which he was a
member.
Audit Committee. The audit committee consists of two independent directors:
Messrs. Boxer and Einspruch. An "independent director" is a director who is not
an officer or employee of Wyndham, any affiliate of an officer or employee or
any affiliate of (1) any advisor to Wyndham under an advisory agreement,
(2) any lessee of any property of Wyndham, (3) any subsidiary of Wyndham or (4)
any partnership which is an affiliate of Wyndham. The audit committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of Wyndham's internal accounting controls. The audit committee held 4
meetings during 1998.
Compensation Committee. The compensation committee consists of two
independent directors: Messrs. Leslie and Jacobson. The compensation committee
determines compensation of Wyndham's executive officers and administers the
Wyndham International 1997 Incentive Plan. The compensation committee held more
than 20 meetings during 1998.
Coordinating Committee. The coordinating committee consists of three
independent directors: Messrs. Boxer and Weiser and Ms. Groenteman. The
coordinating committee reviews and evaluates various proposals received from
potential investors. The coordinating committee held more than 50 meetings
during 1998.
Information Regarding the Board of Directors of Patriot and Its Committees
Meetings. The Board of Directors of Patriot held 20 meetings during 1998. No
director of Patriot attended less than 75% of the aggregate number of meetings
held during 1998 of the board of directors and any board committee of which he
was a member.
Audit Committee. Currently, the audit committee consists of two independent
directors: Messrs. Deterding and Dillon. An "independent director" is a
director who is not an officer or employee of Patriot, any affiliate of an
officer or employee or any affiliate of (1) any advisor to Patriot under an
advisory agreement, (2) any lessee of any property of Patriot, (3) any
subsidiary of Patriot or (4) any partnership which is an affiliate of Patriot.
The audit committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of Patriot's internal accounting controls. The audit
committee held 4 meetings during 1998.
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Compensation Committee. The compensation committee consists of three
independent directors: Messrs. Deterding, Dillon and Jacobson. The compensation
committee determines compensation of Patriot's executive officers, and
administers the Patriot American Hospitality, Inc. 1997 Incentive Plan. The
compensation committee held more than 20 meetings during 1998.
Coordinating Committee. The coordinating committee consists of three
independent directors: Messrs. Deterding, Fine and Ward. The coordinating
committee reviews and evaluates various proposals received from potential
investors. The coordinating committee held more than 50 meetings during 1998.
Director Compensation for Wyndham and Patriot
Currently, any director who is not an employee of Wyndham or Patriot is paid
an annual retainer fee of $25,000. The retainer fee is paid in quarterly
installments of $6,250 each. In addition, each director is paid $1,250 for
attendance at each meeting of Wyndham's or Patriot's Board of Directors, $1,000
for participating in a telephonic board meeting and $750 for attendance,
whether in person or telephonic, at each meeting of a committee of Wyndham's or
Patriot's Board of which such director is a member. Both the annual retainer
fee and meeting fees are payable in cash, but each director may elect in
advance to defer the receipt of all or part of their fees and to receive such
deferred fees at a later date in the form of paired shares. In addition,
Wyndham and Patriot reimburse directors for their out-of-pocket expenses
incurred in connection with their service on the Boards of Directors. Directors
who are employees of Wyndham or Patriot do not receive any fees for their
service on the Boards of Directors or a committee thereof.
Under the Wyndham 1997 Incentive Plan or the Patriot 1997 Incentive Plan, as
the case may be, on the date of each annual meeting of stockholders, each non-
employee director then in office will receive a grant of non-qualified options
to purchase an additional 10,000 paired shares at the then current market
price. All options granted to non-employee directors vest immediately upon the
date of grant. At the 1998 Annual Meeting of Stockholders, Messrs. Boxer, Crow,
Daniels, Deterding, Dillon, Leslie, Lyon, Ward and Weiser, Dr. Einspruch and
Ms. Groenteman each were granted a non-qualified option to acquire 10,000
paired shares at an exercise price of $24.125. Mr. Jacobson was granted a non-
qualified option to acquire 20,000 paired shares at an exercise price of
$24.125 at the 1998 Annual Meeting of Stockholders since he serves on both the
Wyndham and Patriot Boards.
The Wyndham and Patriot Boards of Directors held numerous board meetings to
consider strategic alternatives for the companies, including the negotiations
with the investors and the Identified Party and the approval of the investment.
A special coordinating committee of the Boards of Directors was also
established and met numerous times during the last two months of 1998 and the
first two months of 1999. The compensation committee also met several times to
discuss special compensation issues. One director, Ms. Groenteman, who served
as co-point person of the coordinating committee, worked full-time on these
matters. In light of their extraordinary effort, in lieu of the normal meeting
fees for the last two months of 1998 and the first two months of 1999, each
director not serving on either the compensation committee or the coordinating
committee received $20,000 in fees; members of the compensation committees,
other than Mr. Deterding, received $40,000 in fees; members of the coordinating
committee, other than Mr. Deterding and Ms. Groenteman, received $65,000 in
fees; Mr. Deterding, who served on both the coordinating committee and the
compensation committee, received $85,000 in fees; and Ms. Groenteman received
$200,000 in fees. These fees were payable in 1999 in either cash or deferred
paired shares, at the election of each director. Messrs. Crow, Daniels,
Deterding, Dillon, Ward and Weiser and Ms. Groenteman elected to receive their
fees in cash. Messrs. Boxer and Jacobson and Dr. Einspruch elected to receive
their fees in deferred paired shares. Messrs. Fine, Leslie and Ruhfus are
finalizing their elections as of the date of this joint proxy
statement/prospectus.
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Executive Compensation for Patriot
The following table sets forth the base compensation that Patriot paid in
1998, 1997 and 1996 to its Chairman and Chief Executive Officer and to five
executive officers other than the Chief Executive Officer of Patriot
(collectively, the "Patriot Named Executive Officers") whose base salary and
bonus exceeded $100,000 during the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation(a) Compensation Awards
----------------------------- ------------------------
Securities
Name and Restricted Underlying
Principal Stock Options All Other
Position Year Salary($) Bonus($)(b) Awards($) (#)(c) Compensation($)
- --------- ---- --------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul A.
Nussbaum (d).... 1998 $555,425 -- -- -- $ 1,630(e)
Chief Executive
Officer 1997 $407,500 $529,478 $6,930,124(f) 2,790,703(g) $45,869(h)
and Chairman of
the Board 1996 $247,500 $200,000 -- 161,002(i) --
William W. Evans
III............. 1998 $374,461 -- $ 999,996(j) -- $ 289(h)
President and
Chief 1997 $275,440(k) $303,373 $4,525,068(l) 601,074(m) $ 148(h)
Operating Officer
Anne L.
Raymond (n)..... 1998 $286,992 $ 50,000 -- 117,928(o) $ 252(p)
Executive Vice
President 1997 $208,300 $168,000 -- -- --
and Chief
Financial
Officer
Paul Novak (q)... 1998 $280,416 -- -- 25,641(r) $ 155(h)
Executive Vice
President 1997 $131,252 $179,573 $1,286,250(s) 107,335(r) $ 92(h)
Lawrence S.
Jones........... 1998 (t) (t) (t) (t) (t)
Executive Vice
President
and Treasurer
Rex E.
Stewart (u)..... 1998 $206,556 -- -- -- $ 75(h)
Chief Financial
Officer 1997 $207,375 $ 97,961 -- -- $ 201(h)
and Treasurer 1996 $174,250 $ 75,000 $ 847,500(v) 42,933(w) --
</TABLE>
- --------
(a) No Patriot Named Executive Officer received personal benefits or
perquisites in excess of the lesser of $50,000 or 10% of their aggregate
salary and bonus in 1997 or 1996.
(b) In accordance with the Patriot 1997 Incentive Plan, executive officers of
Patriot were allowed to elect to receive all or a portion of their bonus
either in cash or in paired shares. For 1997, if an executive officer chose
to receive their bonus all or in part in paired shares, they received a 15%
discount off of the fair market value of the paired shares as of January 6,
1998. The amounts included in the table above represent the fair market
value of the paired shares received. For 1997, Mr. Nussbaum elected to
receive his entire bonus in paired shares; Mr. Evans elected to receive
$81,000 in cash and $222,373 in the form of paired shares; Mr. Novak
elected to receive $82,500 in cash and $97,073 in the form of paired
shares; Mr. Stewart elected to receive $45,000 in cash and $52,961 in the
form of paired shares.
(c) Share amounts reflect the stock dividend distributed on January 25, 1999 to
stockholders of record on December 30, 1998.
(d) Mr. Nussbaum resigned as an officer of Patriot on February 26, 1999.
(e) Such amount includes $360 of term life insurance premiums paid by Patriot
for the benefit of Mr. Nussbaum and $1,270 contributed by Patriot to Mr.
Nussbaum's 401(k) account.
(f) On March 18, 1997, Patriot awarded the equivalent of 280,005 restricted
paired shares to Mr. Nussbaum. Taking into account the various stock splits
which occurred in 1997, the equivalent to the market value of
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the paired shares on the date of grant was $24.75 and the market value of
such paired shares on December 31, 1998 was $1,680,030. The restrictions on
these shares lapsed with respect to one-third of the shares on March 18,
1998. The restrictions with respect to the balance of the shares lapsed on
February 26, 1999 in connection with Mr. Nussbaum's resignation.
(g) On April 1, 1997, Patriot granted non-qualified options to purchase the
equivalent of 2,790,703 paired shares to Mr. Nussbaum. These options were
intended to vest five years from the date of grant, on April 1, 2002, but
became fully vested and exercisable on February 26, 1999 in connection with
Mr. Nussbaum's resignation.
(h) Such amount represents term life insurance premiums paid by Patriot for the
benefit of the named executive officer.
(i) On April 19, 1996, Patriot's predecessor granted non-qualified options to
purchase the equivalent of 161,002 paired shares to Mr. Nussbaum. These
options were intended to vest in seven equal annual installments beginning
April 19, 1997, but became fully vested and exercisable on February 26,
1999 in connection with Mr. Nussbaum's resignation.
(j) On December 31, 1998, Patriot awarded the equivalent of 166,666 restricted
paired shares to Mr. Evans. The equivalent to the market value of the
paired shares on the date of grant was $999,996. One-third of the award
will become payable upon the closing of the investment and the related
transactions and one-third on each of the first and second anniversary
thereof.
(k) Such amount includes $940 paid to Mr. Evans to cover commuting expenses.
(l) On February 14, 1997, Patriot awarded the equivalent of 200,003 restricted
paired shares to Mr. Evans. Taking into account the various stock splits
which occurred in 1997, the equivalent to the market value of the paired
shares on the date of grant was $22.625 and the market value of such paired
shares on December 31, 1998 was $1,200,018. The restrictions lapsed with
respect to 25% of the shares on March 1, 1998 and with respect to the
balance of the shares on December 31, 1998.
(m) On February 14, 1997, Patriot granted non-qualified options to purchase the
equivalent of 601,074 paired shares to Mr. Evans. These options were to
vest in 12 equal quarterly installments beginning on April 1, 1997, but
became fully vested and exercisable on November 27, 1998.
(n) Ms. Raymond returned from a leave of absence to the position of Executive
Vice President, Chief Investment Officer and interim Chief Financial
Officer on April 19, 1999.
(o) On February 2, 1998, Patriot granted Ms. Raymond: 1) non-qualified options
to purchase the equivalent of 10,733 paired shares which options vest on
the anniversary of February 2, 1998 at the following rates: year 1: 30%;
year 2: 30% and year 3: 40% and 2) non-qualified options to purchase the
equivalent of 88,925 paired shares which options vest on the anniversary of
February 2, 1998 at the following rates: year 1: 20%; year 2: 20%; year 3:
30% and year 4: 30%. On November 13, 1998, pursuant to an option repricing
program, the non-qualified options to purchase the equivalent of 10,733
paired shares were surrendered and exchanged for non-qualified options to
purchase the equivalent of 1,967 paired shares and the non-qualified
options to purchase the equivalent of 88,925 paired shares were surrendered
and exchanged for non-qualified options to purchase the equivalent of
16,303 paired shares. See "Patriot Option Repricing Program".
(p) Such amount includes $90 of term life insurance premiums paid by Patriot
for the benefit of Ms. Raymond and $162 contributed by Patriot to Ms.
Raymond's 401(k) account.
(q) Mr. Novak's employment with Patriot terminated in May 1999.
(r) On June 24, 1997, Patriot granted non-qualified options to purchase the
equivalent of 107,335 paired shares to Mr. Novak which options vest in
seven equal annual installments on the anniversary of June 24, 1997. On
November 13, 1998, pursuant to an option repricing program, such non-
qualified options were surrendered and exchanged for non-qualified options
to purchase the equivalent of 25,641 paired shares. See "Patriot Option
Repricing Program".
(s) On June 24, 1997, Patriot awarded the equivalent of 60,000 restricted
paired shares to Mr. Novak. The equivalent to the market price of the
paired shares on the date of grant was $21.4375 and the market value of
such paired shares on December 31, 1998 was $360,000. The restrictions on
the shares were to lapse in five equal annual installments beginning on
June 24, 1998 and ending on June 24, 2002, but in connection with Mr.
Novak's termination, all restrictions lapsed in May 1999.
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(t) Mr. Jones commenced as an officer in March 1998 and was paid by Wyndham for
his services as an officer of both Patriot and Wyndham. See the "Wyndham
Summary Compensation Table."
(u) Mr. Stewart resigned as an officer of Patriot on March 31, 1998.
(v) On July 25, 1996, Patriot's predecessor awarded the equivalent of 60,000
restricted paired shares to Mr. Stewart. Taking into account the various
stock splits which occurred in 1997, the equivalent to the market value of
the paired shares on the date of grant was $14.125 and the market value of
such paired shares on December 31, 1998 was $360,000. The restrictions
lapse in four equal annual installments beginning on July 25, 1997.
(w) On April 19, 1996, Patriot's predecessor granted non-qualified options to
purchase the equivalent of 42,933 paired shares to Mr. Stewart. These
options were to vest in seven equal annual installments beginning April 19,
1997 but became fully vested and exercisable on October 2, 1998 in
connection with Mr. Stewart's resignation.
The Patriot Named Executive Officers have used the companies' facilities,
including the companies' hotel properties and the companies' corporate jet
services, for personal and business purposes.
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Option Grants in Fiscal Year 1998 for Patriot
The following table sets forth the options granted with respect to the
fiscal year ended December 31, 1998 to the Patriot Named Executive Officers.
All amounts reported in the following table have been adjusted to reflect the
stock dividend declared in the fourth quarter of 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Share Price
Appreciation For
Individual Grants Option Term
--------------------------------------------------------------- ------------------------
Number of Percent of Total
Shares Underlying Options Granted
Options to Employees Exercise or Base Expiration
Name Granted(#) in Fiscal Year Price($/SH) Date 5%($) 10%($)
- ---- ----------------- ---------------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Anne L. Raymond......... 88,925(a)(d) 32.2% $24.224 2/2/2008 $ 0(d) $ 0(d)
10,733(b)(d) 3.9% $24.224 2/2/2008 $ 0(d) $ 0(d)
16,303(a)(e) 25.4% $ 7.547 2/2/2008 $ 77,378 $ 196,092
1,967(b)(e) 3.1% $ 7.547 2/2/2008 $ 9,336 $ 23,659
Paul Novak.............. 25,641(c)(e) 39.9% $ 7.547 6/24/2007 $ 121,699 $ 308,409
</TABLE>
- --------
(a) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 20%; year 2: 20%; year 3: 30% and year 4: 30%.
(b) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 30%; year 2: 30% and year 3: 40%.
(c) Such non-qualified options vest in seven equal annual installments on the
anniversary of June 24, 1997.
(d) Such non-qualified options were surrendered and canceled pursuant to the
stock option repricing program and are therefore no longer outstanding. See
"Patriot Stock Option Repricing Program."
(e) Such non-qualified options were granted pursuant to the stock option
repricing program. See "Patriot Stock Option Repricing Program."
Option Exercises and Year-End Holdings for Patriot
The following table sets forth the number of paired shares acquired upon the
exercise of options during 1998 and the value of options held at the end of
1998 by the Patriot Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Value Unexercised In-The-Money Options at
Acquired on Realized Options at December 31, 1998 (#) December 31, 1998 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ---------- -------------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul A. Nussbaum........ 449,818 $5,036,234 37,271/2,968,304 (a)
William W. Evans........ -- -- 601,074/0 (a)
Anne L. Raymond......... 109,760 $ 904,258 0/18,270 (a)
Paul Novak.............. -- -- 3,663/21,978 (a)
Rex E. Stewart.......... -- -- 225,403/0 (a)
</TABLE>
- --------
(a) None of the unexercised options are in-the-money.
82
<PAGE>
Patriot Stock Option Repricing Program
Patriot commenced an option repricing program for certain optionees holding
stock options with an exercise price per share in excess of $7.547 on November
13, 1998. The new exercise price was based on the average stock price for the
five-day period beginning November 9, 1998 and ending November 13, 1998.
The following table sets forth information with respect to the executive
officers of Patriot relating to the repricing of certain options previously
awarded to employees during fiscal years 1997 and 1998. All optionees, other
than the directors and the top two executive officers, were given the
opportunity to surrender certain options in exchange for new options which have
a Black-Scholes value equal to the old options, but were for fewer shares, at
an exercise price of $7.547 per share. The new options retain the original
vesting and expiration dates of the old options. The options set forth below
were the only options repriced for the executive officers in the last ten
years. Pursuant to the anti-dilution provision of the Patriot 1997 Incentive
Plan, the numbers of securities, stock prices and exercise prices reported in
the following table have been adjusted to reflect the stock dividend declared
for the fourth quarter of 1998.
10 Year Option Repricings
<TABLE>
<CAPTION>
Length of
Number of Market Number of Original
Securities Price of Securities Option Term
Underlying Stock at New Underlying Remaining at
Date of Options Time of Exercise Price at Exercise Options Date of
Name Repricing Repriced Repricing Time of Repricing Price After Repricing Repricing
---- --------- ---------- --------- ----------------- -------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anne L. Raymond......... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President and Chief
Financial Officer
Paul Novak.............. 11/13/98 107,335 $7.279 $21.079 $7.547 25,641 8 years 8 months
Executive Vice
President
John P. Bohlmann........ 11/13/98 32,220 $7.279 $24.224 $7.547 5,903 8 years 8 months
Senior Vice President 11/13/98 6,977 $7.279 $24.224 $7.547 1,279 9 years 3 months
and General Counsel
</TABLE>
Compensation Committee Report on Repricing of Options
During fiscal 1998, the compensation committees determined that the
significant drop in the price of the paired shares made it necessary for
Wyndham and Patriot to implement an option repricing program. The drop in price
of the paired shares was caused by a number of factors, including the enactment
of federal legislation affecting the paired share REIT structure, the
restricted availability of credit in the financial markets caused in part by
the Russian debt crisis in late summer, and Wyndham's and Patriot's liquidity
issues caused by the maturity of the forward equity contracts. Under this
program, all optionees, other than the directors and the top two executive
officers of Wyndham and the top two executive officers of Patriot, were given
the opportunity to surrender options granted on or after January 15, 1997 in
exchange for new options which have a Black-Scholes value equal to the old
options, but were for fewer shares, at the average stock price for the five-day
period beginning November 9, 1998 and ending November 13, 1998. The new options
retain the original vesting and expiration dates of the old options.
The objective of the Wyndham and Patriot stock option plans is to align the
efforts of all employees toward the success of Wyndham and Patriot and to
reward employees for their contributions to that success. The goals of the
repricing program were to protect the interests of outside stockholders while
maintaining the aggregate economic "value" of the stock options before and
after the option repricing. The compensation committees determined that this
option repricing program was necessary because equity incentives are an
important component of the total compensation of each employee and play a
substantial role in Wyndham's and Patriot's ability to retain the services of
individuals essential to Wyndham's and Patriot's long-term financial success.
Prior to implementation of the program, the market price of the paired shares
had fallen and Wyndham and Patriot had begun to experience high staff turnover.
The compensation committees felt that the effectiveness of the stock option
program and Wyndham's and Patriot's ability to retain key employees would be
significantly impaired unless value was restored to previously granted stock
options in the form of repriced options for paired shares at prices more
closely related to the current
83
<PAGE>
market price. Non-employee directors and the top two executive officers of
Wyndham and the top two executive officers of Patriot were not eligible for
participation in the option repricing program. All other executive officers,
including Mr. Novak were eligible to participate in the option repricing
program because the compensation committees concluded that these executives
were not responsible for the decrease in the stock price.
Accordingly, during 1998, the compensation committees approved offering all
current employees and officers, other than the top two executive officers of
Wyndham and the top two executive officers of Patriot, an opportunity to
surrender stock options issued between January 15, 1997 and November 13, 1998
with exercise prices above $8.10 for new options with an exercise price of
$8.10 per share, the average market price of the paired shares for the five-day
period beginning November 9, 1998 and ending November 13, 1998. Each optionee
holding such options had the opportunity to elect to retain the old option or
to accept new options for a significantly reduced number of shares that have an
equivalent Black-Scholes value. Wyndham and Patriot engaged a compensation
consultant to assist in the implementation of the repricing program and the
Black-Scholes valuation of the previously-granted stock options. The new
repriced stock options have the same Black-Scholes value as the old options,
but cover much fewer shares. For most optionees, the shares underlying the
repriced options represent approximately 18% of the number of shares covered by
the old options. By reducing both the option price and the number of shares,
the compensation committees believe this repricing program is more fair to the
stockholders than the traditional repricing method which simply reduced the
option price without a corresponding reduction in the number of option shares.
The compensation committees did not accelerate the vesting of any regranted
options, nor did they extend the time for exercise of any regranted options.
For the fourth quarter of 1998, Wyndham and Patriot declared a stock
dividend. Under the anti-dilution provisions of Wyndham's and Patriot's 1997
Incentive Plans, the compensation committees are given the discretion to take
such action as they determine to be equitable in the event of stock dividends,
stock split-up or similar occurrence. Accordingly, all options are further
adjusted (both exercise prices and the number of option shares) to reflect the
stock dividend. Therefore, the exercise price of the repriced options is
further reduced to $7.547.
The compensation committees believe that the stock option repricing program,
which reflects both a reduction in the number of shares issuable upon exercise
and a reduction in the per share exercise price but preserves the original
vesting schedule and expiration dates of the original options, strikes an
appropriate balance between the interests of Wyndham and Patriot, their
stockholders and option holders. The lower exercise prices in effect under the
repriced options make those options valuable once again to the option holders
who are critical to Wyndham's and Patriot's future success and financial
performance.
Neither Mr. Carreker nor Mr. Nussbaum was eligible for the 1998 stock option
repricing program. However, as part of his resignation, the compensation
committee allowed Mr. Nussbaum to file an election, between June 30, 1999 and
December 31, 1999, to exchange his outstanding options for new options of equal
"Black-Scholes" value at the then current market price. It is expected that the
new options will be for significantly fewer shares. Because of Mr. Nussbaum's
continued involvement with the companies as both a director and a consultant,
the compensation committees believe that Mr. Nussbaum's separation package
should have a large equity component. In this way, Mr. Nussbaum's economic
interests would be aligned with the stockholders'. Mr. Nussbaum will benefit
from the repriced options only if the share price increases.
Submitted by the Wyndham Compensation Committee
Arch K. Jacobson
James C. Leslie
Submitted by the Patriot Compensation Committee
John C. Deterding
Gregory R. Dillon
Arch K. Jacobson
84
<PAGE>
Executive Compensation for Wyndham
The following table sets forth the base compensation that Wyndham paid to
its Chief Executive Officer and to five executive officers other than the Chief
Executive Officer of Wyndham (collectively, the "Wyndham Named Executive
Officers") whose base salary and bonus exceeded $100,000 during the fiscal year
ending December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation(a) Compensation Awards
----------------------- ------------------------
Securities
Restricted Underlying
Name and Principal Stock Options All Other
Position Year Salary($) Bonus($) Awards($) (#) (b) Compensation($)
- ------------------ ---- --------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James D. Carreker (c)... 1998 $571,036 -- -- -- $ 648(d)
Chief Executive Officer
and Chairman of the
Board
Karim Alibhai........... 1998 $353,886 $140,000 -- 300,532(e) $1,466(d)
President and Chief 1997 $ 72,916 -- -- 300,532(f) --
Operating Officer
Leslie V. Bentley....... 1998 $320,192 $120,000 -- 117,928(g) $2,308(d)
Executive Vice
President
Stanley M. Koonce, Jr... 1998 $310,920 $120,000 -- 117,928(g) $ 792(d)
Executive Vice
President
Richard A. Holtzman..... 1998 $348,070 $200,000 $ 930,000(h) 16,511(i)
Executive Vice
President
Lawrence S. Jones....... 1998 $242,308 $150,000 $ 742,500(j) 115,919(k) $ 120(d)
Executive Vice
President
and Treasurer
</TABLE>
- --------
(a) No Wyndham Named Executive Officer received personal benefits or
perquisites in excess of the lesser of $50,000 or 10% of their aggregate
salary and bonus.
(b) Share amounts reflect the stock dividend distributed on January 25, 1999 to
stockholders of record on December 30, 1998.
(c) Mr. Carreker became Chief Executive Officer of Wyndham in January 1998.
(d) For Mr. Carreker, such amount includes $360 of term life insurance premiums
paid by Wyndham for the benefit of Mr. Carreker and $288 contributed by
Wyndham to Mr. Carreker's 401(k) account. For Mr. Alibhai, such amount
includes $113 of term life insurance premiums paid by Wyndham for the
benefit of Mr. Alibhai and $1,353 contributed by Wyndham to Mr. Alibhai's
401(k) account. For Mr. Bentley, such amount includes $139 of term life
insurance premiums paid by Wyndham for the benefit of Mr. Bentley and
$2,169 contributed by Wyndham to Mr. Bentley's 401(k) account. For Mr.
Koonce, such amount includes $146 of term life insurance premiums paid by
Wyndham for the benefit of Mr. Koonce and $646 contributed by Wyndham to
Mr. Koonce's 401(k) account. For Mr. Jones, such amount represents term
life insurance premiums paid by Wyndham for the benefit of Mr. Jones.
(e) On June 12, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 300,532 paired shares to Mr. Alibhai. These options vest in
12 equal installments at the beginning of each calendar quarter starting on
January 1, 1998 and ending on December 31, 2000.
(f) On October 1, 1997, Wyndham granted non-qualified options to purchase the
equivalent of 300,532 paired shares to Mr. Alibhai. These options vest in
12 equal installments at the beginning of each calendar quarter starting on
January 1, 1997 and ending on December 31, 2000.
85
<PAGE>
(g) On February 2, 1998, Wyndham granted the named executive: 1) non-qualified
options to purchase the equivalent of 10,733 paired shares which options
vest on the anniversary of February 2, 1998 at the following rates: year 1:
30%; year 2: 30% and year 3: 40% and 2) non-qualified options to purchase
the equivalent of 88,925 paired shares which options vest on the
anniversary of February 2, 1998 at the following rates: year 1: 20%; year
2: 20%; year 3: 30% and year 4: 30%. On November 13, 1998, pursuant to an
option repricing program, the non-qualified options to purchase the
equivalent of 10,733 paired shares were surrendered and exchanged for non-
qualified options to purchase the equivalent of 1,967 paired shares and the
non-qualified options to purchase the equivalent of 88,925 paired shares
were surrendered and exchanged for non-qualified options to purchase the
equivalent of 16,303 paired shares. See "Wyndham Option Repricing Program".
(h) On June 19, 1998, Wyndham awarded the equivalent of 40,000 restricted
paired shares to Mr. Holtzman. The equivalent to the market price of the
paired shares on the date of grant was $23.25 and the market value of such
paired shares on December 31, 1998 was $240,000. The restrictions on the
award will lapse on the anniversary of the date of grant at the following
rates: year 1: 20%; year 2: 20%; year 3: 30% and year 4: 30%. Mr. Holtzman
is entitled to receive dividends on the total award during the vesting
period.
(i) On February 2, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 13,953 paired shares to Mr. Holtzman which options vest on
the anniversary of February 2, 1998 at the following rates: year 1: 30%;
year 2: 30% and year 3: 40%. On November 13, 1998, pursuant to an option
repricing program, such non-qualified options were surrendered and
exchanged for non-qualified options to purchase the equivalent of 2,558
paired shares. See "Wyndham Option Repricing Program".
(j) On March 9, 1998, Wyndham awarded the equivalent of 30,000 restricted
paired shares to Mr. Jones. The equivalent to the market price of the
paired shares on the date of grant was $24.75 and the market value of such
paired shares on December 31, 1998 was $180,000. The restrictions on the
award will lapse on the anniversary of the date of grant at the following
rates: year 1: 25%; year 2: 50%; year 3: 75% and year 4: 100%. Mr. Jones is
entitled to receive dividends on the total award during the vesting period.
(k) On March 9, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 10,733 paired shares to Mr. Jones which options vest on the
anniversary of March 9, 1998 at the following rates: year 1: 30%; year 2:
30% and year 3: 40%. On April 1, 1998, Wyndham granted non-qualified
options to purchase the equivalent of 85,866 paired shares to Mr. Jones
which options vest in 12 equal quarterly installments beginning on April 1,
1998. On November 13, 1998, pursuant to an option repricing program, the
non-qualified options to purchase the equivalent of 10,733 paired shares
were surrendered and exchanged for non-qualified options to purchase the
equivalent of 2,147 paired shares and the non-qualified options to purchase
the equivalent of 85,866 paired shares were surrendered and exchanged for
non-qualified options to purchase the equivalent of 17,173 paired shares.
See "Wyndham Option Repricing Program".
86
<PAGE>
Option Grants in Fiscal Year 1998 for Wyndham
The following table sets forth the options granted with respect to the fiscal
year ended December 31, 1998 to the Wyndham Named Executive Officers. All
amounts reported in the following table have been adjusted to reflect the stock
dividend declared in the fourth quarter of 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Share Price
Appreciation For
Individual Grants Option Term
---------------------------------------------------------- ------------------------
Number of Percent of Total
Shares Underlying Options Granted Exercise
Options to Employees or Base Expiration
Name Granted(#) in Fiscal Year Price($/SH) Date 5%($) 10%($)
- ---- ----------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Karim Alibhai........... 300,532(a) 11.5% $19.449 6/12/2008 $3,675,919 $9,315,499
Leslie V. Bentley....... 10,733(b)(d) 0.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
88,925(c)(d) 3.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
1,967(e) 0.6% $ 7.547 2/2/2008 $ 9,336 $ 23,659
16,303(e) 4.9% $ 7.547 2/2/2008 $ 77,378 $ 196,092
Stanley M. Koonce,
Jr. ................... 10,733(b)(d) 0.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
88,925(c)(d) 3.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
1,967(e) 0.6% $ 7.547 2/2/2008 $ 9,336 $ 23,659
16,303(e) 4.9% $ 7.547 2/2/2008 $ 77,378 $ 196,092
Richard A. Holtzman..... 13,953(b)(d) 0.5% $24.224 2/2/2008 $ 0(d) $ 0(d)
2,558(e) 0.8% $ 7.547 2/2/2008 $ 12,141 $ 30,768
Lawrence S. Jones....... 85,866(f)(d) 3.3% $23.059 3/9/2008 $ 0(d) $ 0(d)
10,733(g)(d) 0.4% $23.059 3/9/2008 $ 0(d) $ 0(d)
17,173(e) 5.2% $ 7.547 3/9/2008 $ 81,508 $ 206,556
2,147(e) 0.6% $ 7.547 3/9/2008 $ 10,190 $ 25,824
</TABLE>
- --------
(a) Such non-qualified options vest in 12 equal installments at the beginning
of each calendar quarter starting on January 1, 1998 and ending on
December 31, 2000.
(b) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 30%; year 2: 30% and year 3: 40%.
(c) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 20%; year 2: 20%; year 3: 30% and year 4: 30%.
(d) Such non-qualified options were surrendered and canceled pursuant to the
stock option repricing program and are therefore no longer outstanding. See
"Wyndham Stock Option Repricing Program."
(e) Such non-qualified options were granted pursuant to the stock option
repricing program. See "Wyndham Stock Option Repricing Program."
(f) Such options vest in 12 quarterly installments beginning on April 1, 1998.
(g) Such options vest on the anniversary of March 9, 1998 at the following
rates: year 1: 30%; year 2: 30% and year 3: 40%.
87
<PAGE>
Option Exercises and Year-End Holdings for Wyndham
The following table sets forth the number of paired shares acquired upon the
exercise of options during 1998 and the value of options held at the end of
1998 by the Wyndham Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Value Unexercised In-The-Money Options at
Acquired on Realized Options at December 31, 1998 (#) December 31, 1998 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ---------- -------------------------------- -------------------------
<S> <C> <C> <C> <C>
James D. Carreker....... 178,360 $2,200,606 78,048/0 (a)
Leslie V. Bentley....... 82,320 $1,082,549 29,452/18,720 (a)
Stanley M. Koonce, Jr... 82,320 $1,118,564 29,452/18,720 (a)
Lawrence S. Jones....... -- -- 3,220/16,100 (a)
</TABLE>
- --------
(a) None of the unexercised options are in-the-money.
88
<PAGE>
Wyndham Stock Option Repricing Program
Wyndham commenced an option repricing program for certain optionees holding
stock options with an exercise price per share in excess of $7.547 on November
13, 1998. The new exercise price was based on the average stock price for the
five-day period beginning November 9, 1998 and ending November 13, 1998.
The following table sets forth information with respect to the executive
officers of Wyndham relating to the repricing of certain options previously
awarded to employees during fiscal years 1997 and 1998. All optionees, other
than the directors and the top two executive officers, were given the
opportunity to surrender certain options in exchange for new options which have
a Black-Scholes value equal to the old options, but were for fewer shares, at
an exercise price of $7.547 per share. The new options retain the original
vesting and expiration dates of the old options. The options set forth below
were the only options repriced for the executive officers in the last ten
years. Pursuant to the anti-dilution provision of the Wyndham 1997 Incentive
Plan, the numbers of securities, stock prices and exercise prices reported in
the following table have been adjusted to reflect the stock dividend declared
for the fourth quarter of 1998.
10 Year Option Repricings
<TABLE>
<CAPTION>
Number of
Number of Market Securities Length of
Securities Price of Exercise Underlying Original Option
Underlying Stock at Price at New Options Term Remaining
Date of Options Time of Time of Exercise After at Date of
Repricing Repriced Repricing Repricing Price Repricing Repricing
Name --------- ---------- --------- --------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie V. Bentley ...... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Stanley M. Koonce, Jr... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Lawrence S. Jones....... 11/13/98 85,866 $7.279 $23.059 $7.547 17,173 9 years 4 months
Executive Vice 11/13/98 10,733 $7.279 $23.059 $7.547 2,147 9 years 4 months
President and Treasurer
Richard A. Holtzman..... 11/13/98 13,953 $7.279 $24.224 $7.547 2,558 9 years 3 months
Executive Vice
President
Thomas W. Lattin........ 11/13/98 33,625 $7.279 $24.224 $7.547 6,617 9 years 3 months
Executive Vice
President
Michael A. Grossman..... 11/13/98 41,806 $7.279 $24.224 $7.547 7,665 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Carla S. Moreland....... 11/13/98 32,200 $7.279 $24.224 $7.547 5,903 9 years 3 months
Senior Vice President 11/13/98 6,977 $7.279 $24.224 $7.547 1,279 9 years 3 months
and General Counsel
</TABLE>
For Compensation Committee Report on Repricing of Options, see page 83.
Report of the Compensation Committees of the Boards of Directors of Wyndham and
Patriot on Executive Compensation
This compensation committee report relates to compensation decisions made by
Wyndham's and Patriot's compensation committees. This compensation committee
report shall not be deemed incorporated by reference by any general statement
incorporating by reference this joint proxy statement/prospectus into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that Wyndham or Patriot specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such laws.
89
<PAGE>
Objectives of Executive Compensation. Wyndham's and Patriot's executive
compensation programs are intended to attract, motivate and retain key
executives who are capable of leading Wyndham and Patriot effectively and
continuing their long-term growth. The compensation programs for executives are
comprised of base salary, annual incentives and long-term incentive awards.
Base salary is targeted to be within a reasonable range of compensation for
comparable companies and for comparable levels of expertise by executives.
Annual incentives are based upon the achievement of one or more performance
goals. Wyndham and Patriot use stock options and other equity based
compensation in their long-term incentive programs.
Compensation Committee Procedures. The compensation committees of the Boards
of Directors establish the general compensation policies of Wyndham and Patriot
and implement and monitor the compensation and incentive plans and policies of
Wyndham and Patriot. The Wyndham compensation committee is composed of two
independent directors, none of whom is currently an officer or employee of
Wyndham. The Patriot compensation committee is composed of three independent
directors, none of whom is currently or was formerly an officer or employee of
Patriot. Final compensation determinations for each fiscal year are generally
made after the end of the fiscal year, after audited financial statements for
such year become available. At that time, bonuses, if any, are determined for
the past year's performance, base salaries for the following fiscal year are
set and long-term incentives, if any, are granted.
The compensation committees engage compensation consultants to advise the
committees with respect to executive compensation matters, including
compensation amounts and the relative allocation of compensation among base
salary, annual incentive compensation and long-term incentive compensation. The
compensation committees, working with these compensation consultants,
established quantitative and qualitative performance targets for the year
ending December 31, 1998 for both annual and long-term compensation awards. The
results of this review are reflected in the annual incentive compensation
decisions for the fiscal year ended December 31, 1998 and in the base salary
levels for the fiscal year ending December 31, 1999.
In setting base salary and determining annual incentive and long-term
incentive awards, the compensation committees review compensation levels of
executive officers at other hospitality companies and real estate investment
trusts with revenues comparable to those of Wyndham and Patriot . Some of these
companies are the same companies that comprise the NAREIT Total Return Equity
Index to which Wyndham's and Patriot's stock performances are compared in this
joint proxy statement/prospectus. The compensation committees believe that the
compensation information for these groups is comparable since both groups
contain hospitality companies of similar size and performance.
The compensation committees also review data contained in published surveys
on executive compensation. The compensation committees based their decisions
regarding 1999 base salary and annual cash bonus amounts for the year ended
December 31, 1998, in part, upon their review of such data. In general, the
1999 base salary for most executives is slightly above the median base salary
for comparable companies. The cash bonus for 1998 is generally below the median
for comparable companies.
Members of the compensation committees consult periodically by telephone
prior to their joint meetings at which compensation decisions are made. The
compensation committees exercise their independent discretion in determining
the compensation of the executive officers.
Each element of the executive compensation, as well as the compensation of
the Wyndham Chief Executive Officer and the Patriot Chief Executive Officer, is
discussed separately below.
Base Salary. Base salaries are a fixed component of total compensation and
do not relate to the performance of the companies. Base salaries are determined
by the compensation committees after reviewing salaries paid by hospitality
companies of similar size and performance. For 1999, most executives received a
base salary increase of about 5 percent.
Annual Incentives. Annual incentives are provided in the form of cash
bonuses. Annual incentives are designed to reward executives and management for
the annual growth and achievement of Wyndham and
90
<PAGE>
Patriot and are therefore tied to the performance of the companies. The
compensation committees award cash bonuses to those executives who meet
established goals, with the amount of the award based upon each executive's
base salary and the level to which such executive's performance met and
exceeded the established goal. For the three top senior executives, the goal
for bonus is two-fold: FFO per share growth and individual performance. The FFO
per share growth for 1998 was not met, and therefore, the three top senior
executives did not receive any cash bonuses. For executives in hotel
operations, the goal for bonus is three-fold: revenue growth versus
competition, EBITDA targets and individual performance. The revenue growth
goals for hotel operations for 1998 were met, while EBITDA results were mixed.
Executives in hotel operations with the title Executive Vice President and
above who received commendable ratings from their immediate superiors received
average bonuses equal to 40 percent of their base salaries. For executives in
corporate operations, the goal for bonus is two-fold: achievement of key
corporate objectives such as merger integrations and corporate procurement
program and individual performance. Some of the corporate objectives were met
and executives in corporate operations who received commendable ratings from
their immediate superiors received average bonuses equal to 40 percent of their
base salaries. In some instances, bonuses have been awarded pursuant to
requirements in the employment agreements.
Long-term Incentives. Long-term incentives are provided through the grant of
restricted stock awards and stock options. These grants are designed to align
executives' interests with the long-term goals of Wyndham and Patriot and the
interests of Wyndham's and Patriot's stockholders and encourage high levels of
stock ownership among executives. Wyndham and Patriot have a broad-based stock
option award program that is granted annually to generally all employees with
the title "General Manager" and up. These annual option grants vest over three
years. New executives are eligible to receive a one-time initial option grant
that vests over four years. In addition, executives who are marked as high
potential and key to the long-term growth of Wyndham and Patriot may receive a
Chairman's award which entitles them to receive a special option award that
vests over five years. Both the one-time initial option grants and the
Chairman's awards are more generous in size than the annual option grants.
Executives who are parties to employment agreements and other selected
executives may receive restricted stock grants that vest over four years. It is
intended that only a select group of executives will receive restricted stock
grants.
Termination Agreement with Mr. Stewart. On March 31, 1998, Mr. Stewart's
employment with Patriot terminated. In consideration of Mr. Stewart's agreement
to provide consulting services, the compensation committee approved certain
severance arrangements which are described in more detail in the section
captioned "Wyndham and Patriot Employment Agreement and Termination
Agreements."
Compensation of Chief Executive Officers. The compensation committees set
Mr. Carreker's and Mr. Nussbaum's base salaries for the year ended December 31,
1998 at or around the median base salary for chief executive officers of
comparable companies. Mr. Carreker's 1998 base salary was $571,036. Mr.
Nussbaum's 1998 base salary was $555,425, an amount that represents an increase
of 11% over his 1997 base salary of $500,000.
In light of Wyndham's and Patriot's financial difficulties in 1998, the
compensation committees did not award Mr. Carreker or Mr. Nussbaum a bonus for
1998. Except for the award made pursuant to the special retention plan
described below, neither Mr. Carreker nor Mr. Nussbaum received any equity
award in 1998.
The compensation committees considered that it was very important to keep
the top executives focused on facilitating a strategic transaction or
investment that would be in the best interests of the stockholders. Towards
this end, the compensation committees engaged a compensation consultant to
assist them in designing a special retention and incentive plan for the top
executives that would motivate the executives to support the best possible
transactions for Wyndham and Patriot and that would be fair and reasonable to
stockholders. The consultant advised the compensation committees that market
practice would support the adoption of a special retention plan for those
selected executives whose continued employment and active role in supporting a
strategic transaction was critical. After careful review of the compensation
consultant's report and consultation with counsel, the compensation committees
approved a special retention plan. Payments would be made under the special
retention plan upon the execution of, and in some instances, the closing of a
strategic transaction.
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The compensation committees considered the purchase agreement to be a strategic
transaction that would entitle executives to receive payments under the special
retention plan. Pursuant to the special retention plan, in February, 1999, Mr.
Carreker received a paired share award in the amount of 216,666 paired shares.
The first installment of 72,222 paired shares will become payable upon the
closing of the investment and the related transactions, and 72,222 paired
shares will become payable on each of the first and second anniversaries
thereof. Pursuant to the special retention plan, in February, 1999, Mr.
Nussbaum received a paired share award in the amount of 250,000 paired shares,
payable in three installments. The first installment of 83,334 paired shares
became payable upon the execution of the purchase agreement, and 83,333 paired
shares will become payable on each of the first and second anniversaries
thereof. Pursuant to the special retention plan, Mr. Evans received a paired
share award in the amount of 166,666 paired shares. The first installment of
55,556 paired shares will become payable upon the closing of the investment and
the related transactions, and 55,555 will become payable on each of the first
and second anniversaries thereof. No other executive is eligible to receive an
award under the special retention plan.
Neither Mr. Carreker nor Mr. Nussbaum was eligible for the 1998 stock option
repricing program described above. However, as part of his resignation, the
Patriot compensation committee allowed Mr. Nussbaum to file an election,
between June 30, 1999 and December 31, 1999, to exchange his outstanding
options for new options of equal "Black-Scholes" value for fewer shares at the
then current market price.
Tax Considerations. The compensation committees' executive compensation
strategies are designed to be cost- and tax-effective. Therefore, the
compensation committees' policies are, where possible and considered
appropriate, to preserve corporate tax deductions, including the deductibility
of compensation paid to the Wyndham Named Officers and the Patriot Named
Officers pursuant to Section 162(m) of the Internal Revenue Code, while
maintaining the flexibility to approve compensation arrangements which they
deem to be in the best interests of Wyndham and Patriot and their stockholders,
but which may not always qualify for full tax deductibility.
Submitted by the Wyndham Compensation Committee
Arch K. Jacobson
James C. Leslie
Submitted by the Patriot Compensation Committee
John C. Deterding
Gregory R. Dillon
Arch K. Jacobson
Compensation Committee Interlocks and Insider Participation for Wyndham and
Patriot
With respect to Wyndham, during 1998 Mr. Carreker served on the compensation
committee of Crow Family Holdings and Ms. Groenteman is a director of Wyndham
and the chief operating officer of Crow Family Holdings.
Wyndham and Patriot Employment Agreements and Termination Agreements
Patriot entered into an employment agreement as of April 14, 1997 with Mr.
Carreker, pursuant to which Mr. Carreker serves as Chief Executive Officer and
as Chairman of the Board of Wyndham for a term of five years beginning on
January 5, 1998. Mr. Carreker's base salary is $571,036. This agreement is
automatically extended for an additional two-year term unless either party
elects to terminate it by notice in writing at least 90 days prior to the
second anniversary of the agreement or even-numbered anniversary date
thereafter. Mr. Carreker is eligible to receive incentive compensation to be
determined by the compensation committee of an amount up to 100% of his base
compensation.
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Patriot entered into an employment agreement as of April 14, 1997 with Mr.
Nussbaum, pursuant to which Mr. Nussbaum serves as Chief Executive Officer and
Chairman of the Board of Patriot from July 1, 1997 until January 5, 2003, the
fifth anniversary of the effective date of the Wyndham merger. Mr. Nussbaum's
employment with Patriot terminated as of February 26, 1999, for reasons other
than for cause. Pursuant to the terms of his separation agreement, which was
based in part on the provisions of Mr. Nussbaum's employment agreement, Patriot
has agreed to pay Mr. Nussbaum severance in the amount of $3.2 million, to
provide for certain benefits for two years and an office and secretarial
support for three years. In addition, all of Mr. Nussbaum's outstanding stock
options vested and became exercisable and all of Mr. Nussbaum's restricted
stock became fully vested and nonforfeitable. In accordance with the separation
agreement, the stock options will remain outstanding for their remaining terms
and at Mr. Nussbaum's election, which must be made between June 1, 1999 and
December 31, 1999, Mr. Nussbaum's existing stock options will be exchanged on a
Black-Scholes neutral basis for new options with an exercise price equal to the
fair market value of the common stock at the time of the exchange. Pursuant to
the separation agreement, Patriot also agrees to guarantee the repayment of Mr.
Nussbaum's outstanding indebtedness to NationsBank, and upon the earlier of the
closing of the investment and related transactions or December 31, 1999,
Patriot will assume the NationsBank loan in exchange for a personal recourse
note of Mr. Nussbaum which will become payable at the end of six years and will
carry an interest rate of 5.5% per annum. Further, Mr. Nussbaum received a new
grant of 250,000 shares of restricted stock, payable in three installments over
two years. Finally, Mr. Nussbaum agreed to provide consulting services to
Patriot for two years, for which he will receive a fee of $75,000 per month for
the first 12 months and $50,000 per month for the next 12 months.
Wyndham entered into an employment agreement as of October 1, 1997 with Mr.
Alibhai, pursuant to which Mr. Alibhai serves as President and Chief Operating
Officer of Wyndham for a term of three years beginning on September 30, 1997,
with a base salary of $350,000. This agreement is automatically extended for an
additional two-year term unless either party elects to terminate it by notice
in writing at least 45 days prior the second anniversary of the agreement or
even-numbered anniversary date thereof, to expiration of the agreement.
Additionally, Mr. Alibhai is eligible to receive incentive compensation to be
determined by the compensation committee of an amount up to 80% of his annual
base compensation, but in no event less than $75,000. On May 21, 1999, Mr.
Alibhai announced his resignation from Wyndham. Mr. Alibhai is currently
negotiating his separation arrangements with Wyndham. No separation agreement
has been reached.
Upon termination of employment due to the death or disability of Messrs.
Carreker, Nussbaum or Alibhai, all unexercisable stock options and non-vested
stock-based grants will immediately vest and will be exercisable for one year.
Additionally, Wyndham or Patriot as applicable, will pay health insurance
premiums for one year.
If employment is terminated by Messrs. Carreker, Nussbaum or Alibhai for
"good reason," or if Wyndham or Patriot, as applicable, terminates his
employment without "cause," Wyndham or Patriot, as applicable, will pay such
executive a severance payment in accordance with Wyndham's or Patriot's, as
applicable, then current severance policies. At a minimum, Messrs. Carreker and
Nussbaum would be entitled to a severance payment equal to three times the sum
of his average base compensation, (determined in accordance with Mr. Nussbaum's
or Mr. Carreker's employment agreement, respectively, and average incentive
compensation, determined in accordance with Mr. Nussbaum's or Mr. Carreker's
employment agreement, respectively. Mr. Alibhai would be entitled to a minimum
severance payment equal to the sum of his average base compensation and average
incentive compensation for the remaining term of his agreement or 24 months,
whichever is higher, subject to certain offsets. Additionally, for a period of
three years, Wyndham or Patriot, as applicable, will provide Messrs. Carreker
and Nussbaum with an office and related facilities and an assistant at a
location of their respective choosing. For a period of one year, Wyndham or
Patriot, as applicable, would pay for Messrs. Carreker and Nussbaum the cost of
executive placement services. Certain stock options and stock-based grants held
by the Messrs. Carreker, Nussbaum or Alibhai will also become exercisable or
nonforfeitable.
If a "change in control", as defined in the employment agreements, occurs
and the executive's employment is terminated for any reason other than death,
disability or voluntary resignation within 18 months of such change in control,
Wyndham or Patriot, as applicable, must pay the executive a lump sum amount
equal to the severance payment (as defined in the employement agreements) and
all stock options and other
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stock-based awards will become immediately exercisable or non-forfeitable. In
addition, Patriot will provide the executive with a tax gross-up payment to
cover any excise tax due.
In June 1997, Patriot entered into an employment agreement with Mr. Novak,
pursuant to which Mr. Novak serves as Executive Vice President--Acquisitions
and Development for a three-year term beginning June 1997, with a base salary
of $275,000.
Mr. Novak's employment with Patriot terminated May, 1999, for reasons other
than for cause. Pursuant to the terms of Mr. Novak's employment agreement, he
is entitled to receive severance in the amount of $705,500 plus health
insurance for two years. In addition, all of Mr. Novak's outstanding stock
options vested and became exercisable and all of Mr. Novak's restricted stock
became fully vested and nonforfeitable. Mr. Novak will also be reimbursed for
executive outplacement and legal fees.
In February 1997, Patriot entered into an employment agreement with William
W. Evans III for a three- year term beginning March 1, 1997, with an initial
base salary of $300,000. Pursuant to the agreement, Mr. Evans initially served
in the Office of the Chairman of Patriot. In the event Mr. Evans' employment is
terminated due to death or disability: (1) Mr. Evans' beneficiaries will
receive the proceeds under applicable insurance policies, (2) all stock options
and other stock-based awards will become immediately exercisable or
nonforfeitable and (3) for a period of one year, Mr. Evans' spouse and
dependents will receive medical and related health benefits under Patriot's
existing plans.
In the event Mr. Evans' employment is terminated for cause or Mr. Evans
voluntarily terminates his employment, he will be entitled to receive any
accrued but unpaid cash compensation and benefits through the date of
termination and all vested options will continue to be exercisable for their
exercise term, as if his employment had not been terminated. If Patriot
terminates Mr. Evans without cause or if Mr. Evans terminates his employment
due to a constructive termination (as defined in his employment agreement): (1)
all stock option and other stock-based awards will become immediately
exercisable or nonforfeitable, (2) for the longer of one year or the remaining
length of the term of the agreement, Mr. Evans and his spouse and dependents
will receive medical and related health benefits under Patriot's existing plans
and (3) Patriot will pay Mr. Evans within 30 days after the date of
termination, a lump sum equal to his average base salary and average incentive
compensation for the remaining length of the term of the agreement, or 12
months, whichever is greater. Mr. Evans is entitled to the same benefits as
Messrs. Carreker and Nussbaum in the event of a change in control as defined in
the employment agreement.
Mr. Evans' employment agreement was amended in late 1998 to increase his
base salary to $450,000, effective November, 1998, and provide for an incentive
performance bonus payable upon successful completion of certain goals
established by the compensation committee. Further, the employment agreement
was amended to provide for a grant of 166,666 restricted paired shares, payable
in three installments over two years, contingent upon the closing of the
investment and the related transactions. In addition, Mr. Evans' outstanding
stock options all became vested and exercisable and all his restricted stock
grants became fully vested and non-forfeitable. Finally, Patriot provided
Mr. Evans with a loan pursuant to his amended employment agreement to assist
him with the payment of income taxes on paired shares that vested in February
1998.
As of April 14, 1997, Patriot entered into an employment agreement with
Ms. Raymond and Wyndham entered into employment agreements with Messrs. Bentley
and Koonce, with base salaries of $315,000, $350,000 and $315,000,
respectively. These employment agreements became effective on January 5, 1998.
These employment agreements have a term of three years and have substantially
similar provisions as Mr. Novak's employment agreement except that the
severance payment is equal to the sum of the average base and incentive
compensation payable for the remaining length of the three-year term, or 18
months, whichever is greater. Ms. Raymond's position is that of Executive Vice
President and Chief Financial Officer of Patriot. Mr. Bentley's position is
that of Executive Vice President of Wyndham, and Mr. Koonce's position is that
of Executive Vice President, Marketing and Strategic Planning of Wyndham.
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On March 9, 1998, Mr. Jones entered into employment agreements with both
Wyndham and Patriot for a three-year term with a base salary of $300,000.
Mr. Jones's position is that of Executive Vice President and Treasurer of both
Wyndham and Patriot. Mr. Jones's employment agreements have provisions that are
substantially similar to the employment agreements for Messrs. Bentley and
Koonce, except that Mr. Jones's employment agreements provide for a minimum
guarantee of incentive compensation equal to 50% of his base salary. Mr. Jones
is also entitled to borrow up to $750,000 from Wyndham and Patriot. Upon
Mr. Jones's termination of employment, if his total compensation earned while
employed at Wyndham and Patriot, including stock-based compensation, is less
than $3,000,000, a portion of the loan will be forgiven.
On June 19, 1998, Wyndham entered into an employment agreement with
Mr. Holtzman for a three-year term with a base salary of $315,500.
Mr. Holtzman's position is that of Executive Vice President of Wyndham and
President of Grand Bay Hotels and Resorts. Under Mr. Holtzman's employment
agreement, he is entitled to receive a guaranteed bonus of $200,000 in his
initial year of employment. If Mr. Holtzman's employment is terminated by
Wyndham without "cause" or Mr. Holtzman resigns for a "good reason," he will be
entitled to a severance payment equal to the sum of 50% of his average base pay
and bonus and the amount payable under the Wyndham's then current severance
policy. Certain stock options and stock-based grants held by Mr. Holtzman will
become exercisable or nonforfeitable. For a period of six months, Wyndham would
pay Mr. Holtzman the cost of executive placement services. Upon a "change in
control," all of Mr. Holtzman's stock options and stock-based grants will
become exercisable and nonforfeitable.
On March 31, 1998, Mr. Stewart's employment with Patriot terminated.
Pursuant to the terms of Mr. Stewart's separation agreement, Mr. Stewart
continued to receive his base salary through October 2, 1998. In addition, all
of Mr. Stewart's outstanding stock options vested and became exercisable on
October 2, 1998 and will remain outstanding until October 2, 2000.
Mr. Stewart's restricted stock will continue to vest in accordance to its
original vesting schedule and will not be forfeited as a result of
Mr. Stewart's termination. In consideration for the foregoing severance
arrangements, Mr. Stewart provided consulting services to Patriot for 60 days.
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Stock Performance Graph for Wyndham and Patriot
The following graph provides a comparison of the cumulative total
stockholder return assuming $100 was invested at September 27, 1995, the date
Patriot completed its initial public offering, assuming reinvestment of any
dividends, of the paired shares, the Standard & Poor's 500 Index and the
National Association of Real Estate Investment Trusts Total Return Equity
Index.
STOCK PERFORMANCE GRAPH
<TABLE>
<CAPTION>
9/27/95 12/31/95 12/31/96 12/31/97 12/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wyndham/Patriot $100 $107 $192 $267 $ 61
S&P 500 $100 $192 $131 $179 $224
NAREIT Equity REIT Total Return
Index $100 $267 $141 $169 $137
</TABLE>
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Opportunity for Holders of Wyndham Series A
and Series B Preferred Stock to Exchange Their Stock
for Wyndham Common Stock
Wyndham is offering to exchange 20 shares of its registered common stock for
each share of its currently outstanding series A preferred stock and series B
preferred stock, as described below.
General
Participation in the preferred stock exchange offer is voluntary and holders
of series A preferred stock and series B preferred stock should carefully
consider whether to accept. Holders of series A preferred stock and series B
preferred stock are urged to consult their financial and tax advisors in making
their own decisions on what action to take in light of their own particular
circumstances.
The preferred stock exchange offer is open to all holders of Wyndham's
currently outstanding series A preferred stock and series B preferred stock.
Purposes of the Preferred Stock Exchange Offer
The principal purpose of the preferred stock exchange offer is to simplify
Wyndham's capital structure. In addition, completion of the preferred stock
exchange offer is a condition to the closing of the $1 billion investment.
Upon completion of the preferred stock exchange offer, all shares of series
A preferred stock and series B preferred stock tendered, accepted and not
withdrawn prior to the expiration of the exchange offer will be retired.
Terms of the Preferred Stock Exchange Offer
Wyndham is offering to exchange 20 shares of its common stock for each
currently outstanding share of its series A preferred stock and series B
preferred stock, on the terms and subject to the conditions described in this
joint proxy statement/prospectus and in the accompanying letter of transmittal.
Wyndham will pay cash to exchanging holders of series A preferred stock and
series B preferred stock in lieu of issuing fractional shares of Wyndham common
stock. The terms of the Wyndham common stock differ in certain respects from
the terms of the series A preferred stock and series B preferred stock for
which it may be exchanged. As of May 21, 1999, there were issued and
outstanding 1,781,173 shares of series A preferred stock and 1,781,181 shares
of series B preferred stock.
Tendering holders of series A preferred stock and series B preferred stock
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the preferred stock letter of transmittal, transfer taxes with
respect to the exchange of series A preferred stock and series B preferred
stock for Wyndham common stock under the preferred stock exchange offer.
Expiration Date; Extension; Amendments
The preferred stock exchange offer will expire at 5:00 p.m., New York City
time, on June 29, 1999, unless Wyndham in its sole discretion extends the
period during which the preferred stock exchange offer is open, in which event
the expiration date will be the latest time and date on which the preferred
stock exchange offer, as so extended by Wyndham, expires. Wyndham reserves the
right to extend the preferred stock exchange offer at any time and from time to
time by giving oral or written notice to the exchange agent and making a public
announcement. There can be no assurance that Wyndham will exercise its right to
extend the preferred stock exchange offer. During any extension of the
preferred stock exchange offer, series A preferred stock and series
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B preferred stock previously tendered and not withdrawn pursuant to the
preferred stock exchange offer will remain subject to the right of a tendering
holder to withdraw its stock.
Wyndham also expressly reserves the right, subject to applicable law,
. to delay acceptance for exchange of any series A preferred stock and
series B preferred stock or terminate the preferred stock exchange
offer and not accept for exchange any series A preferred stock or
series B preferred stock and promptly return all such shares to the
tendering holders in the event that any of the conditions specified
in "--Conditions of the Preferred Stock Exchange Offer" below are
not satisfied or waived by Wyndham or to comply with applicable law,
by giving oral or written notice of such delay or termination to the
exchange agent;
. to waive any condition to the preferred stock exchange offer and
accept all series A preferred stock and series B preferred stock
previously tendered;
. to amend the preferred stock exchange offer in any respect; or
. to terminate, cancel, withdraw or otherwise amend or modify the
preferred stock exchange offer at any time for any reason. The
reservation by Wyndham of the right to delay acceptance for exchange
of series A preferred stock and series B preferred stock is subject
to the provisions of Rule 13e-4 and Rule 14e-1(c) under the
Securities Exchange Act which require that Wyndham pay the
consideration offered or return the series A preferred stock or
series B preferred stock deposited by or on behalf of holders
promptly after the termination or withdrawal of the preferred stock
exchange offer.
Any extension, delay, termination or amendment of the preferred stock
exchange offer will be followed as promptly as practicable by a public
announcement. Without limiting the manner in which Wyndham may choose to make
such a public announcement, Wyndham will have no obligation to publish,
advertise or otherwise communicate any public announcement, other than by
issuing a release to the Dow Jones News Service, except in the case of an
announcement of an extension of the preferred stock exchange offer, in which
case Wyndham will have no obligation to publish, advertise or otherwise
communicate such announcement other than by issuing a notice of such extension
by press release or other public announcement, which notice Wyndham will issue
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
Procedure for Tendering Series A Preferred Stock and Series B Preferred Stock
The tender to Wyndham of series A preferred stock and series B preferred
stock by any holder pursuant to one of the procedures described below and
Wyndham's acceptance will constitute a binding agreement between the holder and
Wyndham on the terms and subject to the conditions described in this joint
proxy statement/prospectus and in the preferred stock letter of transmittal.
A holder of series A preferred stock or series B preferred stock may tender
his preferred stock by properly completing and signing the preferred stock
letter of transmittal and delivering it, together with the certificates
representing the series A preferred stock or series B preferred stock being
tendered, and any other documents required by the preferred stock letter of
transmittal, to the exchange agent at its address set forth in the preferred
stock letter of transmittal on or before the expiration date. Alternately, a
stockholder may comply with the book-entry transfer procedures described below.
The method of delivery of the series A preferred stock, the series B
preferred stock, the preferred stock letter of transmittal and all other
documents is at your election and risk. If you send documents by mail, we
recommend that you use registered mail, return receipt requested, obtain proper
insurance, and make your mailing sufficiently in advance of the expiration date
to permit delivery to the exchange agent on or before the expiration date. No
preferred stock letters of transmittal or shares of series A preferred stock or
series B preferred stock should be sent to Wyndham.
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The exchange agent will make a request promptly after the date of this joint
proxy statement/prospectus to establish accounts with respect to the series A
preferred stock and series B preferred stock at Wyndham's book-entry transfer
facility for the purpose of facilitating the exchange offer. Subject to the
establishment of such accounts, any financial institution that is a participant
in the book-entry transfer facility's system may make book-entry delivery of
the series A preferred stock and series B preferred stock by causing the book-
entry transfer facility to transfer the series A preferred stock and series B
preferred stock into the exchange agent's account with respect to the series A
preferred stock and series B preferred stock in accordance with the book- entry
transfer facility's procedures for such transfer. Although you are entitled to
effect delivery of the series A preferred stock and series B preferred stock
through book-entry transfer into the exchange agent's accounts at the book-
entry transfer facility, an appropriate preferred stock letter of transmittal
with any required signature guarantee and all other required documents must in
each case be transmitted to and received or confirmed by the exchange agent at
its address set forth on the preferred stock letter of transmittal on or before
the expiration date.
Wyndham will consider a tender as having been received as of the date when
the exchange agent receives your properly completed and signed preferred stock
letter of transmittal accompanied by the shares of series A preferred stock or
series B preferred stock, or a confirmation of book-entry transfer of such
shares into the exchange agent's account at the book-entry transfer facility.
Wyndham will determine all questions as to the validity, form, eligibility,
including time of receipt, and acceptance for exchange of any tender of series
A preferred stock and series B preferred stock. Our determination will be final
and binding. Wyndham reserves the absolute right to reject any series A
preferred stock or series B preferred stock which is not properly tendered or
if the acceptance for exchange of such shares may, in the opinion of our
counsel, be unlawful. Wyndham also reserves the absolute right to waive any
defect or irregularity in the tender of any series A preferred stock or series
B preferred stock. Unless waived, any defects or irregularities with tenders of
series A preferred stock or series B preferred stock for exchange must be cured
within such reasonable period of time as we will determine. Neither Wyndham,
the exchange agent nor any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
Terms and Conditions of the Preferred Stock Exchange Offer
The party tendering series A preferred stock or series B preferred stock for
exchange transfers the series A preferred stock or series B preferred stock to
Wyndham and irrevocably constitutes and appoints the exchange agent as the
transferor's agent and attorney-in-fact to cause the series A preferred stock
or series B preferred stock to be exchanged. The transferor represents and
warrants that it has full power and authority to transfer the series A
preferred stock or series B preferred stock and to acquire shares of Wyndham
common stock issuable upon the exchange of such tendered shares, and that, when
the same are accepted for exchange, Wyndham will acquire good and unencumbered
title to the tendered shares, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The transferor
also warrants that it will, upon request, execute and deliver any additional
documents deemed by Wyndham or the exchange agent to be necessary or desirable
to complete the exchange of tendered shares of series A preferred stock and
series B preferred stock or transfer ownership of such shares on the account
books maintained by a book-entry transfer facility. All authority conferred by
the transferor will survive the death or incapacity of the transferor and every
obligation of the transferor will be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
transferor.
Withdrawal Rights
Tenders of series A preferred stock and series B preferred stock pursuant to
the preferred stock exchange offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date.
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To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the exchange agent at its address set
forth on the preferred stock letter of transmittal, and with respect to a
facsimile transmission, must be confirmed by telephone and an original
delivered by guaranteed overnight delivery. Any notice of withdrawal must
specify the person named in the preferred stock letter of transmittal as having
tendered series A preferred stock and series B preferred stock to be withdrawn,
the numbers of shares of series A preferred stock and series B preferred stock
to be withdrawn, a statement that such holder is withdrawing his election to
have such series A preferred stock or series B preferred stock exchanged, the
name of the registered holder of such series A preferred stock or series B
preferred stock and the name to be credited with the withdrawn series A
preferred stock and series B preferred stock. The notice must be signed by the
holder in the same manner as the original signature on the preferred stock
letter of transmittal, including any required signature guarantees, or be
accompanied by evidence satisfactory to Wyndham that the person withdrawing the
tender has succeeded to the beneficial ownership of the series A preferred
stock and series B preferred stock being withdrawn. The exchange agent will
return the properly withdrawn series A preferred stock and series B preferred
stock promptly following receipt of notice of withdrawal. If shares of series A
preferred stock or series B preferred stock have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn shares. All questions as to the validity of notices
of withdrawals, including time of receipt, will be determined by Wyndham, and
such determination will be final and binding on all parties.
Any series A preferred stock or series B preferred stock so withdrawn will
be deemed not to have been validly tendered to exchange for purposes of the
preferred stock exchange offer. Any shares of series A preferred stock or
series B preferred stock which have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder without costs to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the preferred stock exchange offer. In the case of shares
tendered by book-entry transfer into the exchange agent's account at the book-
entry transfer facility pursuant to the book-entry transfer procedures
described above, such shares will be credited to an account specified by the
holder. Properly withdrawn shares of series A preferred stock or series B
preferred stock may be retendered at any time on or prior to the expiration
date.
The withdrawal of tendered series A preferred stock or series B preferred
stock will be deemed to be a rejection of the preferred stock exchange offer.
Acceptance of Series A Preferred Stock and Series B Preferred Stock for
Exchange; Delivery of Common Stock
Upon the satisfaction or waiver of all the terms of the preferred stock
exchange offer, the acceptance for exchange of the series A preferred stock and
series B preferred stock validly tendered and not withdrawn will be made on the
exchange date and the issuance of the shares of Wyndham common stock will be
made as promptly as practicable after the exchange date. For the purposes of
the preferred stock exchange offer, Wyndham shall be deemed to have accepted
for exchange validly tendered series A preferred stock or series B preferred
stock when, as and if Wyndham has given oral or written notice to the exchange
agent.
The exchange agent will act as agent for the tendering holders of series A
preferred stock and series B preferred stock for the purposes of receiving the
shares of Wyndham common stock and causing the series A preferred stock or
series B preferred stock to be assigned, transferred and exchanged. Under the
terms of the preferred stock exchange offer, delivery of shares of common stock
to be issued in exchange for accepted series A preferred stock or series B
preferred stock will be made by the exchange agent promptly after the exchange
date. Tendered series A preferred stock or series B preferred stock which
Wyndham does not accept for exchange will be returned without expense to the
tendering holders as promptly as practicable following the expiration date.
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Wyndham will determine, in its sole discretion, all questions as to the
validity, form, eligibility, including time of receipt and acceptance of the
series A preferred stock or series B preferred stock Wyndham's determination
shall be final and binding. Wyndham reserves the absolute right to reject any
and all tenders of any particular series A preferred stock or series B
preferred stock not properly tendered or not to accept any particular series A
preferred stock or series B preferred stock if acceptance might, in the
judgment of Wyndham or its counsel, be unlawful. Wyndham reserves the absolute
right in its sole discretion to waive any defects or irregularities or
conditions of the preferred stock exchange offer as to any particular series A
preferred stock or series B preferred stock either before or after the
expiration date, including the right to waive the ineligibility of any holder
who seeks to tender series A preferred stock or series B preferred stock in the
preferred stock exchange offer. The interpretation of the terms and conditions
of the preferred stock exchange offer as to any particular series A preferred
stock or series B preferred stock either before or after the expiration date,
including the letter of transmittal and its instructions, by Wyndham shall be
final and binding on all parties. Unless waived, any defects or irregularities
with any tenders of series A preferred stock or series B preferred stock for
exchange must be cured within a reasonable period of time that Wyndham shall
determine. Neither Wyndham, the exchange agent nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of series A preferred stock or series B preferred stock for
exchange, nor shall any of them incur any liability for failure to give any
notification.
Conditions of the Preferred Stock Exchange Offer
Notwithstanding any other provision of the preferred stock exchange offer,
Wyndham will not be required to accept for exchange, or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c), exchange
and issue shares of common stock for any series A preferred stock and series B
preferred stock tendered and may postpone the acceptance for exchange of or,
subject to the restriction set forth above, the exchange and issuance of,
shares of Wyndham common stock for series A preferred stock and series B
preferred stock tendered and to be exchanged and may terminate or amend the
preferred stock exchange offer if the general conditions are not satisfied.
For purposes of the preceding paragraph, all of the "general conditions"
shall be deemed to have been satisfied unless any of the following events shall
occur on or after the date of this joint proxy statement/prospectus and prior
to the expiration date:
. any change, or any condition, event or development involving a
prospective change, shall have occurred or been threatened in the
business, properties, assets, liabilities, capitalization, stockholders'
equity, financial condition, operations, results of operations or
prospects of Wyndham, or in the general economic or financial market
conditions in the United States or abroad, which is or, in the
reasonable judgment of Wyndham, may be materially adverse to Wyndham or
its stockholders or to the value of the series A preferred stock and
series B preferred stock or there shall have been a significant decrease
in the market prices of or trading in the Wyndham common stock, or
Wyndham shall have become aware of any fact or occurrence which is or
may be materially adverse with respect to the value of the series A
preferred stock and series B preferred stock or with respect to the
contemplated benefits to Wyndham of the preferred stock exchange offer;
or
. there shall have occurred:
--any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or the over-the-counter
market;
--a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States;
--declaration of a national emergency or a commencement of a war, armed
hostilities or other national or international calamity directly or
indirectly involving the United States;
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--any limitation whether or not mandatory, by any governmental or
regulatory authority on, or any other event which might affect, the
nature or extension of credit by banks or other financial
institutions;
--any significant adverse change in the United States securities or
financial markets; or
--in the case of any of the foregoing existing at the time of the
commencement of the preferred stock exchange offer, a material
acceleration, escalation or worsening thereof; or
. there shall be threatened, instituted or pending any action, proceeding
or claim by or before any court or governmental, administrative or
regulatory agency or authority or any other person or tribunal, domestic
or foreign, challenging the making of the preferred stock exchange offer
or the acquisition by Wyndham of any series A preferred stock and series
B preferred stock, or seeking to obtain any material damages as a result
thereof, or otherwise adversely affecting Wyndham or the value of the
series A preferred stock and series B preferred stock which makes it
inadvisable to proceed with the preferred stock exchange offer, the
acceptance for exchange of series A preferred stock and series B
preferred stock or the issuance of the shares of common stock in
exchange therefor.
Additionally, the preferred stock exchange offer will be conditioned upon
stockholder approval of the $1 billion equity investment and related
transaction.
All of the foregoing conditions are for the sole benefit of Wyndham and may
be asserted by Wyndham regardless of the circumstances giving rise to such
condition and may be waived by Wyndham, in whole or in part, at any time and
from time to time, in the sole discretion of Wyndham. The failure by Wyndham at
any time to exercise any of the foregoing rights will not be deemed a waiver of
any such right, and each such right will be deemed an ongoing right which may
be asserted at any time and from time to time. Any determination by Wyndham
concerning the foregoing conditions will be final and binding.
If any of the foregoing conditions are not satisfied, or, with respect to
the above enumerated events, have occurred, Wyndham may, subject to applicable
law:
. terminate the preferred stock exchange offer and return all series A
preferred stock and series B preferred stock tendered pursuant to the
preferred stock exchange offer to tendering holders;
. extend the preferred stock exchange offer and retain all tendered series
A preferred stock and series B preferred stock until the expiration date
for the extended preferred stock exchange offer; or
. waive the unsatisfied conditions with respect to the preferred stock
exchange offer and accept all series A preferred stock and series B
preferred stock tendered pursuant to the preferred stock exchange offer.
In addition, Wyndham reserves the right to amend or modify any or all of the
preferred stock exchange offer conditions at any time for any reason.
Dissenters' Rights
Holders of the series A preferred stock or series B preferred stock do not
have any appraisal or dissenters' rights under Delaware law or under the
agreement of limited partnership of the Wyndham Partnership.
Exchange Agent
MacKenzie Partners, Inc. has been appointed as the exchange agent for the
preferred stock exchange offer. Wyndham will pay the exchange agent reasonable
and customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses. Preferred stock letters of transmittal must be
addressed to the exchange agent at its address set forth on the preferred stock
letter of transmittal.
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Delivery to an address other than as set forth on the preferred stock letter
of transmittal or transmissions of instructions via a facsimile or telex number
other than the ones set forth on the letter of transmittal will not constitute
a valid delivery.
Transfer Taxes
Holders who tender their series A preferred stock or series B preferred
stock for exchange will not be obligated to pay any transfer taxes as a result
of the transfer and exchange.
Consequences of Failure to Exchange
Wyndham intends to redeem all shares of series A and series B preferred
stock not exchanged in the exchange offer.
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Wyndham and Patriot
The Current Structure of Wyndham and Patriot
Wyndham and Patriot comprise a fully integrated and branded hotel enterprise
which currently has an aggregate hotel portfolio of 471 hotel properties with
approximately 101,000 rooms in the United States, Canada, the Caribbean and
Europe. We are engaged in the ownership, management, leasing and franchising of
hotels and resorts, primarily in the luxury and upscale segments. We are
focused on integrating our acquired properties and operating companies and are
developing our proprietary brands: Wyndham, Grand Bay Hotels & Resorts, and
Summerfield Suites. We intend to continue to develop and build brand
recognition of our products through the continuation of our re-branding
program, a unified marketing campaign, an expanded advertising budget and a
proprietary centralized reservation system and reservation organizations.
We currently operate as a paired share REIT consisting of Patriot, a REIT
which owns and leases hotel properties, and Wyndham, an operating company which
manages hotel properties, including properties leased from Patriot. We conduct
a substantial portion of our business through subsidiary partnerships.
Additionally, we conduct a portion of our business through taxable corporate
subsidiaries. Patriot owns the non-voting stock of the corporate subsidiaries
and Wyndham owns the voting stock of these entities.
Business Strengths
Strong Brand Name. Wyndham's brands all have at least a 15 year history and
the Wyndham brand is one of the most highly recognized in the industry. The
Wyndham brand, together with the Grand Bay and Summerfield brands, serve to
identify the companies' high quality properties and a high level of customer
service and reliability. The strong Wyndham brand, which encompasses multiple
products including Wyndham Hotels and Resorts, Wyndham Gardens and Wyndham
Grand Heritage, enables us to penetrate different markets and cross-sell
properties. Additionally, Patriot recently acquired the Golden Door Spa which
it plans to expand throughout its Grand Bay properties.
Economies of Scale. As we have increased in size, we have been able to
realize cost savings at the local, national and corporate levels. We have been
able to consolidate common functions between multiple properties located in one
city or region including sales functions, laundry and other guest services,
maintenance contracts and property-level management. Nationally, as one of the
largest owner-operators of hotels, we benefit from greater purchasing and
negotiating power when addressing company-wide insurance, marketing, and other
hotel services. We believe that additional cost savings will be realized
through further centralization of accounting, finance and administration, as
efficiencies are realized through the elimination of duplicative functions, and
the implementation of larger, company-wide procurement programs.
Geographically Diverse Operations. We have assembled a geographically
diverse portfolio in order to create more consistent and stable operating
performance and provide insulation from regional downturns. Properties and
operations are spread throughout the United States, Canada, the Caribbean and
Europe. We target locations that most often are difficult to duplicate in
primary locations near urban centers, airports, new office parks or
resort/convention centers.
Business Strategy
Our growth strategy is to develop our proprietary hotel brands through
increasing distribution, generating greater customer awareness, building brand
loyalty and maintaining customer satisfaction.
Internal Growth
Rebrand Existing Hotels. We believe there are numerous opportunities to
improve the performance and investment return of our owned hotels. A core
strategy involves replacing the existing hotel manager at non-proprietary
hotels with Wyndham management and convert the hotel to the Wyndham brand or
other of the
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companies' proprietary brands. By converting these hotels to a proprietary
brand, we effectively broaden our brand distribution network. Demonstrating the
strength of the Wyndham brand name, the growth in revenue per available room of
comparable Wyndham brand hotels for 1998 over 1997 was twice the rate of that
for comparable segments of the hotel industry. We anticipate that additional
non-Wyndham branded hotels that we acquire in the future and convert to the
Wyndham brand should achieve higher occupancy rates and average room rates than
has previously been the case as those hotels begin to benefit from our brand
recognition, centralized reservation system and group rate pricing.
Leverage Proprietary Brand Names and Large Scale. We believe that our size
and distribution network open significant new revenue opportunities, because
they are able to capitalize on marketing multiple products under a single,
strong Wyndham brand and can accommodate a larger, more diverse customer base
within a given market. In 1999, our advertising campaign will be approximately
three times larger than it had been in any single fiscal year. This effort will
be focused on group/business travelers which currently comprise 45% of our
business and the high-end leisure traveler. The concept of a strong Wyndham
brand encompassing multiple products will be a simple and effective message to
market the companies' products. By adding properties to markets where only one
of our properties previously existed, we have gained the ability to accommodate
a larger, more diverse customer base under multiple brands within the same
market. This is particularly important to developing a diverse customer profile
as group business can be redirected to other of the companies' properties. An
additional benefit of an expanded hotel property network has been our success
in securing 500 national corporate accounts while reducing per guest marketing
costs.
Strengthen Customer Loyalty. We have focused on strengthening consumer
loyalty through the implementation of differentiating customer services. For
example, we have upgraded our information systems in order to compile
meaningful guest profiles and to provide real-time guest recognition. These
technological advances have enabled us to launch unique guest services such as
a comprehensive vacation planning service for frequent guests. Additionally, we
have successfully launched a program targeted at the female business traveler
known as the "Women on Their Way" program. Wyndham is the exclusive hotel
partner for the National Association of Woman Business Owners. We also maintain
an advisory board comprised of women business travelers that advises on
developing products, services and amenities for the woman business or leisure
traveler. A third example is Wyndham's unique relationship with American
Airlines whereby Wyndham is the only hotel chain that offers triple upgrades
and miles to American Airlines frequent flyers.
External Growth
Selectively Develop New Hotels. Management has extensive experience in
acquiring and financing lodging properties and believes its industry knowledge,
relationships and access to market information provide a competitive advantage
with respect to identifying, evaluating and acquiring hotel assets. We develop
new hotels selectively to accomplish our investment objectives. These
objectives include achieving desired returns and growing the brand equity of
our proprietary brands. Such investments are concentrated on hotels for which
Wyndham will retain long-term management and franchising through one of its
proprietary brands. New hotel developments are targeted for selected existing
markets where we believe opportunities to strengthen our presence exist, as
well as new markets where we do not currently have a presence.
Augment Franchise Program. Wyndham intends to increase distribution of its
proprietary brands through franchising new or existing hotels. To implement
this franchising strategy, Wyndham has identified a small group of candidates
that it believes are capable of developing and managing a multiple-franchise
operation of ten or more Wyndham hotels. With the use of the proprietary
reservation system and the marketing and training programs used by the
companies' owned and operated hotels, Wyndham expects the franchising program
to attract qualified franchisees and facilitate more expedient growth of their
core brands. A further benefit of growing the franchise base is that
diversified revenue sources from real estate ownership and operations reduce
the down-side typically associated with real estate ownership during
recessionary periods.
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Current Business Challenges
Forward Equity Contracts.
We are parties to forward equity transactions with three counterparties
involving the issuance of an aggregate of 13.3 million paired shares, with
related price adjustment mechanisms. Upon entering into these transactions, we
agreed to issue a varying number of paired shares to each of the counterparties
at future settlement dates at prices adjusted for the then current market price
of the paired shares. None of the forward contracts provided for any floor on
the settlement price per paired share. Under the terms of the forward contract
entered into with UBS on December 31, 1997, we issued 3.25 million paired
shares to UBS at a purchase price per paired share of $28.125, or aggregate
consideration of approximately $93.6 million. Under the terms of the forward
equity contract entered into with Nations on February 26, 1998, we issued 4.9
million paired shares to Nations at a purchase price per paired share of
$24.8625, or aggregate consideration of approximately $121.8 million. Under the
terms of the forward equity contract entered into with PaineWebber on April 6,
1998, we issued 5.15 million paired shares to PaineWebber at a purchase price
per paired share of $27.01125, or aggregate consideration of approximately
$139.1 million. Under the terms of the forward equity transactions, we sold
paired shares to each of the counterparties and simultaneously entered into a
forward contract under which we agreed to "settle" the transaction at a stated
maturity date based upon the adjusted price of the purchased shares at
maturity. During the term of the forward contract, the price of the purchased
shares increases at a rate that corresponds to an agreed-upon interest rate. At
maturity, the forward contracts provide that each counterparty will sell a
number of shares sufficient to generate proceeds equal to the total adjusted
purchase price of the purchased shares. Shares may be sold to the public
through an underwritten public offering or by other methods, or to private
investors. If a counterparty does not receive sufficient proceeds from its
sales of the originally purchased shares, we must issue more paired shares to
that counterparty for resale until the obligation has been satisfied. The
forward equity contracts permit us to pay our obligations in cash as well as
paired shares.
As of the date of this joint proxy statement/prospectus, we had delivered an
aggregate of 83.7 million paired shares to the counterparties as collateral,
including approximately 4 million paired shares issued as dividends on
collateral shares. In addition, the counterparties or their affiliates
currently own approximately 13.5 million paired shares, consisting of
approximately 12.5 million purchased shares and approximately 1 million shares
issued as dividends on the purchased shares. Based on the $5.25 closing price
of the paired shares on May 25, 1999 and assuming an average of 2% selling
expenses, the forward counterparties would have to sell approximately 63.1
million paired shares, approximately 26% of total current outstanding paired
shares, to settle all of the forward equity transactions in full.
Each of the forward counterparties has the right to require an immediate
settlement of its forward equity transaction. As of the date of this joint
proxy statement/prospectus, none of the counterparties has sold any paired
shares, other than the sale of 754,525 paired shares by one counterparty in
December 1998, or required settlement of its forward transaction. We cannot
assure you that the forward counterparties will not sell paired shares or
require settlement in the future.
The forward equity contracts permit us to settle the forward transactions by
delivering either cash or paired shares. Sources of cash are not currently
available for us to make the payments that would be required to settle one or
more of the forward transactions in cash. Moreover, we cannot assure you that
our bank lenders would consent to any cash settlements prior to the closing of
the $1 billion equity investment. Generally, we may settle by delivering paired
shares only if a registration statement covering such paired shares is
effective. There are currently effective registration statements covering the
sale by the three forward counterparties of up to 40 million paired shares and
the sale by one counterparty of an additional 4 million paired shares, of which
754,525 paired shares were sold by that counterparty in December 1998. We
cannot assure you that these registration statements will remain effective.
Given the current market price of the paired shares, any settlement in paired
shares would have severely dilutive effects on our capital stock. The number of
shares required would
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substantially increase if the market price of the paired shares decreases as a
result of the sales of paired shares by the forward counterparties. If any of
the counterparties sells paired shares, the conversion price of the preferred
stock to be issued to the investors will be adjusted downward to the extent
that the price recognized by us on the sale is less than $8.75 per share.
We currently intend to settle in full all of the forward transactions with a
portion of the cash proceeds of the $1 billion equity investment. The estimated
aggregate dollar value of the settlement on June 30, 1999 is approximately
$333.6 million. As of the date of this joint proxy statement/prospectus, we
have paid an aggregate of $54.3 million in cash to the counterparties under the
forward equity contracts, in addition to cash dividends paid on the purchase
shares. If we settle the forward transactions in cash, the counterparties must
deliver to us all paired shares then owned by them or held by them as
collateral under the forward agreements.
Agreements Relating to Existing Credit Facility.
Our existing credit facility with The Chase Manhattan Bank, Chase
Securities, Inc. and PaineWebber Real Estate consists of a $900 million
revolving credit facility and a series of term loans in the aggregate amount of
$1.8 billion. Interest rates on the existing credit facility are based on our
leverage ratio and vary from 1.5% to 2.5% over LIBOR. Under the original terms
of the credit facility, a term loan of $350 million was scheduled to mature on
January 31, 1999 and a term loan of $400 million was scheduled to mature on
March 31, 1999. All of the requisite lenders under the credit facility have
agreed to extend the maturity of these two term loans to June 30, 1999. If we
do not consummate the $1 billion equity investment by June 30, 1999, or our
agreement with the investors otherwise terminates, the maturity on these two
term loans will be extended to March 31, 2000 and we will be required to make a
$300 million amortization payment by December 31, 1999. Additionally, we will
be required to secure the credit facility with mortgages and other security
interests by June 30, 1999. We paid fees of $11.7 million to the lenders under
the credit facility for their agreement to extend the maturities of the term
loans to June 30, 1999.
Interstate's Third-Party Hotel Management Business
In May, 1998, we, along with Interstate, entered into a settlement agreement
with Marriott International, Inc. which addressed certain claims asserted by
Marriott concerning Patriot's then proposed merger with Interstate. The
settlement agreement provided for the dismissal of litigation brought by
Marriott, and allowed Patriot's merger with Interstate to close. In addition to
dismissal of the Marriott litigation, the settlement agreement provides for our
re-branding of ten Marriott hotels under the Wyndham name; Marriott's
assumption of the management of ten Marriott hotels formerly managed by
Interstate for the remaining term of the Marriott franchise agreement; and our
divestiture of the third-party management business which was operated by
Interstate no later than June 14, 1999.
If we do not complete the spin-off by June 14, 1999, Marriott will be
entitled to receive liquidated damages. We will also be subject to Marriott's
right to purchase, subject to third-party consents, the hotels to be submanaged
by Marriott and six additional Marriott hotels owned by us at their then
appraised values.
Additionally, we anticipate that Marriott would require third-party owners
of Marriott-branded hotels that we manage to replace us as manager of their
hotels. As a result, each respective hotel would either: (1) lose the Marriott
brand, at which time we would have to compensate Marriott for any lost
franchise fees or (2) terminate the management contract with us and enter into
a contract with another manager. We would owe liquidated damages on any third-
party Marriott-franchised hotel which chooses to convert its brand. The total
amount of liquidated damages we could pay to Marriott under the circumstances
described above is $194 million.
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The Restructuring of Wyndham and Patriot
General
In the restructuring, the following events will occur:
. A reverse stock split of the common stock of Wyndham and Patriot.
. A wholly-owned subsidiary of Wyndham will merge with and into Patriot
with Patriot surviving.
. The pairing agreement between Wyndham and Patriot will terminate.
. Patriot will terminate its status as a REIT effective January 1,
1999.
. The non-voting stock of specified corporate subsidiaries held by
Patriot's operating partnership will be transferred so that such
stock will be owned directly by Patriot and/or Wyndham, rather than
through Patriot's operating partnership.
. The third party partners in both Patriot's operating partnership and
the Wyndham's operating partnership will be offered an opportunity to
exchange their limited partnership interests for Wyndham common
stock.
. The preferred stockholders of Wyndham will be offered an opportunity
to exchange their preferred stock for Wyndham common stock, and
preferred stock not exchanged will be redeemed by Wyndham.
Indebtedness
New Credit Facility. Patriot has recently signed a commitment letter with
Chase Securities Inc. and The Chase Manhattan Bank for new senior credit
facilities for Wyndham in the amount of $1.8 billion, comprised of a term loan
facility and a revolving loan facility. Definitive agreements relating to the
new credit facility are expected to be finalized at the same time that the $1
billion equity investment is completed. Under the terms of the commitment
letter, The Chase Manhattan Bank will act as the administrative agent and Chase
Securities Inc. will act as the lead arranger for a syndicate of lenders which
will provide Wyndham with $1 billion in term loans and up to $800 million under
the revolving loan facility, of which a maximum of $560 million may be drawn at
the closing of the $1 billion equity investment. The term loan facility has a
seven year term and the revolving facility has a five year term. Under the
terms of the commitment letter, interest rates for the new credit facility are
based upon LIBOR spreads varying from 1.5% to 3.00% per annum for the revolving
loan facility and 3.00% to 3.75% per annum for the term loan facility, based
both on Wyndham's leverage ratio and on whether any increasing rate loans are
outstanding. However, at Wyndham's election or under other specified
circumstances, the term loans and revolving loans may instead bear interest at
an alternative base rate plus the applicable spread. The alternative base rate
is equal to the greater of The Chase Manhattan Bank's prime rate or federal
funds rate plus 0.5%, and the alternative spread is 1.0% below the applicable
LIBOR spread. Subject to limited agreed-upon exceptions, the new credit
facility will be guaranteed by the domestic subsidiaries of Wyndham, and will
be secured by pledges of equity interests held by Wyndham and its subsidiaries.
The proceeds from the term loan facility will be used to finance our
restructuring. The proceeds from the revolving loan facility will be used for
working capital and general corporate purposes.
Increasing Rate Loans. We have signed a commitment letter with The Chase
Manhattan Bank, Chase Securities Inc., Bear Stearns & Co. Inc., and The Bear
Stearns Companies Inc. providing that The Chase Manhattan Bank, The Bear
Stearns Companies Inc. and a possible syndicate of other lenders will provide
an increasing rate loan facility in the amount of $650 million. The increasing
rate loan carries a term of five years. Interest rates for the increasing rate
loans are based on LIBOR spreads and are initially set at 0.25% below the
initial LIBOR spread on the term loan facility, but increase by 0.50% every
three months, with a cap of LIBOR plus 4.75%. However, under other specified
circumstances interest accrues at an alternate rate equal to the rate borne by
three-month treasury securities plus 1.0%, plus the applicable spread. The
lenders under the increasing rate loans receive the benefit of the same
guarantees and pledges of security provided under the new credit facility. The
proceeds from the increasing rate loans will be used to finance our
restructuring.
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Wyndham may determine to issue, at or after the closing of the new credit
facility, senior unsecured notes with a 10-year term, the proceeds of which
would be used to repay or replace borrowings under the increasing rate loans
and the revolving credit facility.
Wyndham's ability to borrow under its revolving loan facility is subject to
Wyndham's compliance with a number of customary financial and other covenants,
including total leverage and interest coverage ratios.
In May 1999, The Chase Manhattan Bank and Chase Securities Inc. notified the
companies that they were exercising their rights under the "market flex"
provisions of the commitment letters to change the terms of the senior credit
facilities. The revolving credit facility has been reduced from $800 million to
$600 million, the term loan facility has been increased from $1 billion to $1.2
billion and the maximum that may be drawn at the closing has been reduced from
$560 million to $400 million. No assurances can be given that the lenders will
not exercise their market flex provisions again prior to the closing of the new
credit facility. Additionally, Wyndham and the lenders may agree to amend the
provisions of the commitment letter to change the allocation of debt within the
facilities or adjust the interest rate. Any further changes may increase the
interest expense incurred by Wyndham under the new credit facility.
Wyndham and Patriot have agreed to pay the agents and the lenders customary
fees for a facility of this nature ranging from approximately $48 million to
$61 million.
Mortgage Debt
As of March 31, 1999, we had $984.2 million of outstanding mortgage and
other secured debt. The existing mortgage debt has a weighted average interest
rate of 8.3% and a weighted average remaining life of 4.7 years. This mortgage
debt is secured by 51 of our properties.
We have received a commitment from Bear, Stearns & Co. Inc. to provide up to
$340 million of new mortgage debt which will be secured by 25 properties. The
new mortgage debt will have a term of five years and bear interest at the rate
of LIBOR plus 3.25%. Bear Stearns intends to securitize this debt and,
depending on the execution of the securitization, we may be able to obtain a
lower interest rate on the new mortgage debt. The closing of the new mortgage
debt is subject to closing of the recapitalization and restructuring
transactions and other customary conditions.
In addition, Bear Stearns has also committed to provide to us, prior to the
closing of the recapitalization and restructuring transactions, a $100 million
loan which would be secured by 10 properties. This loan would have a two-year
term and would have an interest rate of LIBOR plus 4%. This loan is not subject
to the closing of the recapitalization and restructuring transactions and may
be drawn upon at our option. Any amounts borrowed under this facility will be
credited against the $340 million mortgage debt commitment described above.
We have also received a commitment from Lehman Brothers Inc. to provide $235
million of mortgage debt which will be secured by 10 properties. This mortgage
debt will have a three-year term, with a one-year extension option, and will
have an interest rate of LIBOR plus 3.50% plus an additional 1.75% on the
principal amount payable at maturity.
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Federal Income Tax Consequences
The following discussion describes the material federal income tax
consequences applicable to Wyndham, Patriot and to Wyndham and Patriot
stockholders that are expected to result from (1) the reverse stock splits, (2)
the merger of a subsidiary of Wyndham into Patriot, and the resulting exchange
of Patriot stock for Wyndham common stock or cash, (3) the termination of
Patriot's REIT status, (4) the offers to third party limited partners to
exchange their limited partner interests in the Wyndham partnership and the
Patriot partnership for Wyndham common stock, and (5) the offer to holders of
Wyndham preferred stock to exchange their preferred shares for Wyndham common
stock. Certain aspects of the contemplated rights offering also are discussed.
This discussion assumes that each holder holds his Wyndham or Patriot stock as
a capital asset within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"). This discussion does not
address all aspects of taxation of the merger, restructuring and the related
transactions that may be relevant to particular stockholders in light of their
personal investment or tax circumstances or to stockholders subject to special
treatment under the federal income tax laws, such as dealers in securities,
foreign persons, life insurance companies, tax-exempt organizations, financial
institutions and taxpayers subject to the alternative minimum tax. This
discussion does not discuss any state, local or foreign tax considerations.
This discussion is based on the Internal Revenue Code as currently in effect
and on applicable Treasury Regulations and judicial and administrative
interpretations, all of which are subject to change, including changes that may
be retroactive. You are urged to consult your own tax advisors as to the
specific tax consequences to you of the merger and the related restructuring
transactions, including applicable federal, state, local and foreign tax
consequences.
Goodwin, Procter & Hoar llp, special tax counsel for Wyndham and Patriot,
has opined on certain federal income tax consequences of the merger and
restructuring. As noted below, Goodwin, Procter & Hoar llp also has opined that
the following discussion, to the extent it constitutes statements of, or legal
conclusions regarding, federal income tax law, is accurate in all material
respects. These opinions are not binding on the Internal Revenue Service or any
court, and no assurance can be given that the Internal Revenue Service will not
challenge the propriety of part or all of such opinions or that such a
challenge would not be successful. Goodwin, Procter & Hoar llp's opinions rely
and are premised on the accuracy of factual statements and representations made
by Patriot and Wyndham. No other opinions of counsel have been rendered, and
neither Patriot nor Wyndham will request any ruling or determination letters
from the Internal Revenue Service on any tax issue connected with the
restructuring or the related transactions.
The Reverse Stock Splits. If Proposals 4 and 5 are approved, Wyndham and
Patriot will undertake 1:20 reverse stock splits with respect to their paired
shares immediately prior to the merger. Goodwin, Procter & Hoar LLP has opined
that holders of paired shares will not recognize gain or loss as a result of
the reverse stock splits. The aggregate tax basis of the shares of Wyndham
common stock and Patriot common stock received by each paired shareholder in
the reverse stock splits will be equal to the tax basis of the shares of
Wyndham common stock and Patriot common stock, respectively, surrendered in
exchange therefor. A paired shareholder's holding period with respect to the
Wyndham common stock and Patriot common stock received in the reverse stock
splits will include the holding period of the Wyndham common stock and Patriot
common stock, respectively, surrendered in exchange therefor, if such holder
held his paired shares as a capital asset at the time of the reverse stock
splits.
For federal income tax purposes each paired share consists of two component
shares of stock, a share of Wyndham common stock and a share of Patriot common
stock, and each component share has a separate tax basis and holding period.
Consequently, a stockholder's basis and holding period in a share of Patriot
common stock and a share of Wyndham common stock prior to the reverse stock
splits depends in part on how the stockholder acquired his paired shares, as
well as the amount of return of capital distributions, if any, received with
respect to each component share. Stockholders who acquired a paired share for
cash or in a fully taxable transaction will have the same holding period for
each component share of the paired share, and their aggregate initial tax basis
in the paired share will have been allocated between the component shares in
proportion to their relative fair market values at the time of acquisition. In
this regard, Wyndham and Patriot have agreed that
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95% of the value of a paired share is allocable to the Patriot component share,
and 5% of the value of a paired share is allocable to the Wyndham component
share. This allocation of value has been agreed to at all times since Patriot
acquired its paired share structure through the merger of Patriot's predecessor
into California Jockey Club. Stockholders who acquired their paired shares in
tax-free or partially tax-free transactions, such as former stockholders of
Interstate Hotels Company or Wyndham Hotels Corporation or stockholders of
Patriot's unpaired predecessor who participated in the California Jockey Club
merger, generally will have different holding periods in the component shares
of their paired shares, and the aggregate initial tax basis in the
stockholders' paired shares will have been allocated between the component
shares in accordance with the tax rules that applied to the relevant
transaction. Irrespective of how a stockholder acquired his paired shares, the
initial tax basis in each share of Wyndham common stock and each share of
Patriot common stock will have been reduced by any subsequent return of capital
distributions made by the issuing corporation. In this regard, stockholders
should note that although Wyndham has made no distributions to paired
stockholders since the California Jockey Club merger, Patriot has made
significant return of capital distributions.
Tax Consequences of the Merger to Patriot Stockholders. Goodwin, Procter &
Hoar LLP has opined to the effect that the transfers by Patriot stockholders of
their Patriot stock to Wyndham in exchange for Wyndham common stock pursuant to
the merger of a subsidiary of Wyndham into Patriot will qualify for
nonrecognition treatment under Section 351 of the Internal Revenue Code. Except
as discussed below under the captions "Tax Treatment of Cash Paid For Patriot
series B Preferred Stock" and "Certain Tax Consequences To Stockholders Who
Also Participate In The Partnership Exchanges," counsel has opined that the
federal income tax consequences of the merger to holders of paired shares and
Patriot series A preferred stock, other than dissenters, will be as follows:
(1) Holders of paired shares and Patriot series A preferred stock will
not recognize gain or loss on the exchange of their Patriot common stock or
Patriot series A preferred stock for Wyndham common stock.
(2) The aggregate tax basis of the shares of Wyndham common stock
received by each Patriot stockholder in the merger will be equal to the tax
basis of the shares of Patriot stock exchanged therefor.
(3) A stockholder's holding period with respect to the Wyndham common
stock received in the merger will include the holding period of the Patriot
stock exchanged therefor if the Patriot stock was held as a capital asset
at the effective time of the merger.
Stockholders who hold blocks of Patriot shares with different tax bases or
holding periods should note that the Internal Revenue Service takes the
position that the different bases and/or holding periods of assets transferred
in a Section 351 exchange cannot be traced to specific shares received in the
exchange. Stockholders should consult their tax advisors regarding the basis
and holding periods of your Wyndham shares received in the merger.
Tax Treatment of Cash Paid for Patriot Series B Preferred Stock. The tax
treatment of cash paid for Patriot series B preferred stock in the merger
depends in part on whether a holder of series B preferred shares also holds
Wyndham stock after the merger (or is deemed to hold Wyndham stock under
applicable constructive ownership rules) and the extent to which the receipt of
cash for Patriot series B preferred stock is governed by the rules of Section
304 of the Internal Revenue Code, rather than the rules of Section 351 of the
Internal Revenue Code generally applicable to the merger.
Regardless of whether Section 351 or Section 304 governs the receipt of cash
for Patriot series B preferred stock in the merger, holders of Patriot series B
preferred shares who do not hold, and are not deemed to hold, under applicable
constructive ownership rules, Wyndham stock after the merger will recognize
capital gain or loss upon the exchange of their Patriot series B preferred
shares for cash in the merger based on the difference between the redemption
price of $25 per share and their tax basis in the redeemed shares. This gain
will be short term capital gain provided that the merger occurs in 1999. If
Section 304 does not apply, the consequences will be the same for any holder of
Patriot series B preferred stock who does not also receive
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Wyndham common stock in the transactions (exclusive of Wyndham common stock
received in the reverse stock splits or for Wyndham preferred shares). If
Section 304 applies to the receipt of cash in the merger, holders of Patriot
series B preferred shares who do not actually hold stock of Wyndham following
the merger but who are deemed to hold stock of Wyndham following the merger
under the constructive ownership rules of Section 318 of the Internal Revenue
Code, as modified by Section 304(c) of the Internal Revenue Code, will be
subject to the rules of Section 304 as discussed below. Stockholders who are or
will be affiliated with or hold or will hold an interest in an entity that owns
stock of Wyndham or Patriot, whose family members own or will own stock of
Wyndham or Patriot, or who hold or will hold options on paired shares should
consult with their tax advisors concerning the application of the Section 304
and Section 318 constructive ownership rules.
If Section 304 of the Internal Revenue Code does not apply to the receipt of
cash for Patriot series B preferred stock in the merger, holders of Patriot
stock who receive stock of Wyndham in the merger and who also receive cash for
their Patriot series B preferred shares in the merger will recognize capital
gain but not loss, with respect to their Patriot stock up to the amount of cash
received, pursuant to Section 351 of the Internal Revenue Code. For purposes of
computing the amount of gain recognized, the Internal Revenue Service takes the
position that the Wyndham common stock and cash received by each stockholder
must be allocated among each share of each class of Patriot stock exchanged by
that stockholder in the merger, based on the relative value of each such
Patriot share. The amount of gain recognized with respect to each such share of
Patriot stock in such case equals the lesser of (1) the excess of the value of
the Wyndham stock and cash received for such Patriot share, based on the
foregoing allocation, over the holder's tax basis in such Patriot share and (2)
the amount of cash received with respect to such Patriot share, based on the
foregoing allocation. If Section 304 does not apply, a shareholder's tax basis
in the Wyndham shares received in the merger will equal the tax basis in the
Patriot shares exchanged therefor, decreased by the amount of cash received by
such shareholder and increased by the amount of gain, if any, recognized by
such shareholder in the merger.
Section 304 of the Internal Revenue Code will apply to the receipt of cash
received in the merger, and will supersede the rules of Section 351 in this
regard, if the former Patriot shareholders control Wyndham following the
merger. Although not entirely clear, it appears that the $1 billion equity
investment, the issuances of Wyndham shares pursuant to the partnership
exchange offers and Wyndham's exchange of existing shares of Wyndham preferred
stock for Wyndham common stock (or cash) should be taken into account in
determining whether former Patriot stockholders control Wyndham following the
merger. "Control" for this purpose means the ownership of stock possessing at
least fifty percent of the total combined voting power of all classes of stock
entitled to vote or at least fifty percent of the total combined value of all
classes of stock, determined with reference to certain constructive ownership
rules. Whether or not this control requirement will be satisfied will depend on
certain facts and circumstances at the time of the restructuring which cannot
be predicted. For example, changes in the market value of paired shares could
determine whether former Patriot stockholders will have control of Wyndham by
value. As another example, the extent to which limited partners who are not
also Patriot stockholders acquire Wyndham shares in the partnership exchanges
offers could determine whether former Patriot stockholders will have control of
Wyndham by vote. Further, the extent, if any, to which a portion of the Wyndham
stock acquired by the investors is deemed owned, under applicable constructive
ownership rules, by former Patriot stockholders could determine whether former
Patriot stockholders will have control of Wyndham by value or vote.
Provided that Section 304 of the Internal Revenue Code applies, a holder of
Patriot series B preferred shares who receives cash in the merger and who also
owns, or is deemed to own, Wyndham stock after the merger will be treated as
having received such cash as a distribution in redemption of stock of Wyndham.
In general, the cash received in this deemed redemption will be treated as
either a distribution from Wyndham, taxable as a dividend to the extent of its
allocable share of the earnings and profits of Wyndham and Patriot, or as a
sale of shares to Wyndham. It will be treated as a distribution unless the
deemed redemption is "substantially disproportionate" or "not essentially
equivalent to a dividend" within the meaning of Section 302(b) of the Internal
Revenue Code, as determined by comparing the shareholder's pre-transaction
ownership
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in Patriot with the shareholder's post-transaction indirect ownership in
Patriot through Wyndham, with certain modifications to the applicable
constructive ownership rules. A shareholder's post-transaction indirect
ownership in Patriot will equal his percentage interest in Wyndham stock
determined by value. If a stockholder's deemed redemption is substantially
disproportionate or not essentially equivalent to a dividend, it will be
treated as a sale. In general, because of the substantial dilution that will
result from the investors' equity investment in Wyndham, a holder of Patriot
series B preferred stock and paired shares who does not actually or
constructively acquire any additional shares of Wyndham stock, other than the
Wyndham common shares issued to him in the merger, should be able to report the
deemed redemption as a sale. All holders of Patriot series B preferred shares
are urged to consult with their own tax advisors regarding the application of
Section 302(b) of the Internal Revenue Code to their particular circumstances.
If the deemed redemption is treated as a sale, the amount of gain or loss that
a series B preferred shareholder will recognize depends upon which of the
shareholder's Patriot shares are treated as purchased by Wyndham for purposes
of Section 304. If the form of the transaction is respected for tax purposes,
Wyndham will be treated as purchasing only Patriot series B preferred shares,
with the result that each holder of Patriot series B preferred shares will
recognize gain or loss based on the difference between the holder's tax basis
in its series B preferred shares and the $25 per share redemption price.
Wyndham currently intends to report the transaction for tax purposes consistent
with this allocation of the cash. The Internal Revenue Service takes the
position, however, that cash received in a Section 351 exchange should be
allocated pro rata among the assets being exchanged by the transferor. The
Internal Revenue Service might apply a similar approach for purposes of Section
304, in which case a holder of Patriot series B preferred shares would
calculate gain or loss by treating the cash received in the merger as if it
were used to purchase a pro rata portion, based on relative fair market values,
of each share of each class of Patriot stock exchanged by the shareholder in
the merger.
To the extent that cash received in the merger by a holder of Patriot series
B preferred shares is treated as a distribution under Section 304 of the
Internal Revenue Code, this distribution will be taxable as an ordinary income
dividend to the extent of its allocable share of the earnings and profits of
Patriot and Wyndham. Any portion of the distribution which is not paid out of
earnings and profits will reduce the holder's basis in its Wyndham shares to
the extent thereof, and thereafter will be treated as a gain from the sale of
such shares. Provided the cash is treated as a distribution, in general, the
holder's tax basis in its Patriot shares that are treated as purchased by
Wyndham for purposes of Section 304 (i.e., the Patriot series B preferred
shares if the form of the transaction is respected) will be added to the
holder's basis in its Wyndham shares. To the extent that a corporate holder of
Patriot series B preferred stock is treated as having received a dividend as a
result of Section 304, such dividend will constitute an "extraordinary
dividend" subject to the special rules of section 1059 of the Internal Revenue
Code. Provided that the form of the transaction is respected for purposes of
Section 304, so that Wyndham is treated as purchasing only Patriot series B
preferred shares, these rules will require a corporate holder entitled to a
dividends received deduction for such dividend to apply the amount of the
dividend against its tax basis in its Patriot series B preferred shares (or any
other Patriot shares treated as purchased by Wyndham if the form is not
respected) and recognize gain to the extent the dividend amount exceeds such
tax basis. If the amount of the dividend is less than such tax basis, these
rules will have the effect of reducing the tax basis the holder otherwise would
receive in its Wyndham shares by the amount of the dividends.
The rules of Section 304 and their interaction with Section 351 are very
complex, and stockholders who may be subject to these rules are urged to
consult with their own tax advisors regarding the application of these rules to
them.
Tax Consequences of the Reverse Stock Splits and Merger to Patriot and
Wyndham. No gain or loss will be recognized by Wyndham or Patriot as a result
of the reverse stock splits and the merger. It is likely, however, that the
restructuring and the $1 billion equity investment will trigger certain
limitations on Wyndham's and/or Patriot's ability to use certain net operating
losses and capital loss carryforwards to offset taxable income generated
following the restructuring and such investment. As of December 31, 1998,
Wyndham and certain affiliated subsidiaries had net operating loss
carryforwards of approximately $77.5 million, and Patriot had a capital loss
carryforward of approximately $49 million.
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Tax Consequences of Termination of REIT Status. As a consequence of the
restructuring, Patriot will convert from a REIT to a taxable C corporation. The
termination of Patriot's REIT status will be retroactive to January 1, 1999. As
a result, distributions to stockholders will not be deductible for purposes of
computing taxable income, and Wyndham and Patriot will be subject to tax,
including any applicable alternative minimum tax, on their consolidated taxable
income at regular corporate rates, without offset for distributions of such
income to stockholders. Wyndham will take a one-time accounting charge of
approximately $750 million related to a deferred tax liability. Moreover,
although Patriot was required to distribute at least 95% of its net income
annually in order to maintain REIT qualification, no such minimum distribution
requirements will apply to Wyndham or Patriot beginning January 1, 1999, and
the annual dividends paid on Wyndham common shares likely will be substantially
less than the dividends historically paid by Patriot. The termination of
Patriot's REIT status will cause Patriot to lose permanently its status as a
grandfathered paired REIT, and Patriot will not be able to utilize the paired
structure for any of its properties if it were to re-elect REIT status.
Moreover, Patriot generally will be prohibited from re-electing REIT status for
four years, and, in any event, there can be no assurance that Patriot will be
in a position to re-qualify as a REIT at a future date.
With the termination of Patriot's REIT status and the conversion of your
Patriot stock into Wyndham stock through the merger, your investment in Wyndham
will be taxed under the general rules applicable to investments in stock of
regular C corporations, and you will no longer be subject to the special rules
governing REITs or paired shares. For example, none of the dividends that you
may receive from Wyndham will be eligible for the favorable treatment accorded
capital gain dividends by REITs, and all distributions will be taxed as
ordinary dividend income to the extent paid out of Wyndham's earnings and
profits. On the other hand, distributions to corporate distributees may be
eligible for the dividends received deduction, subject to certain limitations
in the Internal Revenue Code.
Dividends paid by Wyndham to non-U.S. stockholders will not be subject to
the withholding taxes otherwise applicable to capital gains dividends by
Patriot under the Foreign Investment in Real Property Tax Act ("FIRPTA"). Non-
US stockholders should be aware that, as a result of the termination of
Patriot's REIT status effective January 1, 1999, their Patriot shares will no
longer be eligible for an exemption from FIRPTA for stock of a domestically-
controlled REIT. Non-US stockholders also should be aware that Wyndham will
constitute a "united states real property holding corporation" within the
meaning of FIRPTA following the restructuring. Non-U.S. stockholders should
consult their tax advisors regarding the possible imposition of FIRPTA taxes
upon the disposition of their Patriot shares in the merger or any subsequent
disposition of their Wyndham shares.
In connection with the termination of Patriot's REIT status, the Patriot
partnership and certain other lower-tier partnerships of Patriot will terminate
for federal income tax purposes under Section 708 of the Internal Revenue Code
as of January 1, 1999. As a result of these terminations, these partnerships
may have to depreciate certain assets over longer periods, which could reduce
Patriot and Wyndham's deductions, and consequently their ability to deter
recognition of taxable income with respect to these properties. In addition, it
is possible that losses suspended under Section 704(d) of the Internal Revenue
Code regarding losses in excess of a partner's basis in its partnership
interest would no longer be eligible for carryover to future years.
Tax Consequences of the Wyndham Preferred Stock Exchange Offer. Wyndham will
extend an offer to the current holders of the Wyndham preferred stock to
exchange their shares of Wyndham preferred stock for shares of Wyndham class A
common stock prior to the merger. Holders who accept this offer will not
recognize gain or loss on the exchange of their Wyndham preferred stock for
Wyndham class A common stock. The tax basis of the shares of the Wyndham class
A common stock received by such holders will be equal to the tax basis of the
shares of Wyndham preferred stock exchanged therefor. The holding period with
respect to the Wyndham class A common stock received by such holders will
include the holding period of the Wyndham preferred stock exchanged therefor,
so long as such Wyndham preferred stock was held as a capital asset at the time
of the exchange. No gain or loss will be recognized by Wyndham as the result of
the exchange.
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Wyndham will redeem for cash any remaining shares of Wyndham preferred stock
not exchanged for Wyndham class A common stock. In general, each holder of
Wyndham preferred stock whose shares are redeemed for cash will recognize gain,
or loss, long term or short term as the case may be, on the redemption of his
preferred stock provided that the redemption is "not essentially equivalent to
a dividend" under Section 302(b) of the Internal Revenue Code. In general, the
determination whether the redemption is essentially equivalent to a dividend
depends on whether and to what extent the transactions related to the
redemption will be deemed to reduce the holder's percentage stock ownership of
Wyndham following the redemption. In general, if the redemption and related
transactions result in a meaningful reduction in the holder's deemed percentage
stock ownership of Wyndham, the redemption should be not essentially equivalent
to a dividend with respect to the holder. For purposes of these tests a
holder's percentage stock ownership includes not only actual stock ownership
but constructive stock ownership applying certain attribution rules in Section
318 of the Internal Revenue Code. Redemptions of existing Wyndham preferred
shares that do not qualify as "not essentially equivalent tax dividend" will be
treated as a distributions to the holder, taxable as a dividend to the extent
paid out of Wyndham's earnings and profits. To the extent not paid out of
earnings and profits, the distribution will reduce the holder's basis in its
other Wyndham shares to the extent thereof and thereafter will be treated as
gain from the sale of Wyndham shares. In the case of redemptions treated as
distributions, the basis of the redeemed shares generally will be added to the
basis of the holder's other Wyndham shares.
Holders of Wyndham preferred stock who exchange some, but not all, of their
Wyndham preferred stock for Wyndham class A common stock will receive cash in
redemption of their Wyndham preferred shares not exchanged for common stock.
These stockholders will recognize gain but not loss equal to the lesser of (1)
the excess of the value of the Wyndham common shares and cash received for
their Wyndham preferred shares over the tax basis of the Wyndham preferred
shares exchanged therefor and (2) the amount of cash received in redemption of
their Wyndham preferred shares. Any such gain will be capital gain, long-term
or short-term as the case may be, unless the exchange and redemption have "the
effect of a distribution of a dividend" under Section 356 of the Internal
Revenue Code. If the exchange and redemption have the effect of a dividend, the
gain will be treated as a dividend to the extent paid out of earnings and
profits, and the balance will be treated as capital gain. In general, the
determination of whether the exchange and redemption have the effect of a
distribution of a dividend is made under the same principals as the
determination of whether or not a redemption of Wyndham preferred shares is not
essentially equivalent to a dividend, as discussed above. A stockholder who
receives both Wyndham common shares and cash for his existing Wyndham preferred
shares will receive an aggregate tax basis in the Wyndham common shares equal
to the tax basis in the preferred shares exchanged therefor, decreased by the
amount of cash received and increased by the amount of gain recognized in the
exchange and redemption (including any gain treated as a dividend).
Tax Consequences of the Partnership Exchange offers to Wyndham. Together
with the stock exchanges resulting from the merger, exchanges of partnership
interests for Wyndham common stock pursuant to the partnership exchange offers
also will qualify for treatment under Section 351 of the Internal Revenue Code.
Consequently, Wyndham's tax basis with respect to the partnership interests
acquired in the partnership exchange offers generally will be the tax basis
that the exchanging limited partners had in their partnership interests
immediately prior to the exchanges, increased by the amount of any gain
recognized by the exchanging limited partners upon such exchanges, rather than
the fair market value of such partnership interests. To the extent that the
exchanging limited partners initially contributed appreciated property for
their partnership interests, taxable gains that would otherwise be specially
allocated to the exchanging limited partners on disposition of those properties
will instead be specially allocated to Wyndham. On the other hand, to the
extent that exchanging limited partners recognize gain in the exchanges, which
will occur to the extent that the partnership liabilities attributable to the
units exchanged exceed the exchanging limited partner's basis in those units,
the partnership generally will be able to increase the tax basis of its assets.
This increase in the tax basis of partnership assets will result in increased
depreciation and amortization deductions to Wyndham in the future, which
deductions generally will not be shared with limited partners who do not
participate in the partnership exchange offers. Future taxable gains recognized
by Wyndham as the result of dispositions of properties also will be reduced and
losses increased, as a result of the basis step-up.
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Depending of the amount of Wyndham Partnership interests tendered in the
partnership exchange offers, the exchanges may cause a termination of the
Wyndham Partnership for tax purposes under Section 708 of the Internal Revenue
Code, with consequences similar to those resulting from the termination of the
Patriot Partnership as outlined above.
Tax Consequences of the Rights Offering. The proper treatment of the
proposed issuance of rights to purchase class A preferred stock to Wyndham
common stockholders following the transactions is not clear due to the lack of
authority on the issue. The issuance of rights to purchase class A preferred
stock to holders of Wyndham common stock could be treated as a tax-free
distribution to such stockholders, and Wyndham currently intends to report the
transaction in this manner. Under this analysis, a stockholder's basis in the
rights distributed to him depends on the fair market value of the rights at the
time of distribution. If the fair market value of the rights is less than 15%
of the fair market value of the stockholder's Wyndham common stock, then the
basis in the rights will be zero unless the stockholder irrevocably elects (in
the manner prescribed in the regulations under Section 307 of the Internal
Revenue Code) to allocate the adjusted basis of his Wyndham common stock
between the rights and such stock in proportion to the fair market values of
each on the date the rights are distributed. If the fair market value of the
rights is 15% or greater of the fair market value of the stockholder's Wyndham
common stock at the time of distribution, then basis in the rights will be
determined by allocating the adjusted basis of the distributee's Wyndham common
stock between the rights and such stock in proportion to the fair market values
of each at the time of distribution. If the issuance of rights is treated as
such a tax-free distribution, then the holding period of the rights will
include the period that the stockholder held the Wyndham common stock in
respect of which the rights were distributed. The holding period of the class A
preferred stock to be received upon exercise of such rights, however, will
begin on the date the rights are exercised. If a distributee of rights allows
them to lapse unexercised, any basis allocable thereto will in effect revert to
his Wyndham common shares. Notwithstanding the foregoing, the Internal Revenue
Service could take the position that the issuance of the rights to purchase
class A preferred stock to holders of Wyndham common stock should be treated
for federal income tax purposes as a distribution of property in the amount of
then fair market value of such rights. Under that analysis, the distribution
would be taxable as a dividend to the extent it is paid out of the earnings and
profits of Wyndham remaining after earnings and profits are allocated to
distributions paid on Wyndham preferred shares during the taxable year. To the
extent the value of the rights at the time of distribution exceeded the
earnings and profits of Wyndham allocable to such distribution, the
distribution would be treated as a non-taxable return of capital that reduced
the tax basis in a shareholder's shares to the extent thereof and thereafter as
gain from the sale of such shares.
Certain Tax Consequences To Stockholders Who Also Participate In The
Partnership Exchanges. Certain of the federal income tax consequences
described above may be modified for holders of Patriot and Wyndham stock who
also participate in the partnership exchange offers or who do not exchange all
of their interests in the Patriot partnership. These modifications are
summarized below. For a detailed discussion of the federal income tax
consequences of the partnership exchange offers stockholders who also are
partners in the Patriot or Wyndham partnerships should review the materials
distributed to them in connection with such exchanges. The following discussion
is qualified in its entirety by the detailed discussion contained in such
materials.
In general, except as otherwise discussed below, the federal income tax
consequences of both exchanging limited partnership interests in the
partnership exchange offers and exchanging shares pursuant to the merger will
be as follows:
. A partner will not recognize gain or loss on the exchange of Patriot
shares and limited partnership interests for Wyndham common stock.
. If a partner receives cash for Patriot series B preferred stock in
the merger, the partner will recognize gain, but not loss, with
respect to each share of Patriot stock or limited partnership
interest transferred to Wyndham equal to the lesser of (A) the amount
of cash allocable to the share or limited partnership interest and
(B) the amount by which the sum of (1) the cash allocable to the
share or limited partnership interest, (2) the fair market value of
the Wyndham common stock
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<PAGE>
received that is allocable to the share or limited partnership
interest and (3) the portion of the aggregate partnership liabilities
attributable to the limited partnership interests exchanged by the
partner that is allocable to the share or limited partnership
interest, exceeds the partner's tax basis in the share or limited
partnership interest transferred.
. The aggregate tax basis of the shares of Wyndham common stock that a
partner receives in the merger and the partnership exchange offers
will be equal to the aggregate tax basis of the limited partnership
interests and shares of Patriot stock exchanged therefor, decreased
by the amount of partnership liabilities attributable to the
partnership units exchanged and the amount of any cash received and
increased by the amount of any gain recognized in the partnership
exchange offers and the merger.
. The holding period of the shares of Wyndham common stock received
generally will include the holding period of the limited partnership
interests as well as the shares of Patriot stock exchanged, provided
that the partner holds the units and Patriot stock as capital assets
at the time of the partnership exchange offers and the merger. The
holding period of a portion of the shares of Wyndham common stock
may, however, begin on the date following the exchange.
. If Section 304 of the Internal Revenue Code applies as discussed
below, then for purposes of the calculations above the partner should
disregard any partnership liabilities, cash and shares of Patriot
stock that are subject to special treatment under Section 304.
Notwithstanding the foregoing, under Section 357(c) of the Internal Revenue
Code, a partner will recognize gain when the partner exchanges limited
partnership interests pursuant to the partnership exchange offers if and to the
extent that (1) the aggregate amount of partnership liabilities attributable to
the limited partnership interests exchanged, other than any portion of such
liabilities subject to special treatment under Section 304 as discussed below,
exceeds (2) the aggregate tax basis in the limited partnership interests
exchanged plus the partner's aggregate tax basis in the shares of Patriot stock
exchanged in the merger, other than any such shares subject to special
treatment under Section 304 of the Code as discussed below.
In general, any gain recognized will be capital gain and will be long-term
capital gain if and to the extent allocable to Patriot's stock or units for
which the partner has a holding period of more than one year. However, a
portion of the gain recognized could be recharacterized as ordinary income, and
the amount of recognized gain could be increased, as a result of the "hot
asset" rules of Section 751 of the Internal Revenue Code.
Individual stockholders and closely held corporations could also recognize
income to the extent that they otherwise would have a negative "at-risk amount"
under Section 465 of the Internal Revenue Code as a result of their exchange of
limited partnership interests.
If the control requirements of Section 304 of the Internal Revenue Code are
satisfied, as discussed above, Section 304 of the Internal Revenue Code and not
Section 351 of the Internal Revenue Code will govern the tax treatment of any
Patriot shares that Wyndham acquires or is deemed to acquire for cash or the
assumption of liabilities in the merger and partnership exchange offers. For
this purpose, it is possible that partnership liabilities attributable to the
limited partnership interests that are exchanged will be treated, in part, as
liabilities assumed and cash paid by Wyndham in partial consideration for
Patriot stock, which could cause exchanging partners to recognize gain or loss
under Section 304 of the Internal Revenue Code. If the form of the transaction
is respected for tax purposes, however, this result would not occur. Wyndham
will be treated as assuming the partnership liabilities attributable to limited
partnership interests only in consideration for limited partnership interests
and not in consideration for any Patriot stock transferred pursuant to the
merger. We currently intend to report the transaction for tax purposes
consistent with this allocation. The Internal Revenue Service takes the
position, however, that cash received and liabilities assumed in a Section 351
exchange should be allocated pro rata among the assets being exchanged by the
transferror. The Internal Revenue Service might apply a similar approach for
purposes of Section 304, in which case the liabilities allocable to the limited
117
<PAGE>
partnership interests exchanged would be treated as if they were assumed by
Wyndham in exchange for a pro rata portion (based on relative fair market
values) of each limited partnership interest that a partner exchanged in the
partnership exchange offers and each share of Patriot stock that a partner
exchanged in the merger. If and to the extent that the liabilities allocable to
units exchanged are treated as amounts paid for Patriot stock exchanged
pursuant to the merger, the liabilities will be treated under Section 304 as
cash distributed to the partner in redemption of stock of Wyndham (a "deemed
redemption"). In general, the cash a partner is deemed to receive in this
deemed redemption will be treated as either a distribution from Wyndham
(taxable as a dividend to the extent of earnings and profits of Patriot and
Wyndham) or as a sale of shares to Wyndham (resulting in gain or loss). It will
be treated as a distribution unless the deemed redemption is "substantially
disproportionate" or "not essentially equivalent to a dividend" within the
meaning of Section 302(b) of the Internal Revenue Code, as discussed above
under "Tax Treatment of Cash Paid for Patriot Series B Preferred Stock."
Whether a partner's ownership (direct or indirect) in Patriot is increased or
decreased in the transaction will depend on, among other things, the number of
units of limited partnership interest that the partner exchanges, which
generally will increase the partner's post-transaction indirect ownership in
Patriot.
The amount of any partnership liabilities attributable to units of limited
partnership interest a partner exchanges that is treated as a distribution to
the partner by reason of Section 304 will be taxed in the same manner as a
distribution arising under Section 304 as a result of cash paid for Patriot
Series B preferred shares, as discussed above, including "extraordinary
dividend" treatment under Section 1059 of the Internal Revenue Code for certain
corporate holders. See "Tax Treatment of Cash Paid for Patriot Series B
Preferred Stock."
If a partner participating in the partnership exchanges holds Patriot series
B preferred stock or Wyndham preferred stock, the partner's exchange of
partnership units also may affect the treatment of the cash that the partner
receives or may receive in exchange for those shares, because (1) the exchange
of limited partnership interests will increase the partner's post-transaction
ownership in Patriot and thereby increase the likelihood that the cash paid for
the partner's series B preferred stock, or any cash paid for the partner's
Wyndham preferred shares, will be treated as a distribution in certain
instances and (2) the Internal Revenue Service might treat for Section 304
purposes some of the cash received for the partner's Patriot series B preferred
stock as paid in consideration for the partner's partnership units based on the
pro rata allocation above, which generally would reduce the amount of gain or
loss recognized with respect to the partner's series B preferred shares under
Section 304 but which could increase the amount of gain recognized under
Section 351 with respect to the partner's units.
If a partner does not exchange all of his limited partner interests, rights
to purchase Wyndham class A preferred stock may be distributed to the partner
with respect to his retained limited partner interests. The distribution, if
any, of such rights with respect to the partner's retained limited partner
interests will be taxed in accordance with the rules governing distributions
from partnerships, in lieu of the treatment described above regarding the
distribution of rights with respect to Wyndham common shares. If a partner does
not exchange all of his Patriot partnership units he may receive a distribution
of stock of certain subsidiaries of the Patriot partnership. Such subsidiary
stock will be exchanged for Wyndham common stock in the merger transactions.
This exchange will be part of the Section 351 exchange that includes the merger
and the partnership exchange offers. For any such partner, the consequences of
exchanging both limited partnership interests and Patriot stock described above
should be modified to take into account the Wyndham common stock received for
his subsidiary stock and the partner's basis and holding period in such
subsidiary stock. Any Section 357(c) gain for such partner will be reduced by
the amount of the partner's basis in such subsidiary stock. This exchange also
would affect the consequences of a partner's participation in the merger and
other corporate transactions in essentially the same manner as the partner's
exchange of partnership units for Wyndham common stock as described in the
preceding paragraph.
Reporting Requirements. Regulations under Section 351 of the Internal
Revenue Code require you to file a statement with your federal income tax
return for the taxable year in which you participate in a transaction subject
to Section 351 of the Internal Revenue Code.
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<PAGE>
Securities Ownership of Certain Beneficial Owners
and Management
Except as otherwise noted, the following table sets forth certain
information as of May 21, 1999 as to the security ownership of those persons
owning of record or known to Wyndham and Patriot to be the beneficial owner of
more than five percent of the paired shares and the security ownership of
Wyndham preferred stock, Patriot preferred stock and paired shares by each of
the directors of Wyndham and Patriot, director nominees and each of the
executive officers of Wyndham and Patriot, and all directors and executive
officers of Wyndham and Patriot as a group. All information with respect to
beneficial ownership has been furnished by the respective director, director
nominee, executive officer or five percent beneficial owner, as the case may
be. Unless otherwise indicated, the persons named below have sole voting and
investment power with respect to the number of shares set forth opposite their
names. Beneficial ownership of the Wyndham preferred stock, Patriot preferred
stock and paired shares has been determined for this purpose in accordance with
applicable rules and regulations promulgated under the Exchange Act. The number
of shares of Wyndham preferred stock, Patriot preferred stock or paired shares
also includes the number of shares that the person could receive if he redeemed
his partnership units under certain circumstances.
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<PAGE>
As of May 21, 1999, there were 239,901,410 paired shares; 4,860,876 shares
of Patriot series A preferred stock; 558,656 shares of Patriot series B
preferred stock; 1,781,173 shares of Wyndham series A preferred stock;
1,781,181 shares of Wyndham series B preferred stock; 8,651,569 options to
purchase a like number of paired shares; 13,709,531 paired common partnership
units (excluding paired common partnership units held by subsidiaries of the
companies); 1,324,804 preferred B paired partnership units; 655,892 preferred A
Wyndham partnership units; and 586,814 preferred C Wyndham partnership units
outstanding.
<TABLE>
<CAPTION>
Number of Shares
and Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class(a)
- ------------------------ ------------------------ ----------
<S> <C> <C>
Karim Alibhai............................ 5,347,240(b) 2.18%
Karim Alibhai............................ 171,200(w)*** 4.81%***
Leslie V. Bentley........................ 624,432(c) *
John P. Bohlmann......................... 42,428(d) *
Leonard Boxer............................ 59,117(e) *
James D. Carreker........................ 2,028,661(f) *
Harlan R. Crow........................... 12,126,729(g)(v) 4.95%
Harlan R. Crow........................... 4,860,876(h)** 100%**
John H. Daniels.......................... 204,987(e) *
John C. Deterding........................ 54,697(e) *
Gregory R. Dillon........................ 54,697(e) *
Burton C. Einspruch, M.D................. 24,472(i) *
William W. Evans III..................... 773,637(j) *
Milton Fine.............................. 5,066,390 2.11%
Susan T. Groenteman...................... 30,768(v) *
Michael Grossman......................... 13,986(k) *
Richard A. Holtzman...................... 98,353(x) *
Arch K. Jacobson......................... 77,237(l) *
Lawrence S. Jones........................ 25,711(m) *
Stanley M. Koonce, Jr. .................. 613,438(n) *
Thomas W. Lattin......................... 368,663(o) *
James C. Leslie.......................... 15,033(v) *
Carla S. Moreland........................ 70,879(p) *
Paul Novak............................... 96,837(q) *
Paul A. Nussbaum......................... 4,275,499(r) 1.76%
Anne L. Raymond.......................... 609,167(y) *
Rolf E. Ruhfus........................... 1,896,505(z) *
Philip J. Ward........................... 11,790(v) *
Sherwood M. Weiser....................... 1,137,736(i)(s) *
Sherwood M. Weiser....................... 788,795(w)*** 22.14%***
Executive officers and directors as a
group (27 persons)...................... 35,749,089 14.72%
Leon D. Black............................ 116,892 *
Norman Brownstein........................ 0 0%
Stephen T. Clark......................... 11,744 *
Paul Fribourg............................ 0 0%
Thomas H. Lee............................ 0 0%
Alan M. Leventhal........................ 0 0%
William Mack............................. 996,460 *
Lee Niebart.............................. 3,300 *
Marc Rowan............................... 0 0%
Scott Schoen............................. 0 0%
Scott Sperling........................... 0 0%
CFHS, L.L.C./Crow Family, Inc............ 11,074,443(t) 4.73%
4,768,874(u)** 98.1%**
</TABLE>
120
<PAGE>
- --------
* Less than 1%.
** Patriot preferred stock
*** Wyndham series A preferred stock and Wyndham series B preferred stock
(a) Assumes that all partnership units and shares of Patriot preferred stock
held by each person are redeemed for a paired share. The total number of
shares outstanding in calculating the percentage assumes that none of the
partnership units or shares of Patriot preferred stock held by other
persons are redeemed for paired shares. Also assumes that all vested
options to purchase paired shares are exercised. The total number of shares
outstanding used in calculating the percentage assumes that no other vested
or unvested options held by other persons are exercised.
(b) Includes options to purchase 300,531 paired shares issued to Mr. Alibhai
which are currently exercisable. The number of shares beneficially held by
Mr. Alibhai includes an aggregate of 441,059 partnership units beneficially
owned by Gencom Interest, Inc., a family corporation for which he serves as
Vice President and of which he owns 30% of the outstanding capital stock.
Mr. Alibhai disclaims beneficial ownership of these partnership units,
except to the extent of his 30% ownership interest in such corporation.
(c) Includes options to purchase 33,303 paired shares issued to Mr. Bentley
which are currently exercisable.
(d) Includes options to purchase 10,765 paired shares issued to Mr. Bohlmann
which are currently exercisable.
(e) Includes options to purchase 42,933 paired shares, all of which are
currently exercisable.
(f) Includes options to purchase 78,088 paired shares issued to Mr. Carreker
which are currently exercisable.
(g) The number of shares beneficially held by Mr. Crow include an aggregate of
7,265,853 paired shares held by various family limited partnerships, in
which Mr. Crow controls the general partner and various family corporations
and trusts in which Mr. Crow exercises control over investment decisions.
Mr. Crow disclaims beneficial ownership of such paired shares. The number
of shares also includes 4,860,876 shares of Patriot preferred stock held by
the same family limited partnerships, corporations and trusts. Mr. Crow
disclaims beneficial ownership of such Patriot preferred stock. Certain of
such paired shares and Patriot preferred stock are also reported being held
by CFHS LLC and Crow Family, Inc.
(h) Shares of Patriot preferred stock. Mr. Crow disclaims beneficial ownership
of such Patriot preferred stock to the extent such stock exceeds his
pecuniary interest in the limited partnerships that directly hold the
stock. Certain of such shares are also reported as held by CFHS LLC and
Crow and Family, Inc.
(i) Includes options to purchase 21,467 paired shares, all of which are
currently exercisable.
(j) Includes options to purchase 601,074 paired shares issued to Mr. Evans, all
of which are currently exercisable.
(k) Includes options to purchase 2,023 paired shares issued to Mr. Grossman,
which are currently exercisable.
(l) Includes options to purchase 64,400 paired shares issued to Mr. Jacobson,
all of which are currently exercisable.
(m) Includes options to purchase 6,011 paired shares issued to Mr. Jones which
are currently exercisable.
(n) Includes options to purchase 33,303 paired shares issued to Mr. Koonce
which are currently exercisable.
(o) Includes options to purchase 185,392 paired shares issued to Mr. Lattin
which are currently exercisable.
(p) Includes options to purchase 56,788 paired shares issued to Ms. Moreland
which are currently exercisable.
(q) Includes options to purchase 25,641 paired shares issued to Mr. Novak which
are currently exercisable.
(r) Includes options to purchase 3,005,575 paired shares issued to Mr. Nussbaum
which are currently exercisable.
(s) Includes an aggregate of 10,984 paired partnership units held by W L Tampa,
Ltd., and 129,900 paired shares held by CHC International, Inc. Mr. Weiser
disclaims beneficial ownership of such securities to the extent that they
exceed his pecuniary interest in such entities.
(t) Includes 6,305,569 paired shares and 4,768,874 shares of Patriot preferred
stock held by various limited partnerships in which CFHS LLC serves as the
general partner. All of such shares are also reported in Mr. Crow's
beneficial holdings. Beneficial ownership information is based on the
Schedule 13D filed by G-3 Securities, L.P., CFHS, LLC and Crow Family, Inc.
on January 8, 1998.
(u) Shares of Patriot preferred stock. All of such shares are also reported in
Mr. Crow's beneficial holdings above.
(v) Includes options to purchase 10,733 paired shares, all of which are
currently exercisable.
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<PAGE>
(w) Shares of Wyndham series A preferred stock and shares of Wyndham series B
preferred stock.
(x) Includes options to purchase 95,420 paired shares which are currently
exercisable.
(y) Includes options to purchase 3,851 paired shares which are currently
exercisable.
(z) Includes an aggregate of 1,766,936 of paired partnership units held by
Summerfield Suites Management Corp., Summerfield Development Corp.,
Summerfield Suites Lease Corp., SFHC Lease Corp., Summerfield Investment
Corp., and Witchita Consulting Co.
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<PAGE>
Certain Relationships and Related Transactions
Title Insurance
Unity Title Company, a corporation wholly-owned by Mr. Nussbaum and members
of his family, receives a portion of the title insurance premiums paid in
connection with substantially all of the hotel acquisitions by the companies.
In many cases, these premiums are paid by the seller of the hotel, and in other
cases are paid by the companies. In 1998, Unity Title Company received in
excess of $60,000 in title premiums related to hotel acquisitions by the
companies.
Wyndham Merger
As part of the merger of Wyndham Hotel Corporation with and into Patriot in
January 1998, Patriot entered into an Omnibus Purchase and Sale Agreement, as
well as 11 individual purchase and sale agreements with various descendants of
Mr. and Mrs. Trammell Crow, and various corporations, partnerships, trusts and
other entities beneficially owned or controlled by such persons (collectively,
the "Crow Family Members"), Mr. Carreker, Mr. Bentley and Mr. Koonce, for the
acquisition of 11 hotels. As part of the Wyndham merger, the Crow Family
Members received $52,227,598 in addition to 6,427,217 paired shares and
4,860,876 shares of Patriot series A preferred stock. Mr. Carreker received
$7,661,087 and 1,638,988 paired shares, Mr. Bentley received $2,189,652 and
468,423 paired shares, Mr. Koonce received $2,166,908 and 463,580 paired
shares, and Ms. Groenteman received $174,530 and 37,337 paired shares.
Additionally, after payment of outstanding indebtedness and other transactional
expenses, the entities had available for distribution approximately $64,731,000
for the Crow Family Members, approximately $1,527,000 for Mr. Carreker, and
approximately $462,000 for each of Mr. Bentley and Mr. Koonce. Also, as part of
the Wyndham merger, stock options granted to Messrs. Carreker, Bentley and
Koonce and Ms. Moreland became immediately exercisable in accordance with their
terms.
As part of the Wyndham merger, Crow Family Members and certain Wyndham
senior executives retained the right to receive additional consideration on
April 30, 2000 based on a formula pertaining to the performance of Wyndham
Riverfront New Orleans and Wyndham Garden Laguardia as set forth in the Omnibus
Purchase and Sale Agreement dated April 14, 1997. Based on the performance of
such properties as of December 31, 1998, the additional consideration would be
$9,152,000 and $9,971,000, respectively.
Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries
Patriot loaned $40,500,000 in the form of mortgage notes to PAH Ravinia, a
corporation owned directly and indirectly by Messrs. Nussbaum, Lattin and
Stewart, as part of the financing for PAH Ravinia's acquisitions of the Crowne
Plaza Ravinia Hotel. Patriot recognized $43,000 of interest income in 1998
related to such mortgage notes, excluding $4,268,000 of such interest
eliminated for financial reporting purposes in 1998. Patriot has aggregate
receivables, including mortgage notes, of $42,264,000 due from PAH Ravinia as
of December 31, 1998.
Patriot also loaned $31,400,000 in the form of a mortgage note to PAH
Windwatch, a limited liability company owned directly and indirectly by Messrs.
Nussbaum, Lattin and Stewart, as part of the financing for PAH Windwatch's
acquisition of the Wyndham WindWatch Hotel. Patriot recognized $79,000 of
interest income in 1998 related to such mortgage notes, excluding $2,759,000 of
such interest eliminated for financial reporting purposes. Patriot had
aggregate receivables, including the mortgage notes, of $32,830,000 due from
PAH Windwatch as of December 31, 1998.
Interstate Merger
As part of the companies' acquisition of Interstate Hotels Company in June
1998, Mr. Fine and various entities beneficially owned or controlled by Mr.
Fine received cash and 9,706,019 paired shares.
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<PAGE>
Summerfield Acquisition
As part of Wyndham's acquisition of SF Hotels Company, L.P. in June 1998,
Mr. Ruhfus and entities beneficially owned or controlled by Mr. Ruhfus received
$40,885,214 in cash and 1,368,008.93 units of limited partnership interest in
each of the Patriot partnership and the Wyndham partnership. Additionally,
pursuant to the terms of contribution agreement relating to the Summerfield
acquisition, the Summerfield entities received an additional 327,993 units of
limited partnership interest in the Patriot partnership and the Wyndham
partnership in January 1999 and have earned the right to receive an additional
estimated $55 million of consideration in January 2000 and January 2001,
payable, at the election of the Summerfield entities, in either cash or
additional limited partnership interests.
As part of the Summerfield acquisition, Mr. Ruhfus retained the right to a
15% participation with the companies in the appreciation in value of the Miami
Airport Summerfield based on terms set forth in the carried interest payment
agreement included as an exhibit to the Contribution Agreement.
GAH Acquisition--Phase II
In June 1998, as part of certain transactions with affiliates of Gencom
American Hospitality, Inc. and CHCI to acquire certain real estate and other
assets, Mr. Alibhai received 156,863 units of limited partnership interest in
the Wyndham partnership and 85,600 shares of Wyndham series A and series B
preferred stock.
As part of the companies' acquisition of CHCI on June 30, 1998 the companies
may be obligated on September 30, 2000 and September 30, 2002 to pay Mr.
Alibhai and Mr. Weiser additional consideration, in each case based upon the
performance of specified assets, based on formulas as set forth in merger and
contribution agreements.
Sale of Hotels to Milton Fine
In November 1998, the companies sold the Courtyard by Marriott in
Westborough, Massachusetts and the Residence Inn by Marriott in Pittsburgh,
Pennsylvania, as well as 50% equity interest in each of the Courtyard by
Marriott in Orange, California and the Courtyard by Marriott in St. Louis,
Missouri to Mr. Fine for an aggregate purchase price of $41.5 million.
Loan from Beacon Capital Partners, L.P.
In May 1999, Beacon Capital Partners, L.P. loaned $25 million to the
companies. The loan, which bears interest at LIBOR plus 2.5% is due June 30,
1999. The loan is secured by a first mortgage on the Wyndham Batterymarch
hotel, a property under construction in Boston, Massachusetts. The companies
paid Beacon Capital Partners, L.P. a financing fee of 2.50% of the loan
principal in May and will pay Beacon an additional fee of 0.75% of the loan
principal upon maturity of the loan.
Other Related Party Transactions
The companies license from Mr. Nussbaum the name and trademark of Patriot
American Hospitality, Inc. under a perpetual no-cost license agreement. In
addition, Mr. Nussbaum has outstanding invoices from the companies in the
amount of approximately $152,074 relating to the personal use of the corporate
jet services and hotel facilities.
During 1998, Wyndham received hotel management fees in the aggregate amount
of $8,301,956 from the partnerships owning Wyndham hotels listed below, in
which Crow Family Members have an interest. Some or all of the Wyndham senior
executive officers have an ownership interest in such hotel partnerships.
During 1998, Wyndham received payments in the aggregate amount of $4,207,325
from the hotel partnerships listed below, in which Crow Family Members have an
interest. Some or all of the Wyndham senior executive officers have an
ownership interest in such hotel partnerships. The payments were received as
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<PAGE>
reimbursements for certain administrative, tax, legal, accounting, finance,
risk management, sales and marketing services provided by Wyndham to such
entities.
<TABLE>
<CAPTION>
Hotel Partnership Hotel
----------------- -----
<S> <C>
Anatole Hotel Investors, L.P................... Wyndham Anatole
Bristol Hotel Associates, Ltd.................. Wyndham Bristol
Playhouse Square Hotel Limited Partnership..... Wyndham Playhouse Square
MTD Associates................................. Wyndham Milwaukee Center
Hotel and Convention Center Partners I-XI.
Ltd........................................... Wyndham Palm Springs
Amgreen-Heritage Hotel Partnership, Ltd........ Wyndham Garden Hotel-Orange
Waterfront-Hotel Associates, S.E............... Wyndham Old San Juan
</TABLE>
During 1998, Wyndham received hotel management fees in the aggregate of
$14,285,904 from the owner of the hotels listed below in which Milton Fine,
Paul Nussbaum, Karim Alibhai, Rolf Ruhfus, or Sherwood Weiser has an interest.
<TABLE>
<CAPTION>
1998 Aggregate
Management and
Milt Fine Service Fees
--------- ---------------
<S> <C>
Marriott-Harrisburg, PA $ 265,734
Marriott Reach Resort, Key West, Fla. 201,187
Marriott-Pittsburgh Airport 294,884
Marriott-Albany, NY 340,144
Marriott Mission Valley, San Diego 323,684
Marriott Minnetonka, Minneapolis 273,466
Marriott Courtyard, St. Louis 378,029
Marriott Courtyard-Westborough, Boston 208,065
Marriott Courtyard Orange 210,486
Marriott-Ft. Lauderdale 173,532
Marriott Greentree, Pittsburgh 658,613
Marriott Providence 1,383,983
Marriott Trumbull 1,554,174
Embassy Suites Chicago 377,213
Residence Inn Pittsburgh 46,866
<CAPTION>
Paul Nussbaum
-------------
<S> <C>
Marriott Residence Inn, Houston $ 210,737
Holiday Inn Astrodome 215,020
Days Inn Astrodome 49,350
Sheraton Astrodome 524,190
Radisson Astrodome 94,849
Sheraton Edmonton 216,335
Inn at Maingate dba Doubletree Maingate 204,220
</TABLE>
125
<PAGE>
<TABLE>
<CAPTION>
1998 Aggregate
Management and
Karim Alibhai Service Fees
------------- ---------------
<S> <C>
Days Inn Astrodome, Houston $ 49,350
Days Inn Greenspoint, Houston 45,530
Hampton Inn Corpus Christi 46,824
Hawthorne Suites, Houston 86,974
Holiday Inn Stevens Point, Portage County, Wisconsin 273,629
Holiday Inn Astrodome, Houston 161,733
Inn at Maingate dba Doubletree Maingate, Kissimmee, FL 204,220
Marriott Residence Inn, Houston Medical Center 210,737
Sheraton Astrodome, Houston 524,190
Sheraton Edmonton, Alberta Canada 216,335
Omni Baltimore 916,675
Wyndham Miami-Biscayne Bay 449,110
Radisson Astrodome, Houston 94,849
Holiday Inn-Lenox 221,928
Wyndham Garden Market Center, Dallas 137,813
Days Inn Austin 40,314
Radisson Acapulco 21,639
Wyndham Montreal 256,793
<CAPTION>
Rolf Ruhfus
-----------
<S> <C>
Summerfield Suites--Bridgewater $ 141,990
Summerfield Suites--Burlington 136,446
Summerfield Suites Chicago Downtown 158,621
Summerfield Suites Charlotte 36,006
Summerfield Suites Gaithersburg 98,982
Summerfield Suites Pleasanton 51,339
Summerfield Suites Scottsdale 4,889
Sierra Suites--Bothell 45,901
Sierra Suites--Chantilly 332
Sierra Suites--Orlando 40,272
Sierra Suites--Lake Buena Vista 36,740
Sierra Suites--Phoenix Metro Center 25,621
Sierra Suites--Piscataway 29,637
Sierra Suites--Pleasanton 23,613
Sierra Suites--Scottsdale 54,871
Sierra Suites--Waltham 32,470
Sierra Suites--Woburn 53,678
<CAPTION>
Sherwood Weiser
---------------
<S> <C>
Holiday Inn Dayton Mall, Ohio $ 37,161
Sheraton University City, Philadelphia 161,089
Wyndham Miami--Biscayne Bay 449,110
Westin Hotel Providence, RI 143,982
Washington Duke 359,750
</TABLE>
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<PAGE>
During 1998, the company made lease payments of $455,414 to an affiliate of
Summerfield Associates, L.P., a partnership in which Rolf Ruhfus has an
ownership interest, related to the hotels listed below:
<TABLE>
<S> <C>
Sierra Suites Atlanta Cumberland $82,894
Sierra Suites Phoenix Camelback 181,989
Sierra Suites Westborough 190,531
</TABLE>
During 1996, Wyndham senior executive officers incurred indebtedness to
Wyndham Finance Limited Partnership ("WFLP"), a partnership owned by the Crow
Family Members. Notes representing such loans were purchased by Wyndham Hotel
Corporation in May 1996 in connection with its formation for a cash payment to
WFLP in the amount of $18,576,000, which is equivalent to the aggregate
outstanding principal and accrued interest severally owing by the Wyndham
senior executive officers to WFLP. Such promissory notes, which are made
payable to Wyndham, accrue interest at 6% per annum and are secured by the
pledge of certain paired shares held by the note obligors. The outstanding
principal and accrued interest, compounded quarterly, is payable in a single
lump sum in May 2001. The aggregate principal amount of such loans, including
interest, are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
James D. Carreker.......................................... $5,770,000
Leslie V. Bentley.......................................... 2,124,000
Stanley M. Koonce, Jr. .................................... 2,163,000
Anne L. Raymond............................................ 5,197,000
</TABLE>
During 1998, the companies made payments in the aggregate amount of $1.2
million as lease payments for corporate office space to an entity in which Crow
Family Members have an ownership interest.
In 1998, the companies made payments in the aggregate amounts of $66,000 as
lease payments for the Summerfield divisional offices in Wichita, Kansas to
Summerfield Associates L.P., a partnership in which Rolf Ruhfus has an
ownership interest. The leases terminate in June 2001.
During 1998, Wyndham made payments in the aggregate amount of $3,423,000 to
Wyndham Travel Management Ltd. an entity owned by Lucy Billingsley, the
daughter of Mr. Trammell Crow, for travel services provided to Wyndham.
During 1998 the companies made payments in excess of $60,000 to Wichita
Travel Services, Inc. an entity owned by Mr. Ruhfus, for travel services
provided to the companies.
During 1998, Wyndham received payments in the aggregate amount of $117,900
from Crow-Los Patriots Limited, a senior assisted living facility in which
certain Crow Family Members have an ownership interest. The payments were
received as management fees.
During 1998, Patriot provided William W. Evans III with a non-recourse loan
of $424,375 to assist Mr. Evans with the payment of income taxes in the vesting
of his restricted paired shares. This loan is secured by 53,667 paired shares
and bears interest at 7.5% per annum. The loan is due on November 27, 2003, or
60 days after Mr. Evans' termination of employment, if earlier.
During 1998, Wyndham provided Lawrence S. Jones with a non-recourse loan of
$300,000. This loan bears interest at 7% per annum and is due on October 5,
2001. As provided in Mr. Jones's employment agreements, a portion of the loan
may be forgiven upon Mr. Jones's termination of employment with the companies.
Wyndham is a guarantor of the obligations of Playhouse Square Hotel Limited
Partnership, the owners of which include Crow Family Members and Wyndham senior
executive officers, to fund operating deficits relating to such hotel
partnership. The guarantee requires the guarantors, including Wyndham, to
advance up to
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<PAGE>
$600,000 per year to the extent the hotel partnership experiences operating
deficits, with maximum required advances of $2.3 million over the term of the
guarantee extending from 1995 to 2000. Playhouse Square Hotel Limited
Partnership has caused to be deposited the sum of $1,000,000 as reserve to
secure the payment of the guaranteed obligations and to fund operating
deficits. Wyndham has not to date been required to make any advance under the
guarantee.
Pursuant to the terms of its management agreement relating to the Wyndham
Hotel at Los Angeles Airport, Wyndham agreed to loan $4,560,000 to be applied
to costs of refurbishment of the hotel. The refurbishment loan is evidenced by
a promissory note, which has been partially funded in the amount of $4,237,000
as of December 31, 1998. Wyndham's obligation to make the remaining advances
under the refurbishment loan is secured by a letter of credit, which, in turn,
is collateralized by $440,241 in cash as of December 31, 1998. Prior to the
formation of Wyndham, WHC LAX Associates, L.P., a limited partnership owned by
Crow Family Members and Wyndham senior executive officers, paid Wyndham
$4,560,000 in return for Wyndham's agreement to pay to WHC LAX Associates, L.P.
all payments that Wyndham receives under the $4,560,000 promissory note.
Wyndham also agreed that, insofar as the WHC LAX Associates, L.P.'s $4,560,000
payment to Wyndham exceeds advances that Wyndham is obligated to make, but has
not yet made, under the $4,560,000 promissory note, it would pay to WHC LAX
Associates, L.P. interest at a variable rate that has ranged from 5.25% to
5.81% per annum on the unfunded amounts. As of December 31, 1998, Wyndham has
accrued such interest in the amount of $71,226.
In 1996, Wyndham entered into a five year service agreement with ISIS 2000,
an entity owned by Crow Family Members and Wyndham senior executive officers,
whereby ISIS 2000 will provide centralized reservations and property management
services to all Wyndham brand hotels. The services will be provided for a fee
comprised of an initial link-up charge plus a per reservation fee and a per
hotel charge for the property management system. The service fee incurred by
Wyndham totaled $4,368,000 in 1998. Wyndham has entered into an asset
management agreement with ISIS 2000 providing for human resource, finance,
accounting, payroll, legal and tax services. In addition, Wyndham had
guaranteed operating leases on behalf of ISIS 2000 in the approximate amount of
$1.8 million as of December 31, 1998. In connection with the Wyndham merger,
each of the owners of ISIS 2000 granted an option to Patriot to purchase their
ownership interests in ISIS 2000. The exercise price of the ISIS options is
equal to an amount that would yield an internal rate of return equal to 12.5%
on total capital contribution by the owners of ISIS 2000 as of the date of
exercise. On May 7, 1999, Patriot exercised the ISIS options for an aggregate
exercise price of $3,073,000.
In 1998 the companies made payments in the aggregate amount of $5,467,000 to
Kinetic Group Limited Partnership, an entity 50% owned by Trammell Crow Company
and 50% owned by an entity owned by Crow Family Members and Wyndham senior
executive officers. The payments were made under the terms of a service
agreement whereby Kinetic Group Limited Partnership provides management
information services to the companies.
In 1997, Wyndham entered into a construction loan agreement with the Wyndham
Anatole Hotel, in which Crow Family Members have an ownership interest. Under
the agreement, Wyndham made a loan in the amount of $10,000,000 for the
construction costs of the hotel.
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 next annual meeting of Wyndham stockholders after the
completion of the $1 billion equity investment if Paul Nussbaum continues on
the Board of Directors of Wyndham following Wyndham's annual meeting of
stockholders in 2000. Mr. Nussbaum has notified Wyndham in writing that if his
standing for reelection in 2000 would give the owners of the Wyndham Anatole
the right to terminate the hotel's management agreement, he will not stand for
reelection at that time. Additionally, the owners of the Wyndham Anatole Hotel
may terminate the management contract if James Carreker ceases to be an
executive officer of the companies.
Crow Family Members retained the right to receive additional consideration
in an aggregate amount of up to $3,000,000 related to Wyndham Greenspoint-
Houston and Wyndham-Midtown Atlanta based on
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<PAGE>
contingencies related to target returns on invested capital as set forth in
certain purchase and sale agreements prior to the Wyndham merger and which
survive the applicable termination agreement.
In 1998, the companies managed Wyndham branded hotels for affiliates of
Hampstead Group L.L.C. An entity owned by Crow Family Members and Wyndham
senior executive officers may be entitled to a contingent payment at such time
as all such hotels achieve an investment return target of 15% on all equity
capital invested through such program plus certain overhead costs. The amount
of such contingent payment is 10% of all cash proceeds realized in excess of
the investment return target.
Wyndham has made insurance premium payments to Wynright Insurance, an entity
owned by Crow Family Members and Wyndham senior executive officers, with
respect to certain insurance policies maintained for the benefit of Wyndham and
hotels owned or leased by Wyndham. Such payments totaled $730,000 in 1998.
In 1996, a subsidiary of Wyndham entered into a master management agreement
with Homegate, an entity in which Crow Family Members have an interest. On
October 31, 1997, the management agreement with Homegate was terminated and
Wyndham received $8,000,000 in cash and a promissory note in the amount of
$3,000,000 in exchange for the termination. The promissory note was collected
on January 9, 1998.
Leonard Boxer, a director of Wyndham, is a partner is Stroock & Stroock &
Lavan, a law firm that has advised Patriot on certain matters relating to the
acquisition of certain real property.
In 1998 the companies paid Rolf Ruhfus consulting fees of $598,393 under
terms set forth in a consulting agreement entered into as part of the
Summerfield acquisition. The consulting agreement expires in June 1999.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act, requires the companies'
officers, directors and persons who beneficially own more than ten percent of
the paired shares to file reports of securities ownership and changes in such
ownership with the SEC. Officers, directors and greater than ten percent
beneficial owners also are required by rules promulgated by the SEC to furnish
the companies with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
companies, or written representations that no Form 5 filings were required,
Wyndham and Patriot believe that during 1998 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with except that: (1) Mr. Lyon inadvertently
failed to file a Form 4 with the SEC on a timely basis with respect to the
redemption and distribution of certain paired partnership units; (2) Mr. Lyon
inadvertently failed to file a Form 4 with the SEC on a timely basis to report
several sales of paired shares; (3) Mr. Weiser inadvertently failed to file a
Form 5 with the SEC on a timely basis with respect to the redemption and
distribution of certain paired partnership units and the sale of certain paired
shares; (4) Mr. Holtzman inadvertently failed to file a Form 4 with the SEC on
a timely basis with respect to certain employee stock options and he and
Ms. Priest both inadvertently failed to file a Form 3 with the SEC on a timely
basis when they became reporting persons; (5) Mr. Alibhai inadvertently failed
to file a Form 4 with the SEC on a timely basis to report the disposition of
certain preferred C Wyndham partnership units; (6) Mr. Grossman inadvertently
failed to file a Form 4 with the SEC on a timely basis to report the grant of
certain paired shares as a bonus; (7) Mr. Novak inadvertently failed to file a
Form 4 with the SEC on a timely basis to report the acquisition of certain
paired shares acquired in the Wyndham merger; (8) Mr. Weiser inadvertently
failed to file a Form 4 with the SEC on a timely basis with respect to the
redemption of certain paired partnership units and a Form 4 with respect to the
redemption of certain paired partnership units and the sale of certain paired
shares; (9) Mr. Bohlmann inadvertently failed to file a Form 4 with the SEC on
a timely basis with respect to the repricing of certain employee stock options
and with respect to the purchase of certain paired shares; and
129
<PAGE>
(10) Mr. Lattin inadvertently failed to file a Form 4 with the SEC on a timely
basis with respect to the repricing of certain employee stock options.
Other Matters
The respective Boards of Directors of the companies do not know of any
matters other than those described in this joint proxy statement/prospectus
that will be presented for action at the annual meetings. If other matters are
presented, proxies will be voted in accordance with the best judgment of the
proxy holders.
Legal Matters
Certain legal matters, including the legality of the securities and federal
income tax considerations, have been passed upon for Wyndham and Patriot by
Goodwin, Procter & Hoar LLP, Boston, Massachusetts, as corporate, securities
and tax counsel. Debevoise & Plimpton, New York, New York, has served as
special counsel to the independent directors of Wyndham and Patriot.
Experts
Ernst & Young LLP, independent auditors, have audited the: 1. (a) Combined
Financial Statements of Patriot American Hospitality, Inc. ("Patriot") and
Wyndham International, Inc. ("Wyndham") as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, (b) the
Consolidated Financial Statements of Patriot as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 and the
related financial statement schedules, and (c) the Consolidated Financial
Statements of Wyndham as of December 31, 1998 and 1997 and for the year ended
December 31, 1998 and the six months ended December 31, 1997 included in the
Joint Annual Report on Form 10-K, as amended, of Patriot American Hospitality,
Inc. and Wyndham International, Inc. for fiscal year ended December 31, 1998,
as set forth in their report which is incorporated by reference in this
prospectus; 2. (a) Consolidated Financial Statement of WHG Resorts & Casinos,
Inc. as of June 30, 1997 and 1996 and for each of the three years in the period
ended June 30, 1997 and the related financial statement schedule, (b) the
Financial Statements of Posadas de San Juan Associates as of June 30, 1997 and
1996 and for each of the three years in the period ended June 30, 1997 and the
related financial statement schedule, (c) the Financial Statements of WKA El
Con Associates as of June 30, 1997 and 1996, and for each of the three years in
the period ended June 30, 1997, and (d) the Financial Statements of El
Conquistador Partnership, L.P. as of March 31, 1997 and 1996 and for each of
the three years in the period ended March 31, 1997, included in the Joint
Current Report on Form 8-K of Patriot American Hospitality, Inc. and Wyndham
International, Inc. dated April 20, 1998 (filed April 22, 1998) as set forth in
their reports which are incorporated by reference in this prospectus;
3. (a) Consolidated Financial Statements of SF Hotel Company, L.P. as of
January 2, 1998 and January 3, 1997 and for the years then ended, and (b)
Combined Financial Statements of SC Suites Summerfield partnerships as of
January 2, 1998 and January 3, 1997 and for the three years in the period ended
January 2, 1998, included in the Joint Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Wyndham International, Inc. dated June 2, 1998,
as amended (filed June 17, 1998 and August 6, 1998), as set forth in their
reports which are incorporated by reference in this prospectus. Each of the
above referenced financial statements and schedules are incorporated herein by
reference in reliance on Ernst & Young LLP's reports, given on their authority
as experts in accounting and auditing.
The Financial Statements of Sheraton City Centre as of December 31, 1996 and
for the year then ended and the Statement of Direct Revenues and Direct
Operating Expenses for the Wyndham Emerald Plaza for the year ended December
31, 1996, included in the Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Wyndham International, Inc. dated January 5, 1998, which
is incorporated by reference herein, have been audited by
PriceWaterhouseCoopers LLP as set forth in their report thereon included
therein and incorporated herein by reference. The (a) Consolidated Financial
Statements of Wyndham Hotel
130
<PAGE>
Corporation as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997, and (b) the Consolidated Financial
Statements of Interstate Hotels Company as of December 31, 1996 and 1997 and
for the three years in the period ended December 31, 1997 included in
Interstate's 1997 Annual Report on Form 10-K dated March 31, 1998, and the CHC
Lease Partners financial statements as of December 31, 1996 and the period
inception (October 2, 1995) through December 31, 1995, incorporated by
reference herein, by reference to the Current Report on Form 8-K dated July 1,
1997, and the CHC International Hospitality Division Financial Statements as of
November 30, 1995, 1996 and 1997 included in the Joint Current Report on Form
8-K of Patriot American Hospitality, Inc. and Wyndham International, Inc. dated
April 20, 1998 (filed April 22, 1998), (c) financial statements of Royal Palace
Associates as of December 31, 1997 and for the year then ended incorporated by
reference herein, by reference to the Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Wyndham International, Inc., dated June 2, 1998
which is incorporated by reference herein have been audited by
PriceWaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon. Each of the above referenced financial statements have been
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Arcadian International Limited (formerly
Arcadian International Plc) and subsidiary undertakings, and Malmaison Limited
and subsidiary undertakings, incorporated in this Joint Proxy
Statement/Prospectus by reference to the Joint Current Report on Form 8-K/A of
Patriot American Hospitality, Inc. and Wyndham International, Inc. dated June
2, 1998, have been audited by Arthur Andersen, charted accountants and
registered auditors, as indicated in their reports with respect thereto, are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving such reports.
Stockholder Proposals
For a proposal of a stockholder to be presented to Wyndham's or Patriot's
2000 annual meetings and included in the companies' joint proxy statements
pursuant to Rule 14a-8 of the Securities Exchange Act the secretaries of each
of the companies must receive written notice on or before March 26, 2000. Such
a proposal must also comply with the requirements as to form and substance of
the SEC.
For a proposal of a stockholder to be presented to the companies' 2000
annual meeting of stockholders, other than a stockholder proposal included in
the companies' joint proxy statement pursuant to Rule 14a-8, the Secretaries of
the companies must receive written notice thereof on or before the date
specified in the companies' by-laws, and the proponent or a representative of
the proponent must attend the applicable annual meeting. The companies' by-laws
provide that any stockholder wishing to nominate a director or have a
stockholder proposal, other than a stockholder proposal included in the
companies' proxy statement pursuant to Rule 14a-8, considered at an annual
meeting must provide written notice of such proposal and appropriate supporting
documentation, as set forth in the by-laws, to the companies no later than 90
days prior to the anniversary of the immediately preceding annual meeting of
stockholders (the "Anniversary Date"); provided, however, that in the event
that the annual meeting is scheduled to be held more than 30 calendar days
prior to the Anniversary Date or more than 60 days after the Anniversary Date,
such nominations or proposals must be delivered to the companies not later than
the close of business on the later of (1) the 90th day prior to the scheduled
date of such applicable annual meeting or (2) the 15th day following the day on
which the companies first publicly announce the date of such applicable annual
meeting. Any such proposal should be mailed to: Wyndham International, Inc.,
1950 Stemmons Freeway, Suite 6001, Dallas, Texas 75207, Attn: Secretary; and/or
Patriot American Hospitality, Inc., 1950 Stemmons Freeway, Suite 6001, Dallas,
Texas 75207, Attn: Secretary.
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Where You Can Find More Information
Available Information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act with respect to the securities.
We also file annual, quarterly and special reports, proxy statements and other
information electronically with the SEC. You may read and copy the registration
statement or any of the reports, statements or other information that we file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., in
Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information
on the Public Reference Room. Our SEC filings are also available from the New
York Stock Exchange, 20 Broad Street, New York, New York 10005, and from the
Internet site maintained by the SEC at http://www.sec.gov.
Incorporation of Certain Documents by Reference
This joint proxy statement/prospectus, which constitutes part of the
registration statement, omits important information that you can find in our
registration statement or in the reports and other documents that we file with
the SEC. The SEC allows us to "incorporate by reference" the information we
file with them. This means that we can disclose important information to you by
referring you to other documents that are legally considered to be part of this
joint proxy statement/prospectus, and later information that we file with the
SEC will automatically update and supersede the information in this joint proxy
statement/prospectus and the documents listed below. We incorporate by
reference the documents listed below, and any future filings made with the SEC
under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934.
1. Annual Report on Form 10-K (as amended on May 10, 1999, May 24, 1999, and
May 28, 1999), of Patriot American Hospitality, Inc. and Wyndham International,
Inc. for the fiscal year ended December 31, 1998;
2. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Wyndham International, Inc. for the fiscal quarter ended March 31, 1999;
3. Current Reports on Form 8-K of Patriot American Hospitality, Inc. and
Wyndham International, Inc. dated: (1) January 5, 1998 (filed January 13,
1998); (2) February 9, 1998 (filed February 12, 1998); (3) March 23, 1998
(filed March 30, 1998); (4) April 2, 1998 (filed April 8, 1998); (5) April 20,
1998 (filed April 22, 1998); (6) May 27, 1998, as amended (filed May 27, 1998
and May 28, 1998); (7) June 2, 1998, as amended (filed June 17, 1998, August 6,
1998 and March 26, 1999); (8) November 9, 1998, as amended (filed November 9,
1998 and November 10, 1998); (9) November 30, 1998 (filed November 30, 1998);
(10) December 16, 1998 (filed December 16, 1998); (11) December 16, 1998 (filed
December 18, 1998); (12) December 20, 1998 (filed December 22, 1998); (13)
January 29, 1999 (filed February 4, 1999); (14) February 16, 1999 (filed
February 16, 1999); (15) March 2, 1999 (filed March 2, 1999); (16) February 26,
1999 (filed March 3, 1999); (17) March 26, 1999 (filed March 26, 1999) and (18)
March 26, 1999, as amended (filed on March 29, 1999, May 10, 1999 and May 24,
1999); and
4. The description of the paired shares of Patriot common stock and Wyndham
common stock contained or incorporated by reference in Patriot American
Hospitality, Inc.'s and Wyndham International, Inc.'s Registration Statement on
Form 8-A, including any amendments thereto.
You may obtain a copy of these filings, but generally not the exhibits filed
with them, at no cost by writing or telephoning us at the following address:
1950 Stemmons Freeway, Suite 6001, Dallas, Texas 75207, attention: Shareholder
Relations (Telephone No. (214) 863-1000). We will send the information you
request by first class mail within one business day after receiving your
request.
You should rely only on the information incorporated by reference or
contained in this joint proxy statement/prospectus or any supplement. We have
not authorized anyone else to provide you with different or additional
information. We are not making an offer of the securities in any state where
the offer is not permitted. You should not assume that the information in this
joint proxy statement/prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
132
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PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Patriot American Hospitality, Inc. and Wyndham International, Inc--
Adjusted for the Investment, Restructuring, New Debt Financing and
Interstate Spin-off:
Pro Forma Condensed Combined Balance Sheet as of
March 31, 1999 (unaudited)............................................. F-8
Pro Forma Condensed Combined Statement of Operations for the three
months
ended March 31, 1999 (unaudited)....................................... F-13
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1998 (unaudited).......................................... F-17
Patriot American Hospitality Inc.:
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1999
(unaudited)............................................................ F-21
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1998 (unaudited).......................................... F-23
Wyndham International, Inc.:
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1999
(unaudited)............................................................ F-26
Pro Forma Condensed Consolidated Statement of Operations for the three
months
ended March 31, 1999 (unaudited)....................................... F-28
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1998 (unaudited).......................................... F-30
</TABLE>
F-1
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)
Background
Patriot American Hospitality, Inc. ("Old 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. On October 2, 1995,
Patriot completed an initial public offering of shares of common stock and
commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club
("Cal Jockey"), with Cal Jockey being the surviving legal entity. Cal Jockey's
shares of common stock are paired and trade together with the shares of common
stock of Bay Meadows Operating Company. In connection with the Cal Jockey
merger, Cal Jockey changed its name to "Patriot American Hospitality, Inc."
("Patriot") and Bay Meadows changed its name to "Patriot American Hospitality
Operating Company". As a result of the merger with Wyndham Hotel Company in
January, 1998, the operating company subsequently changed its name to "Wyndham
International, Inc." ("Wyndham"). Patriot and Wyndham are now collectively
referred to as the Companies. Patriot and Wyndham are both Delaware
corporations.
The shares of common stock of Patriot are paired and trade together with
the shares of common stock of Wyndham as a single unit pursuant to a stock
pairing arrangement. The single unit comprised of one share of common stock of
Patriot and one share of common stock of Wyndham is referred to as a paired
share.
Patriot and Wyndham conduct substantially all of their operations through
Patriot American Hospitality Partnership, L.P. ("Patriot Partnership") and
Wyndham International Operating Partnership, L.P. ("Wyndham Partnership"),
respectively. Patriot Partnership and Wyndham Partnership are collectively
referred to as the operating partnerships. As of March 31, 1999, Patriot owns
an approximate 88.2% interest in the Patriot Partnership and Wyndham owns an
approximate 87.1% in the Wyndham Partnership.
At March 31, 1999, Patriot and Wyndham, through the operating partnerships
and other subsidiaries, including hotels owned through unconsolidated
subsidiaries, owned interests in 177 hotels with an aggregate of over 43,600
guest rooms and leased 118 hotels from third parties with over 15,500 guest
rooms. In addition, Wyndham manages 164 hotels for third party owners with over
39,000 guest rooms and franchises 12 hotels with over 2,900 guest rooms.
Patriot leases substantially all of the owned and leased hotels to
Wyndham. Generally, the participating leases provide for the payment of the
greater of base or participating rent, plus certain additional charges, as
applicable.
1998 Business Transactions
Wyndham Hotel Corporation
On January 5, 1998, Wyndham Hotel Corporation merged with and into
Patriot, with Patriot being the surviving corporation. As a result, its
financial position and substantially all of its operations have been recognized
in the Patriot and Wyndham combined financial statements as of and for the year
ended December 31, 1998.
Recent transactions
On January 16, 1998, a subsidiary of Wyndham merged with and into WHG
Casinos & Resorts, Inc., with WHG being the surviving corporation. Additionally
during 1998, Patriot acquired the minority partners' interests in WHG Casinos
and Resorts, Inc.'s subsidiaries. Patriot, acquired the Buena Vista Hotel
located in Orlando, Florida and the Golden Door Spa located in Escondiado,
California. These transactions are collectively referred to as the Recent
Transactions.
F-2
<PAGE>
Arcadian International Limited
In April 1998, Patriot completed its acquisition of Arcadian International
Limited (the "Arcadian acquisition"). The transaction included the exercise of
all outstanding options to purchase shares, the assumption of debt and the
acquisition of the remaining shares in the Malmaison Group.
Interstate Hotels Company
On June 2, 1998 Interstate Hotels Company merged with and into Patriot
with Patriot being the surviving company ("Interstate merger").
SF Hotel Company, L.P.
On June 5, 1998, Patriot, through the Patriot operating partnership,
acquired all of the partnership interests in SF Hotel Company, L.P.
("Summerfield acquisition").
CHC International, Inc.
On June 30, 1998 the hospitality-related businesses of CHCI merged (the
"CHCI merger") with and into Wyndham with Wyndham being the surviving company.
Financing Transactions
Credit Facility
In connection with the Interstate merger, the companies closed on the
commitment from The Chase Manhattan Bank and Chase Securities, Inc. and
PaineWebber Real Estate Securities, Inc. to increase Patriot's existing
unsecured credit facilities to an aggregate of $2,700,000. The increased credit
facilities include the $900,000 revolving credit facility (the "Revolving
Credit Facility") and a series of unsecured term loans in the aggregate amount
of up to $1,800,000 (the "Term Loans"). Proceeds from the increased credit
facilities were used to fund the cash portion of the Interstate merger
consideration, as well as to refinance certain outstanding indebtedness of
Patriot. Interest rates are based on the companies' leverage ratio and may vary
from 1.5% to 2.5% over LIBOR.
Under the original terms of Patriot's credit facility, two of the term
loans were scheduled to mature on January 31, 1999 ($350,000) and March 31,
1999 ($400,000), respectively. All of the requisite lenders under the credit
facility have agreed to extend the maturity of these two terms loans to June
30, 1999, subject to Patriot and Wyndham consummating the $1 billion equity
investment by that date. If the $1 billion equity investment is not consummated
by June 30, 1999, or the companies' agreement with the investors otherwise
terminates, the maturity on these two term loans will be extended to March 31,
2000 and Patriot will be required to make a $300,000 amortization payment by
December 31, 1999. Additionally, the Companies will be required to secure the
credit facility with mortgages and other security interests. Patriot paid fees
of approximately $11,700 to the lenders under the credit facility in connection
with the agreement to extend the maturities of the term loans to June 30, 1999.
Forward Equity Contracts Subject to Price Adjustments
Patriot is party to transactions with three counterparties, UBS AG London
Branch ("UBS"), NationsBanc Mortgage Capital Corporation ("Nations") and
PaineWebber Financial Products, Inc. ("PaineWebber") involving the sale of an
aggregate of 13.3 million paired shares, with related price adjustment
mechanisms. In December 1998, one counterparty sold 754,525 paired shares.
F-3
<PAGE>
As of March 31, 1999, Patriot has issued paired shares and paid cash to
each of the counterparties as follows (in millions):
<TABLE>
<CAPTION>
Settlement
----------------
Original Shares
Shares Held As
Sold Cash Collateral
-------- ----- ----------
<S> <C> <C> <C>
UBS.............................................. 2.5 $53.9 8.4
Nations.......................................... 4.9 0.2 33.0
PaineWebber...................................... 5.15 0.2 37.55
----- ----- -----
12.55 $54.3 78.95
===== ===== =====
</TABLE>
The total obligation to settle these forward equity contracts is estimated
to be approximately $333,600 including fees and other costs.
Planned Transaction
Investment
On February 18, 1999, Patriot, Wyndham, Patriot Partnership, Wyndham
Partnership and affiliates of each of Apollo Real Estate Management III, L.P.,
Apollo Management IV, L.P., Thomas H. Lee Equity Fund IV, L.P., Beacon Capital
Partners, L.P. and Strategic Real Estate Investments I, LLC, entered into a
purchase agreement under which the investors will purchase $1 billion of a new
series B preferred stock of Wyndham. Patriot and Wyndham currently plan to use
the proceeds from the investment to settle their forward equity contracts, as
described above, to repay indebtedness, and for working capital and growth
purposes.
Wyndham will pay dividends on its series B preferred stock quarterly, on a
cumulative basis, at a rate of 9.75% per year. For the first six years,
dividends will be payable partly in cash and partly in additional shares of
preferred stock, with the cash component initially equal to 30% for the first
dividend payment and declining over the period to approximately 19.8% for the
final dividend payment. Each share of series B preferred stock may be
converted, at the option of its holder, into that number of shares of Wyndham
common stock equal to $100.00 divided by the conversion price of the series B
preferred stock. Initially the conversion price will be $8.59, but is subject
to adjustment under certain circumstances.
Restructuring
Under the terms of the purchase agreement, relating to the $1 billion
equity investment, Patriot and Wyndham are required to complete a restructuring
of their existing paired share REIT structure prior to the investment. Under
the terms of the restructuring, the following events will occur:
. A reverse stock split of the common stock of Wyndham and Patriot.
. A wholly-owned subsidiary of Wyndham will merge with and into Patriot
with Patriot surviving.
. The pairing agreement between Patriot and Wyndham will terminate.
. Patriot will terminate its status as a real estate investment trust
effective January 1, 1999.
. The non-voting stock of specified corporate subsidiaries held by the
Patriot Partnership will be transferred so that it will be owned
directly by Patriot or Wyndham, rather than through the Patriot
Partnership.
F-4
<PAGE>
. The third party partners in both the Patriot Partnership and the
Wyndham Partnership will be offered an opportunity to exchange their
limited partner interests for Wyndham common stock.
. The preferred stockholders of Wyndham will be offered an opportunity
to exchange their preferred stock for Wyndham common stock, and
preferred stock not exchanged will be redeemed by Wyndham.
Reverse Stock Splits
Prior to the merger of a subsidiary of Wyndham into Patriot, both Wyndham
and Patriot will implement a one-for-twenty reverse stock split of their
common stock.
The Proposed Rights Offering
Within 170 days following the completion of the $1 billion equity
investment, Wyndham has agreed to make a rights offering to redeem up to
$300 million of the series B preferred stock at a redemption price of $102.00
per share (102% of the stated amount $100.00) plus all accrued dividends.
Wyndham currently plans to fund this redemption through the issuance of $300
million of series A preferred stock to its stockholders. The series A
preferred stock has the same economic terms as the series B preferred stock.
New Debt Financing
New Credit Facility. Patriot has recently signed a commitment letter with
Chase Securities Inc. and The Chase Manhattan Bank for new senior credit
facilities for Wyndham in the amount of $1.8 billion, comprised of a term loan
facility and a revolving loan facility. Definitive agreements relating to the
new credit facility are expected to be finalized at the same time that the
$1 billion equity investment is completed. The commitment letter provided that
The Chase Manhattan Bank will act as the administrative agent and Chase
Securities Inc. will act as the lead arranger for a syndicate of lenders which
will provide Wyndham with $1 billion in term loans and up to $800 million
under the revolving loan facility, of which a maximum of $560 million may be
drawn at the closing of the investment. The term loan facility has a seven
year term and the revolving facility has a five year term. The commitment
letter based interest rates for the new credit facility upon LIBOR spreads
varying from 1.50% to 3.00% per annum for the revolving loan facility and
3.00% to 3.75% per annum for the term loan facility, based both on Wyndham's
leverage ratio and on whether any increasing rate loans are outstanding.
However, at Wyndham's election or under other specified circumstances, the
term loans and revolving loans may instead bear interest at an alternative
base rate plus the applicable spread. The alternative base rate is equal to
the greater of The Chase Manhattan Bank's prime rate or federal funds rate
plus 0.5%, and the alternative spread is 1.0% below the applicable LIBOR
spread. Subject to limited agreed-upon exceptions, the new credit facility
will be guaranteed by the domestic subsidiaries of Wyndham, and will be
secured by pledges of equity interests held by Wyndham and its subsidiaries.
The proceeds from the term loan facility will be used to finance the
restructuring of Wyndham and Patriot. The proceeds from the revolving loan
facility will be used for working capital and general corporate purposes.
Increasing Rate Loans. Wyndham and Patriot have signed a commitment
letter with The Chase Manhattan Bank, Chase Securities Inc., Bear, Stearns &
Co. Inc., and The Bear Stearns Companies Inc. providing that The Chase
Manhattan Bank, The Bear Stearns Companies Inc. and a possible syndicate of
other lenders will provide an increasing rate loan facility in the amount of
up to $650 million. The increasing rate loan carries a term of five years.
Interest rates for the increasing rate loan are based on LIBOR spreads and are
initially set at 0.25% below the initial LIBOR spread on the term loan
facility, but increase by 0.50% every three months, with a cap of LIBOR plus
4.75%. However, under other specified circumstances, interest accrues at an
alternate rate equal to the rate borne by three-month treasury securities plus
1.0%, plus the applicable spread. The lenders under the increasing rate loan
receive the benefit of the same guarantees and pledges of security provided
under the new credit facility. The proceeds from the increasing rate loan will
be used to finance the restructuring of Wyndham and Patriot.
F-5
<PAGE>
After the six month anniversary of the closing of the investment, lenders
transferring increasing rate loans may exchange the increasing rate loans for
exchange notes carrying identical terms to the increasing rate loans. To the
extent any increasing rate loans or exchange notes are outstanding 180 days
after the closing of the $1 billion equity investment, Wyndham must by such
date file and maintain a shelf registration statement with the Securities and
Exchange Commission allowing the resale of any exchange notes outstanding
thereafter. Wyndham may also offer registered substitute notes in exchange for
all outstanding IRLs and exchange notes.
Wyndham's ability to borrow under its revolving facility is subject to
Wyndham's compliance with a number of customary financial and other covenants,
including total leverage and interest coverage ratios, limitations on
additional indebtedness, and limitations on investments and stockholder
dividends.
Wyndham and Patriot have agreed to pay the agents and the lenders
customary fees for a facility of this nature ranging from approximately $48
million to $61 million.
In May 1999, the Chase Manhattan Bank and Chase Securities Inc. notified
the companies that they were exercising their rights under the "market flex"
provisions of the commitment letters to change the terms of the senior credit
facilities and the increasing rate loan facility. The revolving credit facility
has been reduced from $800 million to $600 million, the term loan facility has
been increased from $1.0 billion to $1.2 billion and the maximum that may be
drawn at the closing has been reduced from $560 million to $400 million.
For purposes of the pro forma financial statements the New Credit Facility
and increasing rate loans are collectively referred to as new debt financing.
Interstate Spin-off
Interstate's Third-Party Hotel Management Business
In May, 1998, Patriot along, with Interstate Hotels Company ("Interstate")
entered into a settlement agreement with Marriott International, Inc. which
addressed certain claims asserted by Marriott concerning Patriot's then
proposed merger with Interstate. The settlement agreement provided for the
dismissal of litigation brought by Marriott, and allowed Patriot's merger with
Interstate to close.
. In addition to dismissal of the Marriott litigation, the settlement
agreement provides for the re-branding of ten Marriott hotels under the
Wyndham name, Marriott's assumption of the management of ten Marriott
hotels formerly managed by Interstate for the remaining term of the
Marriott franchise agreement, and the divesture of the third-party
management business which was operated by Interstate.
. Patriot must complete the spin-off of third-party management business
which was operated by Interstate no later than June 14, 1999.
If Patriot does not complete the spin-off or the sale transaction by the
final divestiture date, Marriott will be entitled to receive liquidated
damages. Patriot will also be subject to additional penalties including
Marriott's right to purchase, subject to third-party consents, the hotels to be
submanaged by Marriott and six additional Marriott hotels owned by Patriot at
their then appraised values. The Companies currently estimate the aggregate
amount of the liquidated damages and other penalties to be approximately $190
million.
Additionally, subject to any defenses Patriot may have, Patriot would owe
Marriott liquidated damages with respect to the hotels converted to the Wyndham
brand, those to be submanaged by Marriott, and the six additional Marriott
hotels Marriott would have the option to purchase. Patriot also anticipates
that Marriott would require third-party owners of Marriott-branded hotels that
we manage to replace Patriot as manager of their hotels. As a result, each
respective hotel would either: (1) lose the Marriott brand, at which time
Patriot would have to compensate Marriott for any lost franchise fees or (2)
terminate the management contract with Wyndham and enter into a contract with
another manager. Patriot would owe liquidated damages on any third-party
Marriott-franchised hotel which chooses to convert its brand.
F-6
<PAGE>
Summary
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as if the $1 billion equity investment, the restructuring of Wyndham
and Patriot, the new debt financing and the Interstate spin-off prior to the
final divestiture date had occurred on March 31, 1999. In addition, the pro
forma financial statements assume that all but 1.7 million units of limited
partnership interests tender their units for shares of common stock. It is also
assumed that the amendments to the operating partnership agreements being
sought and the consents of solicitation will be approved. These amendments will
allow for the distribution of the non-voting stock of specified corporate
subsidiaries so that it will be owned directly by Patriot.
Additionally, the Pro Forma Condensed Consolidated Statements of
Operations of the companies for the three months ended March 31, 1999 and the
year ended December 31, 1998 assume these transactions as described above and
the effects of the business transactions completed in 1998 as detailed on pages
F-2 through F-6 had occurred as of the beginning of the periods presented.
The following unaudited Pro Forma Condensed Combined Statements of
Operations were derived from the Combined Statements of Operations of Patriot
and Wyndham (together with their respective subsidiaries) filed with the
Companies' Quarterly Report on Form 10-Q for the three months ended March 31,
1999 and Annual Report on Form 10-K for the year ended December 31, 1998. The
unaudited Pro Forma Condensed Combined Statement of Operations was also derived
in part from Interstate Hotels Management, Inc.'s unaudited Pro Forma Combined
Statements of Operations and Owners' Equity filed on Form S-1/A dated May 17,
1999. In management's opinion all the material adjustments necessary to reflect
the effects of the planned transaction have been made. The following unaudited
Pro Forma Condensed Combined Statements of Operations do not reflect the
following asset sales: Bay Meadows Racecourse in February, 1999, Holiday Inn
Crockett in March, 1999, Holiday Inn Beachwood, Hampton Inn Rochester, Hampton
Inn Jacksonville, Hampton Inn Cleveland, and Hampton Inn Canton, in April of
1999.
The following unaudited Pro Forma Condensed Combined Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming such transactions had been completed as of March 31, 1999, nor does it
purport to present the future financial position of Wyndham and Patriot.
Additionally, the following unaudited Pro Forma Condensed Combined
Statements of Operations are not necessarily indicative of what the actual
results of operations of Wyndham and of Patriot would have been assuming such
transactions had been completed at the beginning of the periods presented, nor
do they purport to present the results of operations for future periods.
Further, the unaudited Pro Forma Condensed Combined Statement of Operations for
the interim period ended March 31, 1999 is not necessarily indicative of the
results of operations for a full year.
F-7
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
and
WYNDHAM INTERNATIONAL, INC.
Pro Forma Condensed Combined Balance Sheet
As of March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Patriot Wyndham
Pro Forma Pro Forma Combined Exchange Equity Pro Forma
(A) (B) Eliminations Pro Forma Offer Investment Total
---------- ---------- ------------ ---------- --------- ---------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 53,492 $ 68,651 -- $ 122,143 -- $ -- $ 122,143
Restricted Cash......... 19,511 17,393 -- 36,904 -- -- 36,904
Accounts and lease
revenue receivable,
net..................... 15,187 195,087 -- 210,274 -- -- 210,274
Notes and other
receivables from
Patriot................. -- 73,280 (73,280)(C) -- -- -- --
Notes and other amounts
receivable from
Wyndham................. 275,197 -- (275,197)(D) -- -- -- --
Inventories............. -- 23,131 -- 23,131 -- -- 23,131
Prepaid expense and
other assets............ 24,192 50,982 -- 75,174 -- -- 75,174
---------- ---------- ----------- ---------- --------- ---------- -----------
Total current assets... 387,579 428,524 (348,477) 467,626 -- -- 467,626
Investment in real
estate and related
improvements and land
held for development,
net of accumulated
depreciation............ 4,951,180 621,857 (127)(E) 5,572,910 (129,583)(H) -- 5,443,327
Investment in
unconsolidated
subsidiaries............ 998,553 119,660 (940,544)(F) 177,669 (2,666)(H) -- 175,003
Subscription notes
receivable.............. 134,378 91,278 (225,656)(G) -- -- -- --
Mortgage notes and other
receivables from
unconsolidated
subsidiaries............ 77,536 -- -- 77,536 -- -- 77,536
Mortgage notes and other
receivables............. 21,780 12,594 -- 34,374 -- -- 34,374
Management contracts,
net of accumulated
amortization............ -- 132,069 -- 132,069 -- -- 132,069
Leaseholds, net of
accumulated
amortization............ 93,318 49,117 -- 142,435 -- -- 142,435
Trade names and
franchise costs, net of
accumulated
amortization............ -- 124,219 -- 124,219 -- -- 124,219
Goodwill and
intangibles, net of
accumulated
amortization............ 136,023 419,551 -- 555,574 (8,076)(H) (83,642)(I) 463,856
Deferred expenses, net
of accumulated
amortization............ 42,129 146 -- 42,275 -- 41,803 (J) 84,078
Deferred acquisition
costs................... 928 17,089 -- 18,017 -- -- 18,017
---------- ---------- ----------- ---------- --------- ---------- -----------
Total assets........... $6,843,404 $2,016,104 $(1,514,804) $7,344,704 $(140,325) $ (41,839) $ 7,162,540
========== ========== =========== ========== ========= ========== ===========
LIABILITIES &
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses........ $ 81,379 $ 239,610 -- $ 320,989 -- $ -- $ 320,989
Dividends and
distributions payable... -- -- -- -- -- -- --
Participating lease
payments payable to
Patriot................. -- 68,887 (68,887)(D) -- -- -- --
Deposits................ -- 37,247 -- 37,247 -- -- 37,247
Notes and other amounts
payable to Patriot...... -- 206,310 (206,310)(D) -- -- -- --
Notes and other amounts
payable to Wyndham...... 73,280 -- (73,280)(C) -- -- -- --
Current portion of
borrowings under the
credit facility, term
loans, mortgage notes
and capital leases...... 1,359,171 145,169 -- 1,504,340 -- (1,080,255)(K) 424,085
---------- ---------- ----------- ---------- --------- ---------- -----------
Total current
liabilities............ 1,513,830 697,223 (348,477) 1,862,576 -- (1,080,255) 782,321
Subscription notes
payable................. 91,278 134,378 (225,656)(G) -- -- -- --
Borrowings under the
credit facility, term
loans, mortgage notes
and capital leases...... 2,284,230 99,999 -- 2,384,229 -- 587,906 (K) 2,972,135
Due to unconsolidated
subsidiaries............ 8,084 -- -- 8,084 -- -- 8,084
Deferred income taxes... 37,755 64,579 -- 102,334 -- 750,000 (L) 852,334
Minority interest in the
Operating partnerships.. 225,999 30,466 -- 256,465 (220,197)(H) -- 36,268
Minority interest in
consolidated
subsidiaries............ 196,798 938,181 (940,544)(F) 194,435 -- -- 194,435
Stockholders' equity:
Preferred Stock......... 54 36 -- 90 -- 1,074 (M) 1,164
Excess stock............ -- -- -- -- -- -- --
Common Stock............ 2,342 2,342 -- 4,684 7 (H) (4,608)(M) 83
Additional Paid in
Capital................. 2,781,901 249,207 -- 3,031,108 79,865 (H) 912,574 (M) 4,023,547
Treasury Stock.......... -- -- -- -- -- (345,907)(N) (345,907)
Notes receivable from
shareholders and
affiliates.............. (15,471) (1,070) -- (16,541) -- -- (16,541)
Unearned stock
compensation, net of
accumulated
amortization............ (1,472) -- -- (1,472) -- -- (1,472)
Unrealized loss on
securities available for
sale.................... -- (1,281) -- (1,281) -- -- (1,281)
Unrealized foreign
exchange gain........... (4,547) 824 -- (3,723) -- -- (3,723)
Distribution of
Interstate Management at
book value.............. -- (67,136) -- (67,136) -- -- (67,136)
Accumulated deficit and
dividend distributions.. (277,377) (131,644) (127)(E) (409,148) -- (862,623)(O) (1,271,771)
---------- ---------- ----------- ---------- --------- ---------- -----------
Total shareholders'
equity................. 2,485,430 51,278 (127) 2,536,581 79,872 (299,490) 2,316,963
---------- ---------- ----------- ---------- --------- ---------- -----------
Total liabilities and
shareholders' equity... $6,843,404 $2,016,104 $(1,514,804) $7,344,704 $(140,325) $ (41,839) $ 7,162,540
========== ========== =========== ========== ========= ========== ===========
</TABLE>
See notes on following pages.
F-8
<PAGE>
Notes to Pro Forma Condensed Consolidated Balance Sheet;
(A) Represents the pro forma balance sheet of Patriot as of March 31, 1999 as
adjusted for the Interstate spin-off transaction. See page F-21.
(B) Represents the pro forma balance sheet of Wyndham as of March 31, 1999 as
adjusted for the Interstate spin-off transaction. See page F-26.
(C) Represents the intercompany elimination of notes and other receivable from
Patriot and notes and other amounts payable to Wyndham
<TABLE>
<S> <C>
Notes and other receivables from Patriot....................... $ (73,280)
Notes and other amounts payable to Wyndham..................... 73,280
---------
$ --
=========
</TABLE>
(D) Represents the intercompany elimination of notes and other amounts
receivable from Wyndham and participating lease payments payable to Patriot
and notes and other amounts payable to Patriot.
<TABLE>
<S> <C>
Notes and other amounts receivable from Wyndham............... $ (275,197)
Participating lease payments payable to Patriot............... 68,887
Notes and other amounts payable to Wyndham.................... 206,310
----------
$ --
==========
</TABLE>
(E) Represents the intercompany elimination of design and construction fees
capitalized by Patriot for hotels leased by Patriot to Wyndham.
<TABLE>
<S> <C>
Investment in real estate and related improvements and land held
for development, net of accumulated depreciation................. $(127)
Accumulated deficit and dividend distributions.................... 127
-----
$ --
=====
</TABLE>
(F) Represents the intercompany elimination of Patriot's investment of certain
non-controlled subsidiaries, which are controlled by Wyndham, that were
formed in connection with various mergers and acquisitions in 1998, and
Wyndham's minority interest in these subsidiaries.
<TABLE>
<S> <C>
Investment in unconsolidated subsidiaries..................... $ (940,544)
Minority interest in consolidated subsidiaries................ 940,544
----------
$ --
==========
</TABLE>
(G) In order to effect the issuance of the paired shares of common stock and OP
Units which were issued in connection with certain of the Companies'
mergers, other acquisition transactions and equity transactions, Patriot
and Wyndham have issued promissory notes to fund the issuance of paired
shares and OP Units. These promissory notes are referred to as subscription
notes. The adjustment represents the elimination of these notes receivables
and payables.
<TABLE>
<S> <C>
Subscription notes receivable.................................. $(225,656)
Subscription notes payable..................................... 225,656
---------
$ --
=========
</TABLE>
F-9
<PAGE>
(H) Represents the adjustment in the basis of the related asset, liability, or
shareholders' equity as a result of the use of the purchase method of
accounting for the exchange of certain partners' common and preferred OP
Units for the Companies' common stock.
Step-Down in Basis of the Asset:
<TABLE>
<S> <C>
Investment in real estate, and related improvements and land
held for development, net of accumulated depreciation........ $(129,583)
Investment in unconsolidated subsidiaries..................... (2,666)
Goodwill and intangibles, net of accumulated amortization..... (8,076)
---------
Total Step-down in basis of assets.......................... $(140,325)
=========
Reduction of Minority Interest:
Minority interest in the Operating Partnership................ $ 220,197
=========
</TABLE>
Adjustment to par value of common stock:
<TABLE>
<S> <C>
Par value of common stock for shares issued in exchange for common
and preferred units of limited partnership interests in the
Operating Partnership (based on 14,577 issued at $.0005 per
share)............................................................. $ 7
===
</TABLE>
Adjustments to additional paid in capital:
<TABLE>
<S> <C>
Estimated book value of sponsor's interest....................... $ 22,609
Estimated fair market value of non sponsor's interest............ 57,256
--------
Total adjustments to additional paid in capital................ $ 79,865
========
</TABLE>
(I) Represents the write-off of net book value of the intangible asset related
to the structure recorded, as a result of the Cal Jockey merger. In
connection with the change in tax legislation, the paired share REIT
structures have been limited in their ability to expand their business
through the limitation set by Congress regarding business transactions
between the REIT and its related operating company. As a result of this
legislation, Patriot and Wyndham have revised their on going business
strategy. Pursuant to the restructuring, Patriot and Wyndham will terminate
their pairing agreement and no longer maintain the paired share REIT
structure. Wyndham has recognized the write-off of this intangible as an
adjustment to retained earnings in the pro forma condensed consolidated
balance sheet.
(J) Represents the pro forma adjustment for the write-off of net deferred
financing costs associated with the existing $2.7 billion credit facility
and the addition of deferred financing costs to be incurred in connection
with the new debt financing. The write-off of deferred loan costs have been
reflected as a pro forma adjustment to retained earnings in the pro forma
condensed consolidated balance sheet.
<TABLE>
<S> <C>
Write-off of net deferred financing cost associated with the
credit facility............................................. $(27,322)
Addition of deferred financing costs associated with the new
debt financing.............................................. 69,125
--------
$ 41,803
========
</TABLE>
F-10
<PAGE>
(K) Represents the pro forma adjustments to the current portion and long term
portion of debt obligations as a result of the investment, the
restructuring and new debt financing.
<TABLE>
<CAPTION>
Balance
-----------
<S> <C>
Pro forma adjustments to debt as a result of New Debt
Financing:
New revolving loan facility bearing interest at a rate of
8.00% per annum (LIBOR plus 2.75%)........................... $ 400,000
New term loan facility bearing interest at a rate of 8.75%
per annum (LIBOR plus 3.50%)................................. 1,200,000
Increasing rate loans bearing interest at a rate of .25%
below the initial new term loan facility increasing .50%
every three months........................................... 650,000
Other mortgage financing bearing interest at a rate of 8.75%
per annum.................................................... 262,743
-----------
2,512,743
Reduction of debt for the assumed repayment of the following
long-term obligations:
Existing credit facility..................................... (875,587)
Tranche III and B term loans................................. (1,049,250)
-----------
(1,924,837)
-----------
Pro Forma adjustment to long-term debt obligations....... $ 587,906
===========
Current portion of long term debt to be repaid:
Tranche I and II term loans.................................. (733,000)
Promissory note payable to Chase Securities, Inc. ........... (49,255)
Unsecured note payable to PaineWebber Real Estate, Inc. ..... (160,000)
Mortgage note payable to PaineWebber Real Estate, Inc. ...... (103,000)
Mortgage note payable to PaineWebber Real Estate, Inc. ...... (35,000)
-----------
Pro Forma adjustment to current portion of debt
obligations.............................................. $(1,080,255)
===========
</TABLE>
(L) The restructuring will be reflected for as a reorganization of two
companies under common control and will be accounted for in a manner
similar to that used in pooling of interest accounting. There will be no
revaluation of the assets and liabilities of the combining companies.
Wyndham will take a one-time charge of approximately $750,000 related to a
deferred tax liability that will result from the change in tax status from
a REIT to a C corporation, as required by SFAS No. 109. After the
restructuring, Wyndham's financial statements will be presented on a
consolidated basis representing the operations of the corporation (Wyndham)
and its subsidiaries, including Patriot.
(M) Represents the adjustments to shareholders' equity as follows:
<TABLE>
<S> <C>
Adjustment to par value of preferred stock:
Par value of series B preferred (based on 116,414 preferred
shares issued at a par value of $0.01 per share)............... $ 1,164
Historical par value of preferred stock to be converted or
retired
as a result of the Investment and Restructuring................ (90)
-------
$ 1,074
=======
Adjustment to par value of common stock:
Par value of common stock after reverse stock split and
preferred
shares converted pursuant to the restructuring (based on
165,663
shares at a par value of $0.0005 per share).................... $ 83
Pro forma par value of shares exchanged for units of limited
partnership interests in the operating partnership............. (7)
Historical par value of common stock............................ (4,684)
-------
$(4,608)
=======
</TABLE>
F-11
<PAGE>
<TABLE>
<S> <C>
Adjustment to additional paid in capital:
Investment................................................... $1,000,000
Historical par value of preferred stock...................... 90
Historical par value of common stock......................... 4,684
Pro forma par value of shares exchanged for units of limited
partnership interest in the Operating Partnerships.......... 7
Par value adjustment for series B preferred (1,164)
Par value adjustment for reverse stock split................. (83)
Cost of the Investment (including advisory fees, legal and
accounting
and costs of the transaction)............................... (90,960)
----------
$ 912,574
==========
</TABLE>
The total number of series B preferred shares issued is based on a
conversion price of $8.59 per share.
The amount by which the conversion price can be adjusted relating to
indemnification for breaches by Wyndham and Patriot of general
representations and warranties and for special costs related to the
consummation of the restructuring of Wyndham and Patriot and related to
shareholder litigation is subject to a maximum amount of approximately
$2.27 per share. In order for the total conversion price adjustments
relating to the indemnification to equal $2.27, Wyndham and Patriot would
generally have to incur approximately $380,000 in losses, pursuant to the
purchase agreement. There is no maximum amount on conversion price
adjustments relating to breaches of covenants. Neither is there a maximum
amount on the separate indemnity relating to sales by the counterparties to
the companies' forward equity contracts of paired shares of Wyndham and
Patriot common stock issued as collateral under the forward equity
contracts.
If the conversion price was adjusted by the maximum amount to $6.32, an
additional 41,808 shares of common stock would be issuable upon conversion
of the series B preferred stock. See Note (N) page F-16 for discussion of
earnings per share.
(N) Represents the recognition of treasury stock as a result of the cash
settlement of the forward equity contracts for the return of approximately
12.55 million shares, shares held as collateral for the obligations and
the retirement of Patriot B preferred stock returned for cash of $25.00
per share. The treasury stock will be recorded at cost and as a reduction
of stockholders' equity.
<TABLE>
<S> <C>
Forward equity shares........................................ $(331,941)
Patriot B preferred stock.................................... (13,966)
---------
$(345,907)
=========
</TABLE>
(O) Pro forma adjustments to retained earnings are as follows:
<TABLE>
<S> <C>
Write-off of intangibles related to structure............... $ (83,642)
Write-off of deferred financing costs....................... (27,322)
Estimated deferred tax liability............................ (750,000)
Transaction costs to settle forward equity contracts........ (1,659)
----------
$ (862,623)
==========
</TABLE>
F-12
<PAGE>
Patriot American Hospitality, Inc. and
Wyndham International, Inc.
Pro Forma Condensed Combined Statements of Operations
for the three months ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Patriot Wyndham Elimination Combined Exchange Equity Pro Forma
Historical(A) Pro Forma(B) Entries Pro Forma (G) Offer Investment Total
------------- ------------ ----------- ------------- -------- ---------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Hotel revenue.......... $ -- $596,235 $ -- $596,235 $ -- $ -- $596,235
Participating lease
revenue................ 186,155 -- (185,822)(C) 333 -- -- 333
Racecourse facility
and land lease
revenue................ -- 4,561 -- 4,561 -- -- 4,561
Management fee and
service fee income..... -- 13,271 (127)(D) 13,144 -- -- 13,144
Interest and other
income................. 4,758 5,359 (5,156)(E) 4,961 -- -- 4,961
-------- -------- --------- -------- ------- -------- --------
Total revenue........ 190,913 619,426 (191,105) 619,234 -- -- 619,234
Expenses:
Hotel expenses......... 31,359 372,071 -- 403,430 -- -- 403,430
Racecourse facility
operations............. -- 3,867 -- 3,867 -- -- 3,867
General and
administrative......... 20,651 20,759 -- 41,410 -- 2,734 (J) 44,144
Interest expense....... 86,104 9,727 (5,156)(E) 90,675 -- (13,917)(K) 76,758
Cost of acquiring
license agreements..... 803 -- -- 803 -- -- 803
(Gain) loss on sale of
assets (2,985) 210 -- (2,775) -- -- (2,775)
Depreciation and
amortization........... 52,662 18,789 -- 71,451 (1,128)(H) (548)(L) 69,775
Participating lease
payments............... -- 185.822 (185,822)(C) -- -- -- --
-------- -------- --------- -------- ------- -------- --------
188,594 611,245 (190,978) 608,861 (1,128) (11,731) 596,002
-------- -------- --------- -------- ------- -------- --------
Operating income
(loss).................. 2,319 8,181 (127) 10,373 1,128 11,731 23,232
Equity in earnings of
unconsolidated
subsidiaries........... 14,612 (2,871) (12,098)(F) (357) -- -- (357)
-------- -------- --------- -------- ------- -------- --------
Income (loss) before
income tax provision,
and minority interests.. 16,931 5,310 (12,225) 10,016 1,128 11,731 22,875
Income tax
(provision)/benefit.... (2,477) (8,091) -- (10,568) -- 2,155 (M) (8,413)
-------- -------- --------- -------- ------- -------- --------
Income (loss) before
minority interests...... 14,454 (2,781) (12,225) (552) 1,128 13,886 14,462
Minority interest in
the operating
partnership............ (729) 2,687 -- 1,958 (1,687)(I) -- 271
Minority interest in
consolidated
subsidiaries........... (1,873) (12,146) 12,098 (F) (1,921) -- -- (1,921)
-------- -------- --------- -------- ------- -------- --------
Net income (loss)....... $ 11,852 $(12,240) $ (127) $ (515) $ (559) $ 13,886 $ 12,812
======== ======== ========= ======== ======= ======== ========
Basic earnings (loss)
per common share(N)..... $ 0.02 $ (0.08) $ (0.06) $ (0.07)
======== ======== ======== ========
Dilutive loss per common
share(N)................ $ (0.06) $ (0.08) $ (0.13) $ (0.07)
======== ======== ======== ========
</TABLE>
See notes on following pages.
F-13
<PAGE>
Notes to Pro Forma Condensed Combined Statement of Operations
(A) Represents Patriot's historical results of operations for the three months
ended March 31, 1999 as reported in the Companies' Report on Form 10-Q.
(B) Represents the Pro Forma Condensed Consolidated Statements of Operations
for Wyndham for the three months ended March 31, 1999. See page F-28.
(C) Represents elimination of lease revenue and expense related to the hotels
and the Racecourse facility leased by Patriot to Wyndham.
(D) Represents elimination of design and construction fees related to the
hotels leased by Patriot to Wyndham.
(E) In connection with the mergers and other transactions, Patriot (including
the Patriot Partnership) subscribed for shares of Wyndham common stock or
units of limited partnership interest in the Wyndham Partnership and
Wyndham subscribed for shares of Patriot common stock in order to effect
the exchange of paired shares or pairs of units of limited partnership
interest in the operating partnerships in consummation of the transactions.
These subscriptions for shares of common stock and units of limited
partnership interest were funded through the issuance of promissory notes
referred to as "subscription notes" payable to Wyndham or Patriot, as the
case may be. The subscription notes accrue interest at rates ranging from
LIBOR plus 1% to a fixed rate of 8.7% per annum and mature on various dates
through 2002.
(F) Represents elimination of Patriot's equity in the earnings of certain non-
controlled subsidiaries that were formed in connection with various mergers
and acquisitions in 1998. The entities are controlled by Wyndham, and as a
result, the operating results of these entities have been combined with
those of Wyndham for pro forma financial reporting purposes.
(G) Represents the historical results of operations for Patriot and pro forma
results of operations for Wyndham combined for the three months ended
March 31, 1999 reflecting the Interstate spin-off Transaction, as if it had
been consummated as of the beginning of the period being presented.
(H) Represents the pro forma adjustment to reduce depreciation and amortization
for the step-down in basis as a result of the use of the purchase method of
accounting for the exchange of certain partners' common and preferred OP
units for the Companies' common stock.
(I) Represents the reduction in minority interest due to a reduction in
minority interest percentage as a result of the exchange of the minimum
amount of limited partners' common and preferred OP units for the
Companies' common stock. The impact to the results of operations if all the
remaining partners were to elect to exchange their interest would be to
reduce minority interest in the operating partnership by $271 and decrease
the Companies' net income from $12,812 to $12,541. The net loss applicable
to the common shareholder would increase to $(11,834), with a net loss per
share of $(0.07) based on the weighted average shares of 167,363 (including
the exchange of 1,700 of remaining units for shares).
(J) Represents the pro forma adjustment for incremental administrative fees of
approximately $1,075 in fees related to the new credit facilities and
approximately $1,659 in fees related to settlement of the forward equity
contracts.
F-14
<PAGE>
(K) Represents the pro forma adjustment to debt and interest expense as a
result of the investment and new credit facilities as follows:
<TABLE>
<CAPTION>
Balance Interest
----------- --------
<S> <C> <C>
Pro forma adjustments to debt as a result of New Debt
Financing:
New revolving loan facility bearing interest at a
rate of 8.00% per annum (LIBOR plus 2.75%)......... $ 400,000 $ 8,000
New term loan facility bearing interest at a rate
of 8.75% per annum (LIBOR plus 3.50%).............. 1,200,000 26,250
Increasing rate loans bearing interest at a rate of
.25% below the initial new term loan facility
increasing .50% every three months................. 650,000 13,813
Other mortgage financing bearing interest at a rate
of 8.75% per annum................................. 262,743 5,748
Additional deferred loan costs of approximately
$69,125 amortized over periods of 5 to 7 years..... -- 2,846
----------- --------
2,512,743 56,657
Reduction of debt for the assumed repayment of the
following long-term obligations:
Existing credit facility........................... (875,587) (17,128)
Tranche III and B term loans....................... (1,049,250) (19,970)
Amortization of deferred loan costs related to the
existing credit facility for the year ended
December 31, 1998.................................. -- (10,905)
----------- --------
(1,924,837) (48,003)
----------- --------
Pro Forma adjustment to long-term debt
obligations.................................... $ 587,906
===========
Current portion of long term debt to be repaid:
Tranche I and II term loans........................ (733,000) (15,530)
Promissory note payable to Chase Securities,
Inc. .............................................. (49,255) (971)
Unsecured note payable to PaineWebber Real Estate,
Inc. .............................................. (160,000) (3,479)
Mortgage note payable to PaineWebber Real Estate,
Inc. .............................................. (103,000) (1,950)
Mortgage note payable to PaineWebber Real Estate,
Inc. .............................................. (35,000) (641)
----------- --------
Pro Forma adjustment to current portion of debt
obligations.................................... $(1,080,255) $(22,571)
=========== ========
Pro Forma adjustments to interest expense:
Pro forma adjustments to interest as a result of
new debt financing................................. $ 56,657
Reduction of interest expense for the assumed
repayment of
long-term debt obligations......................... (48,003)
Interest expense related to current portion of debt
obligations to be repaid........................... (22,571)
--------
Pro Forma adjustment to interest expense....... $(13,917)
========
</TABLE>
An increase of 0.125% in the interest rate would increase pro forma
interest expense to $77,543, decreasing net income to $12,027. Net loss
applicable to common shareholders would increase to $(12,348), loss per
common share would remain at $(0.07) based on 165,663 weighted average
number of common shares outstanding. At or after the closing of the
investment and the new credit facilities, Wyndham may determine to issue
senior unsecured notes with a 10-year term to repay or replace borrowings
under (i) the increasing rate loans and (ii) the new revolving loan
facility. Assuming that $1 billion of such notes were issued at an assumed
interest rate of 9.5% per annum, pro forma interest expense would increase
to $80,289, decreasing net income to $10,693. Net loss applicable to common
shareholders would increase to $(14,432), loss per common share would
increase to $(0.09) based on 165,663 weighted average number of common
shares outstanding. In addition, the Companies would have an extraordinary
write-off of $17,875 of deferred loan costs if the senior unsecured notes
were used to repay the increasing rate loans.
(L) Represents the adjustment to reduce depreciation and amortization for the
goodwill to be written off in connection with the restructuring.
F-15
<PAGE>
(M) Represents the tax benefit to Wyndham as a result of the restructuring of
Wyndham and Patriot. The restructuring of Wyndham and Patriot results in
Wyndham, Patriot and certain corporate subsidiaries of Patriot reporting
and filing on a consolidated basis for federal income tax purposes. The tax
benefit is derived from the reversal of certain timing differences between
financial and income tax reporting methods and does not represent the
amount of cash taxes for which Wyndham would be liable.
(N) As a result of the $1 billion equity investment and the restructuring of
Patriot and Wyndham, Wyndham will issue 116,414 shares (as converted) of
series B preferred stock to the investors at $8.59 per share for a total
investment of $1 billion. Proceeds from the investment will be used to
repay the obligations in connection with the forward equity contracts of
approximately $333,600. Based upon the number of paired shares issued at
March 31, 1999, a total of 91,500 shares of common stock will be retired to
treasury stock in connection with the repayment of the forward equity
transactions. Additionally, the holders of Wyndham Series A and B Preferred
Stock will be offered the opportunity to exchange their securities for
Wyndham common stock. For purposes of the calculation, Wyndham Series A and
B Preferred Stock will be assumed to be converted to Wyndham common stock.
Holders of Patriot preferred stock will have the right to receive $25.00
for each of their paired shares. For purposes of the pro forma statement,
the Patriot B preferred holders are assumed to receive total cash of
approximately $13,966 (based on 559 shares at $25.00 per share). As a
result, the total number of common shares outstanding on a pro forma basis
would be 165,663. Pro forma basic and dilutive earnings per share are as
follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Basic (Diluted)
--------- ---------
<S> <C> <C>
Earnings per common share:
Net income attributable to common shareholders...... $ 12,812 $ 12,812
Investor Preferred Dividends........................ (24,375) (24,375)
--------- ---------
Net loss available to common shareholders........... $ (11,563) $ (11,563)
========= =========
Weighted average shares............................. 165,663 165,663
========= =========
</TABLE>
For the pro forma calculation, the dilutive effect of the series B
preferred shares of 118,401, unvested stock grants of 796 and the option to
purchase 15 common shares were excluded from the computation of dilutive
earnings per share for the three months ended March 31, 1999 because they
are anti-dilutive.
Basic and dilutive earnings per share, on a pro forma basis, before the
effects of the Exchange Offer and restructuring are as follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Basic Diluted
--------- ---------
<S> <C> <C>
Combined net loss.................................... $ (515) $ (515)
Preferred stock dividends............................ (373) (373)
Adjustment for equity forwards(1).................... (8,395) (20,033)
------- --------
Net loss to common shareholders..................... $(9,283) $(20,921)
======= ========
Weighted average number of paired shares(2).......... 154,990 154,990
======= ========
</TABLE>
- --------
(1) The adjustment relates to the mark-to-market and yield adjustment for the
forward equity contracts which can be settled in cash or stock, at the
Companies' option.
(2) For the three months ended March 31, 1999, the dilutive effect of an
unvested stock grants of 796, the option to purchase common stock of 15 and
8,423 of preferred shares were not included in the computation of diluted
earnings per share because they are anti-dilutive.
F-16
<PAGE>
Patriot American Hospitality, Inc. and
Wyndham International, Inc.
Pro Forma Condensed Combined Statements of Operations
for the year ended December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Patriot Wyndham Elimination Combined Exchange Equity Pro Forma
Pro Forma(A) Pro Forma(B) Entries Pro Forma (G) Offer Investment Total
------------ ------------ ----------- ------------- -------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Hotel revenue.......... $ -- $2,153,954 $ -- $2,153,954 $ -- $ -- $2,153,954
Participating lease
revenue................ 704,937 -- (667,242)(C) 37,695 -- -- 37,695
Racecourse facility
and land lease
revenue................ -- 51,259 -- 51,259 -- -- 51,259
Management fee and
service fee income..... -- 56,012 (916)(D) 55,096 -- -- 55,096
Interest and other
income................. 17,853 23,522 (21,620)(E) 19,755 -- -- 19,755
-------- ---------- --------- ---------- -------- -------- ----------
Total revenue........ 722,790 2,284,747 (689,778) 2,317,759 -- -- 2,317,759
Expenses:
Hotel expenses......... 127,253 1,419,999 -- 1,547,252 -- -- 1,547,252
Racecourse facility
operations............. -- 43,198 -- 43,198 -- -- 43,198
General and
administrative......... 31,157 76,612 -- 107,769 -- 3,794 (J) 111,563
Interest expense....... 319,520 39,240 (21,620)(E) 337,140 -- (35,513)(K) 301,627
Cost of acquiring
leaseholds and license
agreements............. 11,686 52,721 -- 64,407 -- -- 64,407
Treasury lock
settlement............. 49,334 -- -- 49,334 -- -- 49,334
Loss on sale of
assets................. 9,453 -- -- 9,453 -- -- 9,453
Impairment loss on
assets held for sale... 27,897 23,184 -- 51,081 -- -- 51,081
Depreciation and
amortization........... 195,678 66,658 -- 262,336 (4,510)(H) (2,193)(L) 255,633
Participating lease
payments............... -- 667,242 (667,242)(C) -- -- -- --
-------- ---------- --------- ---------- -------- -------- ----------
771,978 2,388,854 (688,862) 2,471,970 (4,510) (33,912) 2,433,548
-------- ---------- --------- ---------- -------- -------- ----------
Operating loss.......... (49,188) (104,107) (916) (154,211) 4,510 33,912 (115,789)
Equity in earnings of
unconsolidated
subsidiaries........... 45,495 2,283 (36,502)(F) 11,276 -- -- 11,276
-------- ---------- --------- ---------- -------- -------- ----------
Loss before income tax
provision, and minority
interests............... (3,693) (101,824) (37,418) (142,935) 4,510 33,912 (104,513)
Income tax
(provision)/benefit.... (2,777) (13,043) -- (15,820) -- 22,261 (M) 6,441
-------- ---------- --------- ---------- -------- -------- ----------
Loss before minority
interests............... (6,470) (114,867) (37,418) (158,755) 4,510 56,173 (98,072)
Minority interest in
the operating
partnership............ 352 12,523 -- 12,875 (10,993)(I) -- 1,882
Minority interest in
consolidated
subsidiaries........... (8,057) (41,067) 36,502 (F) (12,622) -- -- (12,622)
-------- ---------- --------- ---------- -------- -------- ----------
Net loss................ $(14,175) $ (143,411) $ (916) $ (158,502) $ (6,483) $ 56,173 $ (108,812)
======== ========== ========= ========== ======== ======== ==========
Basic loss per common
share(N)................ $ (0.27) $ (0.97) $ (1.24) $ (1.26)
======== ========== ========== ==========
Dilutive loss per common
share(N)................ $ (1.37) $ (0.97) $ (2.35) $ (1.26)
======== ========== ========== ==========
</TABLE>
See notes on following pages.
F-17
<PAGE>
Notes to Pro Forma Condensed Combined Statement of Operations:
(A) Represents the Pro Forma Condensed Consolidated Statements of Operations
for Patriot for the year ended December 31, 1998. See page F-23.
(B) Represents the Pro Forma Condensed Consolidated Statements of Operations
for Wyndham for the year ended December 31, 1998. See page F-30.
(C) Represents elimination of lease revenue and expense related to the hotels
and the Racecourse facility leased by Patriot to Wyndham.
(D) Represents elimination of design and construction fees related to the
hotels leased by Patriot to Wyndham.
(E) In connection with the mergers and other transactions, Patriot (including
the Patriot Partnership) subscribed for shares of Wyndham common stock or
units of limited partnership interest in the Wyndham Partnership and
Wyndham subscribed for shares of Patriot common stock in order to effect
the exchange of paired shares or pairs of units of limited partnership
interest in the operating partnerships in consummation of the transactions.
These subscriptions for shares of common stock and units of limited
partnership interest were funded through the issuance of promissory notes
referred to as "subscription notes" payable to Wyndham or Patriot, as the
case may be. The subscription notes accrue interest at rates ranging from
LIBOR plus 1% to a fixed rate of 8.7% per annum and mature on various dates
through 2002. The pro forma elimination entry relating to interest income
and expense consists of:
<TABLE>
<S> <C>
Interest income and expense related to the Subscription Notes.. $ 18,293
Interest income and expense related to the participating note
held by Wyndham related to the Buena Vista Palace Hotel....... 1,852
Interest income and expense related to a note receivable issued
to
Old Patriot in connection with the sale of certain assets to
PAH RSI, L.L.C., which assets were acquired by Wyndham........ 1,186
Other intercompany income and expense items.................... 289
--------
$ 21,620
========
</TABLE>
(F) Represents elimination of Patriot's equity in the earnings of certain non-
controlled subsidiaries that were formed in connection with various mergers
and acquisitions in 1998. The entities are controlled by Wyndham, and as a
result, the operating results of these entities have been combined with
those of Wyndham for pro forma financial reporting purposes.
(G) Represents the pro forma results of operations for Patriot and Wyndham
combined for the year ended December 31, 1998 adjusted for the 1998
transactions and the Interstate spin-off transaction, as if they had been
consummated as of the beginning of the period being presented.
(H) Represents the pro forma adjustment to reduce depreciation and amortization
for the step-down in basis as a result of the use of the purchase method of
accounting for the exchange of certain partners' common and preferred OP
units for the Companies' common stock.
(I) Represents the reduction in minority interest due to a reduction in
minority interest percentage as a result of the exchange of the minimum of
amount of limited partners' common and preferred OP units for the
Companies' common stock. The impact to the results of operations if all the
remaining partners were to elect to exchange their interest would be to
reduce minority interest in the operating partnership by $1,882 and
increase the Companies' net loss from $108,812 to $110,694. The net loss
applicable to the common shareholder would increase to $210,730, with a net
loss per share of $1.26 based on the weighted average shares of 167,363
(including the exchange of 1,700 of remaining units exchanged for shares).
(J) Represents the pro forma adjustment for incremental administrative fees of
approximately $1,075 in fees related to the new credit facilities and
approximately $2,719 in fees related to settlement of the forward equity
contracts.
F-18
<PAGE>
(K) Represents the pro forma adjustment to interest expense as a result of the
investment and new credit facilities as follows:
<TABLE>
<CAPTION>
Interest
---------
<S> <C>
Pro forma adjustments to interest as a result of New Debt
Financing:
New revolving loan facility bearing interest at a rate of
8.00% per annum
(LIBOR plus 2.75%)............................................ $ 32,444
New term loan facility bearing interest at a rate of 8.75% per
annum
(LIBOR plus 3.50%)............................................ 106,459
Increasing rate loans bearing interest at a rate of .25% below
the initial
new term loan facility increasing .50% every three months..... 60,961
Other mortgage financing bearing interest at a rate of 8.75%
per annum..................................................... 24,839
Additional deferred loan costs of approximately $69,125
amortized over
periods of 5 to 7 years....................................... 11,382
---------
236,085
Reduction of interest for the assumed repayment of the following
long-term obligations:
Existing credit facility...................................... (72,968)
Tranche III and B term loans.................................. (85,462)
Amortization of deferred loan costs related to the existing
credit facility
for the year ended December 31, 1998.......................... (31,661)
---------
(190,091)
---------
Reduction of interest for current portion of long term debt to
be repaid:
Tranche I and II term loans................................... (58,085)
Promissory note payable to Chase Securities, Inc. ............ (606)
Unsecured note payable to PaineWebber Real Estate, Inc. ...... (12,113)
Mortgage note payable to PaineWebber Real Estate, Inc. ....... (8,044)
Mortgage note payable to PaineWebber Real Estate, Inc. ....... (2,659)
---------
$ (81,507)
---------
Pro Forma adjustments to interest expense:
Pro forma adjustments to interest as a result of new debt
financing..................................................... $ 236,085
Reduction of interest expense for the assumed repayment of
long-term debt obligations.................................... (190,091)
Interest expense related to current portion of debt
obligations to be repaid...................................... (81,507)
---------
Pro Forma adjustment to interest expense.................. $ (35,513)
=========
</TABLE>
An increase of 0.125% in the interest rate would increase pro forma
interest expense to $304,084, increasing net loss to $111,257. Net loss
applicable to common shareholders would increase to $211,293, loss per
common share would increase to $1.28 based on 165,663 weighted average
number of common shares outstanding. At or after the closing of the
investment and the new credit facilities, Wyndham may determine to issue
senior unsecured notes with a 10-year term to repay or replace borrowings
under (i) the increasing rate loans and (ii) the new revolving loan
facility. Assuming that $1 billion of such notes were issued at an assumed
interest rate of 9.5% per annum, pro forma interest expense would increase
to $309,589, increasing net loss to $113,589. Net loss applicable to common
shareholders would increase to $216,215 and net loss per common share would
increase to $1.31 based on 165,663 weighted average number of common shares
outstanding. In addition, the Companies would have an extraordinary write-
off of $17,875 of deferred loan costs if the senior unsecured notes were
used to repay the increasing rate loans.
(L) Represents the adjustment to reduce depreciation and amortization for the
goodwill to be written off in connection with the restructuring.
F-19
<PAGE>
(M) Represents the tax benefit to Wyndham as a result of the restructuring of
Wyndham and Patriot. The restructuring of Wyndham and Patriot results in
Wyndham, Patriot and certain corporate subsidiaries of Patriot reporting
and filing on a consolidated basis for federal income tax purposes. The tax
benefit is derived from the reversal of certain timing differences between
financial and income tax reporting methods and does not represent the
amount of cash taxes for which Wyndham would be liable.
(N) As a result of the $1 billion equity investment and the restructuring of
Wyndham and Patriot, Wyndham will issue 116,414 shares of series B
preferred stock to the investors at $8.59 per share for a total investment
of $1 billion. Additionally, the holders of Wyndham Series A and B
Preferred Stock will be offered the opportunity to exchange their
securities for Wyndham common stock. For purposes of the calculation,
Wyndham Series A and B Preferred Stock will be assumed to be converted to
Wyndham common stock. Holders of Patriot preferred stock will have the
right to receive $25.00 for each of their paired shares. For purposes of
the pro forma statement, the Patriot B preferred holders are assumed to
receive total cash of approximately $13,966 (based on 559 shares at $25.00
per share). As a result, the total number of common shares outstanding on a
pro forma basis would be 165,663. Pro forma basic and dilutive earnings per
share are as follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Basic Diluted
---------- ----------
<S> <C> <C>
Earnings per common share:
Net loss attributable to common shareholders..... $ (108,812) $ (108,812)
Investor Preferred Dividends..................... (100,036) (100,036)
---------- ----------
Net loss available to common shareholders........ (208,848) (208,848)
========== ==========
Weighted average shares.......................... 165,663 165,663
========== ==========
</TABLE>
For the pro forma calculation, the dilutive effect of the series B
preferred shares of 124,654, unvested stock grants of 880 and the option to
purchase 753 common shares were excluded from the computation of dilutive
earnings per share for the year ended December 31, 1998 because they are
anti-dilutive.
The combined Companies are in a loss position for the twelve months ended
December 31, 1998. Basic and dilutive earnings per share, on a pro forma
basis, before the effects of the Exchange Offer and restructuring are as
follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Basic Diluted
--------- ---------
<S> <C> <C>
Combined net loss................................. $(158,502) $(158,502)
Preferred stock dividends......................... (7,956) (7,956)
Adjustment for equity forwards(1)................. (21,151) (188,592)
--------- ---------
Net loss to common shareholders.................. $(187,609) $(355,050)
========= =========
Weighted average number of paired shares
outstanding(2) 151,313 151,313
========= =========
</TABLE>
- --------
(1) The adjustment relates to the mark-to-market adjustment for the UBS and
Nations forward equity contracts which can be settled in cash or stock, at
the Companies' option. At December 31, 1998, the PaineWebber transaction
can be settled only in stock, on the guaranteed return portion as adjusted
in the earnings per share calculations. There is no mark-to-market
adjustment for the PaineWebber transaction which is accounted for by the
Reverse Treasury Method.
(2) For 1998, the dilutive effect or unvested stock grants of 880, the options
to purchase common stock of 753, shares issued in connection with forward
equity contracts of 2,507 and 8,423 of preferred shares were not included
in the computation of diluted earnings per share for the year December 31,
1998 because they are anti-dilutive.
F-20
<PAGE>
PATRIOT AMERICAN HOSPITALITY INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Interstate
Historical(A) Spin-off Pro Forma
------------- ---------- ----------
(in thousands, except share
amounts)
<S> <C> <C> <C>
ASSETS
Investment in real estate and related
improvements and land held for
development, net of accumulated
amortization........................... $4,951,180 -- $4,951,180
Cash and cash equivalents............... 53,492 -- 53,492
Restricted cash......................... 19,511 -- 19,511
Accounts receivable..................... 15,187 -- 15,187
Investment in unconsolidated
subsidiaries........................... 998,553 -- 998,553
Mortgage notes and other receivables
from unconsolidated subsidiaries....... 77,536 -- 77,536
Subscription notes receivable from
Wyndham................................ 134,378 -- 134,378
Notes and other amounts receivable from
Wyndham................................ 267,951 7,246 275,197
Other notes receivable.................. 21,780 -- 21,780
Leaseholds, net of accumulated
amortization........................... 100,564 (7,246)(B) 93,318
Goodwill and intangibles, net of
accumulated amortization............... 136,023 -- 136,023
Deferred expenses, net of accumulated
amortization........................... 42,129 -- 42,129
Deferred acquisition costs.............. 928 -- 928
Inventories............................. -- -- --
Other assets............................ 24,192 -- 24,192
---------- ------- ----------
Total assets........................ $6,843,404 $ -- $6,843,404
========== ======= ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Borrowings under credit facility, term
loans, mortgage notes and capital
leases................................. $3,643,401 $ -- $3,643,401
Subscription notes payable to Wyndham... 91,278 -- 91,278
Notes and other amounts payable to
Wyndham................................ 73,280 -- 73,280
Accounts payable and accrued expenses... 81,379 -- 81,379
Dividends and distributions payable..... -- -- --
Deferred income taxes................... 37,755 -- 37,755
Due to unconsolidated subsidiaries...... 8,084 -- 8,084
Minority interest in the Patriot
Partnerships........................... 225,999 -- 225,999
Minority interest in consolidated
subsidiaries........................... 196,798 -- 196,798
Shareholders' equity:
Preferred stock....................... 54 -- 54
Excess stock.......................... -- -- --
Common stock.......................... 2,342 -- 2,342
Additional paid in capital.............. 2,781,901 -- 2,781,901
Notes receivable from shareholders...... (15,471) -- (15,471)
Unearned stock compensation, net of
accumulated amortization............... (1,472) -- (1,472)
Unrealized foreign exchange gain........ (4,547) -- (4,547)
Accumulated deficit and dividend
distributions.......................... (277,377) -- (277,377)
---------- ------- ----------
Total shareholders' equity.......... 2,485,430 -- 2,485,430
---------- ------- ----------
Total liabilities and shareholders'
equity............................. $6,843,404 $ -- $6,843,404
========== ======= ==========
</TABLE>
See notes on following page.
F-21
<PAGE>
Notes to Pro Forma Condensed Consolidated Balance Sheet:
(A) Represents the historical consolidated balance sheet of Patriot as
presented in the Companies' Report on Form 10-Q as of March 31, 1999.
(B) Represents the pro forma adjustment to reduce investments in leaseholds for
the transfer of certain leases held by Patriot to Interstate Management in
connection with the spin-off.
<TABLE>
<S> <C>
Notes and other amounts receivable from Wyndham.................. $ 7,246
Leaseholds, net of accumulated amortization...................... (7,246)
-------
$ --
=======
</TABLE>
F-22
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Patriot Recent Arcadian Summerfield Interstate Pro
Historical Transactions Acquisition Acquisition Merger Forma
(A) (B) (C) (D) (E) Total
---------- ------------ ----------- ----------- ---------- --------
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue.............. $578,029 $1,335 (F) $ 3,803 (F) $ 23,194 (F) $98,576 (F) $704,937
Interest and other
income............... 17,381 472 -- -- -- 17,853
-------- ------ ------- -------- ------- --------
Total revenue....... 595,410 1,807 3,803 23,194 98,576 722,790
-------- ------ ------- -------- ------- --------
Expenses:
Hotel expenses........ 100,324 362 (G) 468 17,174 (G) 8,925 (G) 127,253
General and
administrative....... 29,784 -- -- -- 1,373 31,157
Interest expense...... 245,205 601 (H) 6,708 (H) 7,488 (H) 59,518 (H) 319,520
Cost of acquiring
leaseholds and
license agreements... 11,686 -- -- -- -- 11,686
Treasury lock
settlement........... 49,334 -- -- -- -- 49,334
Loss on sale of
assets............... 9,453 -- -- -- -- 9,453
Impairment loss on
assets held for
sale................. 27,897 -- -- -- -- 27,897
Depreciation and
amortization......... 161,857 877 (I) 2,120 (I) 3,769 (I) 27,055 (I) 195,678
-------- ------ ------- -------- ------- --------
Total expenses...... 635,540 1,840 9,296 28,431 96,871 771,978
-------- ------ ------- -------- ------- --------
Operating (loss)
income................. (40,130) (33) (5,493) (5,237) 1,705 (49,188)
Equity in earnings
(loss) of
unconsolidated
subsidiaries......... 36,726 7,805 (J) (128)(K) (6,293)(L) 7,385 (M) 45,495
-------- ------ ------- -------- ------- --------
(Loss) income before
income tax
provision, minority
interests and
extraordinary item..... (3,404) 7,772 (5,621) (11,530) 9,090 (3,693)
Income tax provision.. (2,742) (35)(N) -- -- -- (2,777)
-------- ------ ------- -------- ------- --------
(Loss) income before
minority interest
and extraordinary
item................... (6,146) 7,737 (5,621) (11,530) 9,090 (6,470)
Minority interest in
operating
partnership.......... (98) (931)(O) -- 1,381 (O) -- 352
Minority interest in
consolidated
subsidiaries......... (8,084) 27 (P) -- -- -- (8,057)
-------- ------ ------- -------- ------- --------
Net (loss) income before
extraordinary item..... $(14,328) $6,833 $(5,621) $(10,149) $ 9,090 $(14,175)
======== ====== ======= ======== ======= ========
Basic loss per common
share before
extraordinary item
(Q):................... $ (0.30) $ (0.27)
======== ========
Diluted loss per common
share before
extraordinary item
(Q):................... $ (1.51) $ (1.37)
======== ========
</TABLE>
See notes on following page.
F-23
<PAGE>
Notes to Pro Forma Condensed Consolidated Statement of Operations:
(A) Represents Patriot's historical results of operations before extraordinary
items for the twelve months ended December 31, 1998 as reported in the
Companies' Annual Report on Form 10-K.
(B) Represents adjustments to Patriot's results of operations assuming recent
transactions, including the acquisition of the Buena Vista Hotel, the
merger with WHG and related acquisition of minority interests and the
Golden Door Spa completed by Patriot during the twelve months ended
December 31, 1998 had been consummated on January 1, 1998.
(C) Represents adjustments to Patriot's results of operations assuming the
Arcadian Acquisition had been consummated as of January 1, 1998.
(D) Represents adjustments to Patriot's results of operations assuming the
Summerfield Acquisition had been consummated as of January 1, 1998.
(E) Represents adjustments to Patriot's results of operations assuming the
Interstate Merger and the related financing transactions had been
consummated as of January 1, 1998.
(F) Represents adjustments to lease revenue assuming the hotels and leasehold
interests currently owned by Patriot and its subsidiaries had been leased
to the Lessees or Wyndham as of January 1, 1998. No lease income is
included in the pro forma statement of operations for time periods prior
to completion of construction or commencement of operations.
(G) Represents pro forma ground lease payments to be made with respect to
certain of the hotels, and hotel lease expense related to the hotels
leased by Patriot from third-party owners, which Patriot sub-leases to
Wyndham.
(H) Interest expense consists of the following components:
<TABLE>
<CAPTION>
Recent Arcadian Summerfield Interstate
Transactions Acquisition Acquisition Merger
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Related to acquisition of
hotels and hotel
management businesses.... $601 $6,308 $7,256 $51,573
Related to subscription
notes payable to
Wyndham.................. -- -- 232 1,254
Related to amortization of
deferred loan costs...... -- 400 -- 6,691
---- ------ ------ -------
$601 $6,708 $7,488 $59,518
==== ====== ====== =======
</TABLE>
The pro forma amounts presented assume an average interest rate of 7.39%
per annum (assuming LIBOR plus 2.25%) on the amounts outstanding on the
Revolving Credit Facility. Amortization of deferred loan costs is computed
using the straight-line method (which approximates the interest method)
over the term of the related loans. As a result of the closing of the
repayment of debt assumed in connection with the Wyndham merger, deferred
loan costs related to the debt repaid were written off. In addition,
Patriot incurred certain prepayment penalties related to the early
repayment of certain debt. These amounts, net of the minority interest
share, were reported as an extraordinary item in Patriot's historical
results of operations and have been eliminated for pro forma presentation
purposes. In addition, as a result of the increase in Patriot's existing
credit facilities, additional deferred loan costs totaling approximately
$27,405 have been included in the borrowings under the credit facility and
mortgage notes in the pro forma financial statements.
An increase of 0.125% in the interest rate would increase pro forma
interest expense to $320,461, increasing net loss to $15,103. Net loss
applicable to common shareholders on a dilutive basis would increase to
$208,945, however, loss per common share would increase to $1.38 based on
151,313 weighted average common shares and common share equivalents
outstanding.
(I) Represents adjustments to depreciation and amortization in accordance with
Patriot's policy. Depreciation is computed using the straight-line method
and is based upon the estimated useful lives of 30 to 40 years for the
hotel buildings and improvements, 7 years for the Racecourse facility and
3 to 10 years for furniture, fixtures and equipment ("FF&E"). These
estimated useful lives are based on management's
F-24
<PAGE>
knowledge of the properties and the industry in general. Amortization of
goodwill related to mergers and other acquisitions of businesses and is
computed using the straight-line method over estimated useful lives ranging
from 5 to 40 years.
(J) Represents Patriot's pro forma equity in earnings of the non-controlled
subsidiaries that own the Wyndham trade names and franchise-related
assets, the management and franchising contracts and the hotel management
company which are controlled by Wyndham. In addition, represents equity
in losses of the partnerships that own the El San Juan Hotel & Casino and
the El Conquistador and the WHG management company. These entities are
also controlled by Wyndham.
(K) Represents Patriot's pro forma equity in losses of the non-controlled
subsidiaries that own certain management-related assets acquired in the
Arcadian acquisition. Subsidiaries of Wyndham own the controlling
interest in these entities.
(L) Represents Patriot's pro forma equity in earnings of the non-controlled
subsidiaries that own the management contracts and hotel management
business acquired in the Summerfield acquisition. Subsidiaries of Wyndham
own the controlling interest in these entities.
(M) Represents Patriot's pro forma equity in losses of the non-controlled
subsidiaries that own the management contracts and hotel management
business acquired in the Interstate merger. Subsidiaries of Wyndham own
the controlling interest in these entities.
(N) Represents an adjustment for estimated state income tax liabilities.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions of
approximately 11%.
(P) Represents the minority interest related to partnerships and limited
liability companies that own certain of the hotels assuming such entities
had been formed and the hotels owned by such entities had been acquired
at January 1, 1998.
(Q) A reconciliation of net loss to common shareholders is as follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Basic Diluted
--------- ---------
<S> <C> <C>
Net loss.......................................... $(14,175) $ (14,175)
Preferred stock dividends......................... (5,250) (5,250)
Adjustment for equity forwards(1)................. (21,151) (188,592)
-------- ---------
Net loss to common shareholders................. $(40,576) $(208,017)
======== =========
Weighted average number of paired shares
outstanding(2)............................... 151,313 151,313
======== =========
Diluted....................................... 151,313 151,313
======== =========
</TABLE>
- --------
(1) The adjustment relates to the mark-to-market adjustment for the UBS and
Nations forward equity contracts, which can be settled in cash or stock,
at the Companies' option. At December 31, 1998, the PaineWebber
transaction can be settled only in stock, on the guaranteed return
portion as adjusted in the earnings per share calculation. There is no
mark-to-market adjustment for the PaineWebber transaction which is
accounted for by the Reverse Treasury Method.
(2) For 1998, the dilutive effect of unvested stock grants of 880, the option
to purchase common stock of 753, shares issued in connection with the
forward equity contracts of 2,507 and 8,423 of preferred shares were not
included in the computation of diluted earning per share for the year
ended December 31, 1998 because they are antidilutive.
F-25
<PAGE>
WYNDHAM INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Historical Interstate
(A) Spin-off (B) Pro Forma
------------ ------------- ------------
(in thousands, except share amounts)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 78,294 $ (9,643)(C) $ 68,651
Restricted cash.................. 21,503 (4,110) 17,393
Accounts receivable.............. 214,017 (18,930) 195,087
Notes and other receivables from
Patriot......................... 73,280 -- 73,280
Inventories...................... 23,131 -- 23,131
Prepaid expense and other
assets.......................... 30,094 (6,992) 23,102
------------ ----------- ------------
Total current assets........... 440,319 (39,675) 400,644
Investment in real estate and
related improvements and land
held for development, net of
accumulated depreciation......... 625,744 (3,887) 621,857
Investment in unconsolidated
subsidiaries..................... 86,875 32,785 (D) 119,660
Subscription notes receivable from
Patriot.......................... 91,278 -- 91,278
Mortgage notes and other
receivables...................... 20,044 (7,450) 12,594
Management contracts, net of
accumulated amortization......... 193,908 (61,839) 132,069
Leaseholds, net of accumulated
amortization..................... 76,150 (27,033) 49,117
Trade names and franchise costs,
net of accumulated amortization.. 124,219 -- 124,219
Deferred acquisition costs........ 17,089 -- 17,089
Goodwill, net of accumulated
amortization..................... 419,551 -- 419,551
Deferred expenses, net of
accumulated amortization......... 146 -- 146
Other assets...................... 27,880 -- 27,880
------------ ----------- ------------
Total assets................... $ 2,123,203 $ (107,099) $ 2,016,104
============ =========== ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses........................ $ 268,788 $ (29,178)(E) $ 239,610
Dividends and distributions
payable......................... -- -- --
Participating lease payments
payable to Patriot.............. 68,887 -- 68,887
Deposits......................... 37,247 -- 37,247
Notes and other amounts payable
to Patriot...................... 199,064 7,246 206,310
Current portion of mortgage notes
and capital leases.............. 145,169 -- 145,169
------------ ----------- ------------
Total current liabilities...... 719,155 (21,932) 697,223
Subscription notes payable to
Patriot......................... 134,378 -- 134,378
Mortgage notes payable and
capital leases.................. 99,999 -- 99,999
Due to unconsolidated
subsidiaries.................... -- -- --
Deferred income taxes............ 74,905 (10,326) 64,579
Minority interest in the Wyndham
Partnerships.................... 30,466 -- 30,466
Minority interest in consolidated
subsidiaries.................... 940,544 (2,363) 938,181
Shareholders' equity:
Preferred stock.................. 36 -- 36
Excess stock..................... -- -- --
Common stock..................... 2,342 -- 2,342
Additional paid in capital........ 249,207 -- 249,207
Notes receivable from affiliates.. (1,070) -- (1,070)
Unearned stock compensation, net
of accumulated amortization...... -- -- --
Unrealized loss on securities held
for sale......................... (1,281) -- (1,281)
Unrealized foreign exchange gain.. 824 -- 824
Distribution of Interstate
Management at book value......... -- (67,136)(F) (67,136)
Accumulated deficit and dividend
distribution..................... (126,302) (5,342)(G) (131,644)
------------ ----------- ------------
Total shareholders' equity..... 123,756 (72,478) 51,278
============ =========== ============
Total liabilities and
shareholders' equity.......... $ 2,123,203 $ (107,099) $ 2,016,104
============ =========== ============
</TABLE>
See notes on following page.
F-26
<PAGE>
Notes to Pro Forma Condensed Consolidated Balance Sheet:
(A) Represents the historical consolidated balance sheet of Wyndham as
presented in the Companies' Report on Form 10-Q as of March 31, 1999.
(B) Represents the pro forma adjustments to reflect the estimated effects of
the spin-off to the Companies' financial position as of March 31, 1999. The
spin-off includes the transfer of the third-party hotel management business
of Interstate, an ownership interest in the Charles Hotel Complex and the
long-term leasehold interests in certain hotels (the "Leased Hotels') and
certain assets and liabilities of Wyndham. After the spin-off, Wyndham will
own an approximate 55% non-controlling interest in Interstate Hotels LLC, a
subsidiary of Interstate Management, which is reflected in equity in
earnings of unconsolidated subsidiaries.
(C) Represents the following pro forma adjustments;
<TABLE>
<S> <C>
Historical cash of Interstate Management as of March 31, 1999.... $2,658
Additional working capital contribution to Interstate Management
by the Companies at date of Spin-off............................ 6,985
------
$9,643
======
</TABLE>
(D) Represents the following pro forma adjustments:
<TABLE>
<S> <C>
Transfer of investment in the Charles Hotel Complex to
Interstate Management........................................ $(22,370)
Recognition of Wyndham's 55% non-controling interest in
Interstate Management........................................ 55,155
--------
$ 32,785
========
</TABLE>
(E) Represents the pro forma adjustments for accounts payable and accrued
expenses and the estimated accrued tax liability. The accrued tax liability
is calculated using an effective tax rate of 40% times the excess of the
fair market value of the assets being transferred over their book value for
federal income tax purposes.
<TABLE>
<S> <C>
Reduction of accounts payable and accrued expenses............... $34,178
Estimated accrued tax liability.................................. (5,000)
-------
$29,178
=======
</TABLE>
(F) Represents the pro forma adjustment to reflect the distribution of
Interstate Management at book value to the shareholders.
(G) Represents the pro forma adjustments for estimated accrued tax liability
and the loss on the sale of The Charles Hotel Complex. In connection with
the spin-off, the Companies and Interstate Management have reached a
tentative agreement under which all of the equity interests in the Charles
Hotel Complex will be sold to an existing independent joint venture
partner. The pro forma net loss on the sale is $342
<TABLE>
<S> <C>
Estimated accrued liability....................................... $5,000
Loss on sale...................................................... 342
------
$5,342
======
</TABLE>
F-27
<PAGE>
WYNDHAM INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Wyndham Interstate Pro
Historical Spin-off Forma
(A) (B) Total
---------- ---------- --------
(in thousands, except for per
share amounts)
<S> <C> <C> <C>
Revenue:
Hotel revenue............................. $638,830 $(42,595) $596,235
Racecourse facility revenue............... 4,561 -- 4,561
Management fee and service fee income..... 22,918 (9,647)(C) 13,271
Interest and other income................. 5,418 (59) 5,359
-------- -------- --------
Total revenue........................... 671,727 (52,301) 619,426
-------- -------- --------
Expenses:
Hotel expenses............................ 414,373 (42,302) 372,071
Racecourse facility operations............ 3,867 -- 3,867
General and administrative................ 29,745 (8,986) 20,759
Interest expense.......................... 9,727 -- 9,727
(Gain) loss on assets held for sale....... 210 -- 210
Depreciation and amortization............. 23,447 (4,658) 18,789
Participating lease payments.............. 185,822 -- 185,822
-------- -------- --------
Total expenses.......................... 667,191 (55,946) 611,245
-------- -------- --------
Operating income........................... 4,536 3,645 8,181
Equity in earnings of unconsolidated
subsidiaries............................. 187 (3,058)(D) (2,871)
-------- -------- --------
Income before income tax provision and
minority interest......................... 4,723 587 5,310
Income tax provision...................... (6,466) (1,625) (8,091)
-------- -------- --------
(Loss) before minority interest............ (1,743) (1,038) (2,781)
Minority interest in Wyndham partnership.. 2,687 -- 2,687
Minority interest in consolidated
subsidiaries............................. (12,097) (49) (12,146)
-------- -------- --------
Net loss................................... $(11,153) $ (1,087) $(12,240)
======== ======== ========
Basic loss per common share (E)............ $ (0.07) $ (0.08)
-------- --------
Diluted loss per common share (E).......... $ (0.07) $ (0.08)
======== ========
</TABLE>
See notes on following page
F-28
<PAGE>
Notes to Pro Forma Condensed Consolidated Statement of Operations:
(A) Represents the historical results of operations of Wyndham for the three
months ended March 31, 1999 as reported in the Companies' Report on Form
10-Q.
(B) Represents the pro forma adjustments based on the Pro Forma Combined
Statement of Operations of Interstate Management for the three months ended
March 31, 1999 pursuant to the spin-off.
(C) Represents the following pro forma adjustments related to the spin-off:
<TABLE>
<S> <C>
Interstate Management historical management fees.................. $8,569
Interstate Management historical other income..................... 2,980
Management and other fees from seven of the Companies'
hotels to be managed by Interstate Management.................... 751
Hotels owned by Patriot and managed by Interstate Management...... (2,653)
------
$9,647
======
</TABLE>
(D) Represents the pro forma adjustment to historical operations to reflect the
reduction of equity in earnings of unconsolidated subsidiaries for the
transfer of the Charles Hotel Complex in the spin-off. Currently the
Companies own an approximate 49% non-controlling interest in this complex.
Consequently, the results of operations for the complex are not
consolidated but are reflected through equity in earnings of unconsolidated
subsidiaries. The adjustment to reduce equity in earnings of unconsolidated
subsidiaries is $382. Additionally, as a result of the spin-off, Wyndham
will own a non-controlling interest of approximately 55% of Interstate
Hotels LLC, a subsidiary of Interstate Management, the newly formed entity.
Wyndham will account for their ownership as an equity investment and record
their share of estimated earnings of Interstate Hotels, LLC as equity in
earnings of unconsolidated subsidiaries. The pro forma adjustment for the
estimated loss for the three months ended March 31, 1999 is $2,676.
(E) Wyndham is in a loss position for the twelve months ended December 31,
1998. Therefore basic and diluted earnings per share are identical since
the securities which could have a dilutive impact on earnings per share are
anti-dilutive. Pro forma loss per share is computed based on 154,990
shares.
F-29
<PAGE>
WYNDHAM INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Wyndham Recent Arcadian Summerfield Interstate CHCI
Historical Transactions Acquisition Acquisition Merger Merger Pro Forma
(A) (B) (C) (D) (E) (F) Other Total
---------- ------------ ----------- ----------- ---------- ------- ------- ----------
(in thousands, except for share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Hotel revenue..... $1,842,682 $51,770 $16,426 $53,746 $324,467 $58,785 $ -- $2,347,876
Racecourse
facility revenue.. 51,259 -- -- -- -- -- -- 51,259
Management fee and
service fee
income............ 89,983 (1,833) -- 1,814 17,817 646 -- 108,427
Interest and other
income............ 18,303 193 690 550 2,536 1,844 -- 24,116
---------- ------- ------- ------- -------- ------- ------- ----------
Total revenue... 2,002,227 50,130 17,116 56,110 344,820 61,275 -- 2,531,678
---------- ------- ------- ------- -------- ------- ------- ----------
Expenses:
Hotel expenses.... 1,251,548 41,235 13,278 25,738 227,822 34,655 -- 1,594,276
Racecourse
facility
operations........ 43,198 -- -- -- -- -- -- 43,198
General and
administrative.... 87,882 -- -- 4,964 16,627 497 -- 109,970
Interest expense.. 35,690 2,872 (G) -- -- -- 678 (H) -- 39,240
Cost of acquiring
leaseholds........ 52,721 -- -- -- -- -- -- 52,721
Impairment loss on
assets held for
sale.............. 23,184 -- -- -- -- -- -- 23,184
Depreciation and
amortization...... 69,375 1,758 (I) 118 (I) 1,649 (I) 11,323 (I) 619 (I) -- 84,842
Participating
lease payments.... 519,589 1,335 (J) 3,803 (J) 23,194 (J) 98,576 (J) 20,745 (J) -- 667,242
---------- ------- ------- ------- -------- ------- ------- ----------
Total expenses.. 2,083,187 47,200 17,199 55,545 354,348 57,194 -- 2,614,673
---------- ------- ------- ------- -------- ------- ------- ----------
Operating (loss)
income............. (80,960) 2,930 (83) 565 (9,528) 4,081 -- (82,995)
Equity in earnings
of unconsolidated
subsidiaries...... 3,134 (1,677) (K) -- -- -- -- -- 1,457
---------- ------- ------- ------- -------- ------- ------- ----------
(Loss) income
before income tax
provision, minority
interest and
extraordinary
item............... (77,826) 1,253 (83) 565 (9,528) 4,081 -- (81,538)
Income tax
provision......... (14,381) -- -- -- -- -- (8,626)(L) (23,007)
---------- ------- ------- ------- -------- ------- ------- ----------
(Loss) income
before minority
interest and
extraordinary
item............... (92,207) 1,253 (83) 565 (9,528) 4,081 (8,626) (104,545)
Minority interest
in Wyndham
partnership....... 12,750 (175)(M) (5)(M) -- (M) -- (M) (47)(M) -- 12,523
Minority interest
in consolidated
subsidiaries...... (31,705) (6,155)(N) 128 (N) 6,293 (N) (9,934)(N) -- 539 (O) (40,834)
---------- ------- ------- ------- -------- ------- ------- ----------
(Loss) income
before
extraordinary
item............... $ (111,162) $(5,077) $ 40 $ 6,858 $(19,462) $ 4,034 $(8,087) $ (132,856)
========== ======= ======= ======= ======== ======= ======= ==========
Basic loss per
common share before
extraordinary item
(S)................ $ (0.83) $ (0.90)
---------- ----------
Diluted loss per
common share before
extraordinary item
(S)................ $ (0.83) $ (0.90)
========== ==========
<CAPTION>
Interstate
Spin-off Pro Forma
Transaction(P) Total
---------------- -----------
<S> <C> <C>
Revenue:
Hotel revenue..... $(193,922) $2,153,954
Racecourse
facility revenue.. -- 51,259
Management fee and
service fee
income............ (52,415)(Q) 56,012
Interest and other
income............ (594) 23,522
---------------- -----------
Total revenue... (246,931) 2,284,747
---------------- -----------
Expenses:
Hotel expenses.... (174,277) 1,419,999
Racecourse
facility
operations........ -- 43,198
General and
administrative.... (33,358) 76,612
Interest expense.. -- 39,240
Cost of acquiring
leaseholds........ -- 52,721
Impairment loss on
assets held for
sale.............. 23,184
Depreciation and
amortization...... (18,184) 66,658
Participating
lease payments.... -- 667,242
---------------- -----------
Total expenses.. (225,819) 2,388,854
---------------- -----------
Operating (loss)
income............. (21,112) (104,107)
Equity in earnings
of unconsolidated
subsidiaries...... 826(R) 2,283
---------------- -----------
(Loss) income
before income tax
provision, minority
interest and
extraordinary
item............... (20,286) (101,824)
Income tax
provision......... 9,964 (13,043)
---------------- -----------
(Loss) income
before minority
interest and
extraordinary
item............... (10,322) (114,867)
Minority interest
in Wyndham
partnership....... -- 12,523
Minority interest
in consolidated
subsidiaries...... (233) (41,067)
---------------- -----------
(Loss) income
before
extraordinary
item............... $ (10,555) $ (143,411)
================ ===========
Basic loss per
common share before
extraordinary item
(S)................ $ (0.97)
-----------
Diluted loss per
common share before
extraordinary item
(S)................ $ (0.97)
===========
</TABLE>
See notes on following page
F-30
<PAGE>
Notes to Pro Forma Condensed Consolidated Statement of Operations:
(A) Represents the historical results of operations of Wyndham for the twelve
months ended December 31, 1998 as reported in the Companies' Annual Report
on Form 10-K.
(B) Represents adjustments to Wyndham's results of operations assuming that
Recent Transactions completed by the Companies during the twelve months
ended December 31, 1998 had occurred as of January 1 1998. No adjustment is
made to the results of operations for time periods prior to the completion
of construction or commencement of operations.
(C) Represents adjustments to Wyndham's results of operations for the hotel
leases and management contracts acquired as a result of the Arcadian
acquisition assuming such leases and management contracts had been acquired
as of January 1, 1998. No adjustment is made to the results of operations
for time periods prior to the completion of construction or commencement of
operations.
(D) Represents adjustments to Wyndham's results of operations for the hotel
investments and management operations acquired by Wyndham as a result of
the Summerfield acquisition assuming such investments had been acquired as
of January 1, 1998. No adjustment is made to the results of operations for
time periods prior to the completion of construction or commencement of
operations.
(E) Represents adjustments to Wyndham's results of operations for the hotel
leases and management contracts acquired as a result of the Interstate
merger, assuming such leases and management contracts had been acquired as
of January 1, 1998. No adjustment is made to the results of operations for
time periods prior to the completion of construction or commencement of
operations.
(F) Represents adjustments to Wyndham's results of operations for the hotel
leases and management contracts acquired by Wyndham as a result of the CHCI
merger assuming such leases and management contracts had been acquired as
of January 1, 1998. No adjustment is made to the results of operations for
time periods prior to the completion of construction or commencement of
operations.
(G) Represents pro forma interest expense on debt and capital lease obligations
related to the Condado Plaza Hotel, the El San Juan Hotel & Casino and the
El Conquistador. As a result of the WHG Transactions, Wyndham acquired a
controlling interest in the partnerships that own the El San Juan Hotel &
Casino and the El Conquistador. As a result, the results of operations of
these partnerships are included in Wyndham's consolidated operating
results. These debt and capital lease obligations bear interest at rates
ranging from LIBOR plus 0.9% (estimated as 6.589%) to 12.0% per annum.
An increase of 0.125% in the interest rate would increase pro forma
interest expense to $39,258, increasing net loss to $142,382. Net loss
applicable to common shareholders would increase to $145,088, however, loss
per common share would remain at $0.96 based on 151,313 weighted average
number of common shares and common share equivalents outstanding.
(H) Represents pro forma interest expense on debt obligations assumed in
connection with the CHCI merger.
(I) Represents the following pro forma adjustments to depreciation and
amortization in accordance with Wyndham policy. Depreciation is computed
using the straight-line method and is based upon the estimated useful lives
of 30 to 40 years for buildings and improvements and 3 to 10 years for
FF&E. Amortization of goodwill related to the acquisition of the management
operations of entities acquired is computed using the straight-line method
over estimated useful lives of 5 to 40 years. Amortization of management
contracts tradenames and franchise costs is computed using the straight-
line method over estimated useful lives ranging from 6 to 30.
(J) Represents pro forma lease payments from Wyndham to Patriot calculated
based upon the historical operating results of the hotels for the twelve
months ended December 31, 1998.
(K) Represents adjustment to eliminate Wyndham's equity in earnings of
unconsolidated subsidiaries related to WHG. Subsequent to the WHG
Transactions, these entities are consolidated with Wyndham.
(L) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustments to the operating results for the
twelve months ended December 31, 1998.
(M) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage in the Wyndham Partnership subsequent to the
assumed transactions of approximately 12.2%.
F-31
<PAGE>
(N) Represents adjustments for Patriot's minority interest in the non-
controlled subsidiaries. These entities are controlled by Wyndham.
(O) Represents the elimination of minority interest from the historical
financial statements of minority interests in WHG and CHCI.
(P) Represents the pro forma adjustments based on the Pro Forma Combined
Statement of Operations of Interstate Management for the year ended
December 31, 1998 pursuant to the spin-off.
(Q) Represents the following pro forma adjustments related to the spin-off:
<TABLE>
<S> <C>
Interstate Management historical management fees............... $ 40,781
Interstate Management historical other income.................. 20,454
Management and other fees from seven of the Companies'
hotels to be managed by Interstate Management................. 3,207
Hotels owned by Patriot and managed by Interstate Management... (12,027)
--------
$ 52,415
========
</TABLE>
(R) Represents the pro forma adjustment to historical operations to reflect the
reduction of equity in earnings of unconsolidated subsidiaries for the
transfer of the Charles Hotel Complex in the spin-off. Currently the
Companies own an approximate 49% non-controlling interest in this complex.
Consequently, the results of operations for the complex are not
consolidated but are reflected through equity in earnings of unconsolidated
subsidiaries. The adjustment to reduce equity in earnings of unconsolidated
subsidiaries is $2,039. Additionally, as a result of the spin-off, Wyndham
will own a non-controlling interest of approximately 55% of Interstate
Hotels LLC, a subsidiary of Interstate Management, the newly formed entity.
Wyndham will account for their ownership as an equity investment and record
their share of estimated earnings of Interstate Hotels, LLC as equity in
earnings of unconsolidated subsidiaries. The pro forma adjustment for the
estimated earnings for the year ended December 31, 1998 is $2,865.
(S) Wyndham is in a loss position for the twelve months ended December 31,
1998. Therefore basic and diluted earnings per share are identical since
the securities which could have a dilutive impact on earnings per share are
anti-dilutive.
<TABLE>
<S> <C>
Net loss..................................................... $(143,411)
Preferred stock dividend..................................... (2,706)
---------
Net loss to common stockholders............................ $(146,117)
=========
Weighted average number of common shares outstanding:
Basic...................................................... 151,313
=========
Diluted.................................................... 151,313
=========
</TABLE>
Wyndham is in a loss position (prior to the Interstate spin-off transaction)
for the twelve months ended December 31, 1998. Therefore basic and diluted
earnings per share are identical since the securities which could have a
dilutive impact on earnings per share are anti-dilutive.
<TABLE>
<S> <C>
Net loss..................................................... $(132,856)
Preferred stock dividend..................................... (2,706)
---------
Net loss to common stockholders............................ $(135,562)
=========
Weighted average number of common shares outstanding:
Basic...................................................... 151,313
=========
Diluted.................................................... 151,313
=========
</TABLE>
F-32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WYNDHAM INTERNATIONAL, INC.
PATRIOT AMERICAN HOSPITALITY, INC.
ANNEXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
By and among
PATRIOT AMERICAN HOSPITALITY, INC.,
WYNDHAM INTERNATIONAL, INC.,
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.,
WYNDHAM INTERNATIONAL OPERATING PARTNERSHIP, L.P.
and
THE INVESTORS NAMED HEREIN
----------------
Dated as of February 18, 1999
----------------
Series B Convertible Preferred Stock
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I
Authorization and Sale of Shares
Section 1.1 Authorization.............................................. A-2
Section 1.2 Issuance and Sale of Shares................................ A-3
ARTICLE II
Closing
Section 2.1 Closing Date............................................... A-3
Section 2.2 Further Assurances......................................... A-4
ARTICLE III
Representations and Warranties of the Companies
Section 3.1 Organization and Qualification............................. A-4
Section 3.2 Subsidiaries............................................... A-4
Section 3.3 Capitalization............................................. A-4
Section 3.4 Authority.................................................. A-6
Section 3.5 Consents and Approvals; Non-Contravention.................. A-7
Section 3.6 Enforceability of Transaction Documents.................... A-7
Section 3.7 SEC Reports................................................ A-8
Section 3.8 Accountants................................................ A-8
Section 3.9 Financial Statements....................................... A-8
Section 3.10 Absence of Certain Material Changes........................ A-9
Section 3.11 Actions.................................................... A-9
Section 3.12 No Undisclosed Liabilities................................. A-9
Section 3.13 Investment Company Act..................................... A-9
Section 3.14 Reporting.................................................. A-10
Section 3.15 Registration and Qualification............................. A-10
Section 3.16 Indebtedness and Certain Other Contracts................... A-10
Section 3.17 No Defaults................................................ A-10
Section 3.18 Violations of Law.......................................... A-10
Section 3.19 Properties................................................. A-11
Section 3.20 Intellectual Property...................................... A-12
Section 3.21 Taxes...................................................... A-13
Section 3.22 Employee Matters; ERISA.................................... A-14
Section 3.23 Environmental Matters...................................... A-16
Section 3.24 Labor Matters.............................................. A-17
Section 3.25 Year 2000 Compliance....................................... A-18
Section 3.26 Insurance.................................................. A-18
Section 3.27 Affiliate Transactions..................................... A-18
Section 3.28 Delaware General Corporation Law Section 203............... A-19
Section 3.29 Actions Regarding the Patriot Shareholder Rights Plan...... A-19
Section 3.30 Brokers and Finders; Transaction Expenses.................. A-19
Section 3.31 Opinion of Financial Advisor............................... A-19
Section 3.32 Full Disclosure............................................ A-19
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE IV
Representations and Warranties of the Investors
Section 4.1 Investment................................................ A-20
Section 4.2 Rule 144.................................................. A-20
Section 4.3 Organization of the Investors............................. A-20
Section 4.4 Current Ownership......................................... A-20
Section 4.5 No Voting Agreements...................................... A-20
Section 4.6 Authority of the Investors................................ A-20
Section 4.7 Non-Contravention......................................... A-21
Section 4.8 Brokers and Finders; Transaction Expenses................. A-21
ARTICLE V
Conditions Precedent
Section 5.1 Conditions to Each Party's Obligation..................... A-21
Section 5.2 Conditions to the Investors' Obligation................... A-22
Section 5.3 Conditions to the Obligations of the Companies and the
Operating Partnerships.................................... A-24
ARTICLE VI
Covenants of the Companies
Section 6.1 Conduct of Business Pending the Closing................... A-24
Section 6.2 Reporting................................................. A-26
Section 6.3 Payment of Expenses....................................... A-26
Section 6.4 Availability of Wyndham Common Stock...................... A-27
Section 6.5 Disclosure Documents; Stockholder and Partner Approvals... A-27
Section 6.6 Restructuring Plan........................................ A-28
Section 6.7 No Solicitation of Competing Transactions................. A-28
Section 6.8 Benefit Plans............................................. A-29
Section 6.9 No General Solicitation................................... A-30
Section 6.10 Preemptive Rights......................................... A-30
Section 6.11 Non-Competition and Other Restrictions.................... A-31
Section 6.12 Access to Information..................................... A-31
Section 6.13 Rights Offering........................................... A-31
Section 6.14 HSR Approval.............................................. A-32
ARTICLE VII
Covenants of the Investors
Section 7.1 Certain Restrictions...................................... A-32
Section 7.2 Quorum.................................................... A-33
Section 7.3 Transfers................................................. A-33
Section 7.4 HSR Approval.............................................. A-33
Section 7.5 No Voting Agreements...................................... A-33
Section 7.6 Board of Director Matters................................. A-34
Section 7.7 Compliance with the New Wyndham Certificate and Series B
Certificate of Designation................................ A-34
Section 7.8 Confidentiality........................................... A-34
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE VIII
Restrictions on Transferability of Securities
Section 8.1 Restrictive Legend....................................... A-34
Section 8.2 Notice of Proposed Transfers............................. A-35
ARTICLE IX
Termination
Section 9.1 Termination.............................................. A-35
ARTICLE X
Indemnification
Section 10.1 Survival of Representations and Warranties............... A-35
Section 10.2 Indemnification.......................................... A-36
Section 10.3 Terms of Indemnification................................. A-38
ARTICLE XI
Miscellaneous
Section 11.1 Governing Law............................................ A-39
Section 11.2 Jurisdiction; Forum; Service of Process; Waiver of Jury
Trial.................................................... A-39
Section 11.3 Successors and Assigns................................... A-39
Section 11.4 Effectiveness............................................ A-40
Section 11.5 Entire Agreement; Amendment.............................. A-40
Section 11.6 Notices, Etc............................................. A-40
Section 11.7 Certain Definitions...................................... A-41
Section 11.8 Delays or Omissions...................................... A-41
Section 11.9 Counterparts............................................. A-41
Section 11.10 Severability............................................. A-41
Section 11.11 Titles and Subtitles..................................... A-41
Section 11.12 No Public Announcement................................... A-41
Section 11.13 Further Actions; Reasonable Efforts...................... A-42
Section 11.14 Enforcement of Agreement................................. A-42
</TABLE>
A-iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is made as of February
18, 1999 by and among Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot"), Wyndham International, Inc., a Delaware corporation
("Wyndham", and together with Patriot, the "Companies"), Patriot American
Hospitality, L.P., a Virginia limited partnership ("Patriot OP"), and Wyndham
International Operating Partnership, L.P., a Delaware limited partnership
("Wyndham OP" and, together with Patriot OP, the "Operating Partnerships"), and
the parties identified on the signature page hereof as the Investors (the
"Investors").
Whereas, subject to the terms and conditions hereof, including without
limitation the Restructuring Plan attached hereto as Exhibit A (the
"Restructuring Plan"), pursuant to which (i) a restructuring of the Companies
and the Operating Partnerships will be implemented upon the completion of which
Wyndham will continue as a public company and Patriot will become a wholly
owned subsidiary of Wyndham, (ii) the pairing and cooperation agreements
between Wyndham and Patriot will be terminated (the "Pairing Termination") and
Patriot's status as a real estate investment trust will be terminated,
effective as of January 1, 1999 (the "REIT Termination"), (iii) shares of
Wyndham's Class A Common Stock, par value $0.01 per share (the "Wyndham Class A
Common Stock"), will be issued pursuant to the Merger, the Exchange Offers and
the Patriot OP Distribution (as each such term is defined in the Restructuring
Plan) (collectively, the "Restructuring Shares"), (iv) a reverse stock split of
the Wyndham Class A Common Stock will be implemented immediately following the
issuance of the Restructuring Shares (the "Reverse Stock Split") with the
effect that one share of Paired Common Stock (as defined in Section 3.3(c))
immediately prior to the Merger will become one share of Wyndham Class A Common
Stock immediately following the Merger and the Reverse Stock Split, and (v) the
Companies' and the Operating Partnerships' indebtedness will be restructured
(the "Debt Restructuring"), all as set out in more detail in Section 5.2(k);
Whereas, subject to the terms and conditions hereof, including without
limitation the Restructuring Plan, the Certificate of Incorporation of Wyndham
will be amended and restated (the "Wyndham Charter Amendment") in the form
attached hereto as Exhibit B (the "New Wyndham Certificate"), the By-Laws of
Wyndham will be amended and restated in the form attached hereto as Exhibit C
(the "New Wyndham By-Laws"), a Shareholder Rights Plan of Wyndham will be
adopted substantially in the form attached hereto as Exhibit D (the "Wyndham
Rights Plan"), the Limited Partnership Agreement of Patriot OP (the "Existing
Patriot OP Partnership Agreement") will be amended and restated (the "Patriot
OP Restatement") in the form attached hereto either as Exhibit E-1 or Exhibit
E-2 (the "New Patriot OP Partnership Agreement") and the Limited Partnership
Agreement of Wyndham OP (the "Existing Wyndham OP Partnership Agreement") will
be amended and restated (the "Wyndham OP Restatement") in the form attached
hereto either as Exhibit E-3 or as Exhibit E-4 (the "New Wyndham OP Partnership
Agreement");
Whereas, subject to the terms and conditions hereof, Wyndham may extend the
Rights Offering (as defined in Section 6.14) to stockholders of the Companies
and limited partners of the Operating Partnerships pursuant to which such
stockholders and limited partners will be given the opportunity to purchase an
aggregate of up to 3,000,000 shares (the "Rights Offering Shares", which term
shall be deemed to include unless the context otherwise requires additional
Rights Offering Shares that are issued pursuant to the Series A Certificate of
Designation (as defined below)) of Series A Convertible Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock"), of Wyndham convertible
into shares of Wyndham Class A Common Stock and having the other terms set
forth in the Certificate of Designation attached hereto as Exhibit F (the
"Series A Certificate of Designation"), for an aggregate purchase price of up
to $300,000,000;
Whereas, subject to the terms and conditions hereof, Wyndham will sell and
the Investors will purchase (the "Investment") an aggregate of up to 10,000,000
shares of Series B Convertible Preferred Stock, par value $0.01 per share (the
"Series B Preferred Stock"), of Wyndham convertible into shares of Wyndham
Class B Common Stock, par value $0.01 per share (the "Wyndham Class B Common
Stock"), and having the
A-1
<PAGE>
other terms set forth in the Certificate of Designation attached hereto as
Exhibit G (the "Series B Certificate of Designation"), for an aggregate
purchase price of up to $1,000,000,000;
Whereas, the Investors will have the benefit of the registration rights
provided for in the Registration Rights Agreement being executed simultaneously
herewith in the form attached hereto as Exhibit H (the "Registration Rights
Agreement");
Whereas, the Board of Directors of Patriot has (i) received a written
opinion from its financial advisor that the Investment is fair to the holders
of the common stock, par value $0.01 per share, of Patriot ("Patriot Common
Stock") from a financial point of view, (ii) approved this Agreement, the
Restructuring Plan and the other transactions contemplated by this Agreement to
which Patriot or Patriot OP is a party and (iii) determined to recommend that
the stockholders of Patriot give the Patriot Stockholder Approval (as such term
is defined in Section 5.1(c)), the limited partners of Patriot OP give the
Patriot Partnership Approval (as such term is defined in the Restructuring
Plan) and the relevant securityholders accept the Exchange Offers; and
Whereas, the Board of Directors of Wyndham has (i) received a written
opinion from its financial advisor that the Investment is fair to the holders
of the common stock, par value $0.01 per share, of Wyndham ("Wyndham Common
Stock") from a financial point of view, (ii) approved this Agreement, the
Restructuring Plan and the other transactions contemplated by this Agreement to
which Wyndham or Wyndham OP is a party and (iii) determined to recommend that
the stockholders of Wyndham give the Wyndham Stockholder Approval (as such term
is defined in Section 5.1(d)), the limited partners of Wyndham OP give the
Wyndham Partnership Approval (as such term is defined in the Restructuring
Plan) and the relevant securityholders accept the Exchange Offers.
Now, Therefore, in consideration of the mutual covenants, agreements,
representations and warranties set forth herein, the parties hereby agree as
follows:
ARTICLE I
Authorization and Sale of Shares
Section 1.1 Authorization.
(a) Subject to obtaining the Stockholder Approval, Wyndham has heretofore
authorized the issuance and sale to the Investors at the Closing (as defined in
Section 2.1(a)) pursuant to this Agreement of an aggregate of up to 10,000,000
shares of Series B Preferred Stock (the "Shares") and the maximum number of
additional Shares as may be issued as provided in the Series B Certificate of
Designation. Unless the context otherwise requires, references in this
Agreement to the "Shares" shall be deemed to include additional shares of
Series B Preferred Stock that are issued pursuant to the Series B Certificate
of Designation.
(b) Subject to any pro rata adjustment pursuant to Section 1.1(c), the
number of Shares to be issued and sold to each Investor at the Closing, and the
"Investor Percentage" for such Investor, shall be the amounts indicated on the
signature page opposite such Investor's name on the signature page hereof;
provided, that each Investor may, upon three business days' notice to the
Companies in writing prior to the Closing, (i) assign its right but not its
obligation to purchase some or all of its Shares hereunder to one or more of
its directors, officers, employees, affiliates and investment funds or customer
accounts which are under the management of the Investors or their affiliates or
to one or more other Investors (collectively, the "Permitted Assignees") or
(ii) assign its right and obligation to purchase some or all of its Shares,
with the Companies' consent (not to be unreasonably withheld or delayed), to
another person, provided that no more than 25% in interest in the aggregate in
the rights and obligations to purchase Shares may be assigned to persons other
than Permitted Assignees prior to or following the Closing (any such assignees
being referred to as "Permitted Third Party Transferees"), and in the event of
any such assignment, the Investor Percentage for such Investor and the assignee
shall be appropriately adjusted and such Investor's and such assignee's
respective rights to receive
A-2
<PAGE>
fees hereunder shall also be adjusted in a similar manner. Unless the context
otherwise requires, references in this Agreement to "Investors" shall be deemed
to include Permitted Assignees and Permitted Third Party Transferees under this
Section 1.1(b), and all of their successors by operation of law.
(c) If, prior to the Closing, either of the Companies or the Subsidiaries
sell the Identified Assets (as such term is defined in Section 1.1(c) of the
letter of the Companies to the Investors to be dated as of the Effective Date
(as defined in Section 11.4) (the "Company Disclosure Letter")) at or prior to
the Closing for net cash proceeds (excluding for purposes of such calculation
any contingent payments to be received by the Companies or their subsidiaries)
in excess of the amounts set forth in Section 1.1(c) of the Company Disclosure
Letter, pursuant to definitive documentation satisfactory to the Investors,
whose consent shall not be unreasonably withheld or delayed (which
documentation shall not in any event include any indemnification or other
contingent payment obligation of the Companies or their subsidiaries which
survives the closing of the sale of such assets), the total number of Shares to
be purchased at the Closing may be reduced by the Companies by an amount equal
to the amount of such excess proceeds divided by 100 and the number of shares
to be purchased by each of the Investors shall be reduced by an amount
determined by multiplying the Investor Percentage for such Investor by the
total number of Shares as so reduced, rounded up to the nearest whole share.
The Companies shall give the Investors not less than 10 business days' written
prior notice of any proposed reduction to be implemented pursuant to this
Section 1.1(c), which notice will include a detailed calculation of such
reduction, including of the net cash proceeds received or to be received by the
Companies in connection with the related disposition, certified by the Chief
Financial Officer or Treasurer of the Companies.
Section 1.2 Issuance and Sale of Shares. Upon the terms and subject to the
conditions set forth herein, on the Closing Date, in reliance on the
representations and warranties of the Investors contained herein, Wyndham will
issue and sell to each Investor and, in reliance on the representations and
warranties of the Companies and the Operating Partnerships contained herein,
such Investor will purchase from Wyndham, the number of Shares to be purchased
by such Investor at the Closing pursuant to Section 1.1, for a purchase price
of $100 per Share (the "Purchase Price").
ARTICLE II
Closing
Section 2.1 Closing Date. The closing (the "Closing") of the purchase and
sale of the Shares contemplated hereby shall take place on such date and at
such time as agreed to by the Companies and the Investors but in no event later
than one business day following the date of the Stockholder Approval, subject
to satisfaction or waiver of all of the conditions set forth in Article V (the
date of the Closing is hereinafter referred to as the "Closing Date"). The
parties hereto agree that it is their mutual intent for the Closing Date to
occur on or before June 30, 1999, subject to the satisfaction or waiver of the
conditions set forth in Article V. The Closing shall be held at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York,
or at such other place as agreed to by the Companies and the Investors.
Delivery of the Shares to be purchased by each Investor pursuant to this
Agreement shall be made at the Closing by Wyndham delivering to such Investor,
against payment of the Purchase Price therefor, one certificate representing
the appropriate number of Shares (registered in the name of such Investor),
unless at least two business days prior to the Closing Date such Investor shall
have requested that Wyndham deliver more than one certificate representing
Shares, in which event Wyndham will deliver to such Investor the number of
certificates so requested, registered in the Investor's name or the name of any
assignee(s) designated in accordance with Section 1.1. Payment of the Purchase
Price for the Shares to be purchased by each Investor hereunder shall be made
or caused to be made by such Investor to Wyndham by delivery by wire transfer
of immediately available funds equal to the Purchase Price therefor.
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Section 2.2 Further Assurances. From time to time following the Closing,
upon the request of any Investor, Wyndham shall execute and deliver, or cause
to be executed and delivered, to such Investor such other instruments and take
such other action as may be reasonably necessary to more effectively vest in
such Investor and put such Investor in possession of the Shares purchased by
such Investor.
ARTICLE III
Representations and Warranties of the Companies
As an inducement to the Investors to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Companies and the
Operating Partnerships, jointly and severally, represents and warrants to the
Investors as follows; provided that for all purposes of this Agreement no
representation or warranty set forth in this Article III shall fail to be true,
accurate, correct or complete in all material respects by reason of one or more
inaccuracies which individually would give rise to a Loss (as defined in
Section 10.2(a)) of less than $50,000:
Section 3.1 Organization and Qualification. Each of the Companies and the
Subsidiaries (as hereinafter defined) is a corporation, limited partnership or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization. Each of the
Companies and the Subsidiaries has all requisite corporate, partnership or
other power and authority, and has been duly authorized by all necessary
consents, approvals, authorizations, orders, registrations, qualifications,
licenses and permits of and from all public, regulatory or governmental
agencies and bodies, to own, lease and operate its assets and properties and to
conduct its business as it is now being conducted and is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its assets and
properties makes such qualification or licensing necessary.
Section 3.2 Subsidiaries.
(a) The only direct or indirect subsidiaries of the Companies are those
listed on Section 3.2(a) of the Company Disclosure Letter. Except for the
ownership interests set forth in Section 3.2(a) of the Company Disclosure
Letter, neither of the Companies owns or controls, directly or indirectly, a
30% or greater capital stock interest in a corporation, a general partnership
interest or a 30% or greater limited partnership interest in a partnership, or
a managing member or a 30% or greater membership interest in a limited
liability company, association or other entity or project. The entities listed
on Section 3.2(a) of the Company Disclosure Letter (which include the Operating
Partnerships) are hereinafter referred to as the "Subsidiaries".
(b) Except for the entities listed on Section 3.2(a) or 3.2(b) of the
Company Disclosure Letter, neither of the Companies hold, directly or
indirectly, any equity interest or equity investment in any corporation,
partnership, association or other entity.
(c) Except as set forth in Section 3.2(c) of the Company Disclosure Letter,
all of the issued and outstanding shares of capital stock of or other equity
interests in each Subsidiary have been validly issued, are fully paid and
nonassessable and are owned, directly or indirectly, by the Companies free and
clear of any pledges, liens, claims, encumbrances, security interests, charges
and options of any nature whatsoever ("Liens") and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating any Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of its
capital stock or obligating it to grant, extend or enter into any such
agreement or commitment.
Section 3.3 Capitalization.
(a) As of the date hereof, the authorized capital stock of Patriot consists
of (i) 650,000,000 shares of Patriot Common Stock, of which 155,524,662 shares
are outstanding, (ii) 63,895,403 shares of Patriot Common
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Stock are held as collateral for the counterparties to various agreements under
which the Companies or the Subsidiaries are obligated to issue or deliver as
collateral any of their equity securities (the "Forward Equity Contracts"),
(iii) 7,754,076 shares of Patriot Common Stock are subject to outstanding
options and other awards pursuant to the Companies' benefit plans, (iv)
750,000,000 shares of excess stock, par value $0.01 per share, of which no
shares are outstanding, and (v) 100,000,000 shares of preferred stock, par
value $0.01 per share (the "Patriot Preferred Stock"), of which 10,000,000
shares are designated as Series A Convertible Preferred Stock (the "Patriot
Series A Preferred Stock") (4,860,876 shares of which are issued and
outstanding), 10,000,000 shares are designated as Series B Cumulative Perpetual
Preferred Stock (the "Patriot Series B Preferred Stock") (558,656 shares of
which are issued and outstanding) and 2,500,000 shares are designated as Series
X Junior Participating Cumulative Preferred Stock (none of which is issued and
outstanding). As of the date hereof, the authorized capital stock of Wyndham
consists of (i) 650,000,000 shares of Wyndham Common Stock, which term shall
also refer collectively to the Wyndham Class A Common Stock and the Wyndham
Class B Common Stock), of which 155,524,662 shares are outstanding, (ii)
63,895,403 shares of Wyndham Common Stock are held as collateral under the
Forward Equity Contracts, (iii) 7,754,076 shares of Wyndham Common Stock are
subject to outstanding options and other awards pursuant to the Companies'
benefit plans, (iv) 750,000,000 shares of excess stock, par value $0.01 per
share, of which no shares are outstanding, and (v) 100,000,000 shares of
preferred stock, par value $0.01 per share (the "Wyndham Preferred Stock"), of
which 3,000,000 shares are designated as Series A Redeemable Convertible
Preferred Stock (the "Wyndham Series A Preferred Stock") (1,781,173 shares of
which are issued and outstanding) and 3,000,000 shares are designated as Series
B Redeemable Convertible Preferred Stock (the "Wyndham Series B Preferred
Stock") (1,781,181 shares are issued and outstanding). The owners of the
Patriot Preferred Stock and the Wyndham Preferred Stock and the number of
shares held by each of such owners as of the date hereof are listed on Section
3.3(a) of the Company Disclosure Letter.
(b) A wholly owned subsidiary of Patriot is the sole general partner of
Patriot OP and Wyndham is the sole general partner of Wyndham OP. As of the
date hereof, the issued and outstanding limited partnership interests of
Patriot OP consist of (i) 125,949,649 common units (the "Patriot OP Common
Units") and (ii) 6,185,680 preferred units, 1,324,804 of which are designated
as Class A Preferred Units (the "Patriot OP Class A Preferred Units") and
4,860,876 of which are designated as Class B Preferred Units (the "Patriot OP
Class B Preferred Units" and, together with the Patriot OP Class A Preferred
Units and the Patriot OP Common Units, the "Patriot OP Units"). Section 3.3(b)
of the Company Disclosure Letter sets forth a complete and accurate list by the
holder thereof of the Patriot OP Units held by Patriot or affiliates of
Patriot. As of the date hereof, the issued and outstanding limited partnership
interests of Wyndham OP consist of (i) 123,629,185 common units (the "Wyndham
OP Common Units"), and (ii) 2,695,995 preferred units, of which 784,377 units
are designated as Class A Preferred Units (the "Wyndham OP Class A Preferred
Units"), 1,324,804 units are designated as Class B Preferred Units (the
"Wyndham OP Class B Preferred Units") and 586,814 units are designated as Class
C Preferred Units (the "Wyndham OP Class C Preferred Units" and, together with
the Wyndham OP Common Units, the Wyndham OP Class A Preferred Units and the
Wyndham OP Class B Preferred Units, the "Wyndham OP Units"). Section 3.3(b) of
the Company Disclosure Letter sets forth a complete and accurate list by the
holder thereof of the Wyndham OP Units are held by Wyndham or affiliates of
Wyndham. The owners of the Patriot OP Units and the Wyndham OP Units and the
number of units held by each of such owners as of the date hereof are listed on
Section 3.3(b) of the Company Disclosure Letter.
(c) The outstanding shares of Patriot Common Stock and Wyndham Common Stock
trade together as a unit of one share of Patriot Common Stock and one share of
Wyndham Common Stock (the "Paired Common Stock"). Each of the outstanding
shares of Patriot Series A Preferred Stock and Wyndham Preferred Stock is
convertible into one share of Paired Common Stock. The outstanding Patriot OP
Common Units and Wyndham OP Common Units may only be redeemed by the holders
thereof as a unit of one Patriot OP Common Unit and one Wyndham OP Common Unit
(the "Paired Common Units") and upon the redemption of each Paired Common Unit
the Operating Partnerships may deliver cash or, at their election, one share of
Paired Common Stock. The Patriot OP Class A Preferred Units and the Wyndham OP
Class B Preferred Units may only be redeemed by the holders thereof as a unit
of one Patriot OP Class A Preferred Unit and one Wyndham OP
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Class B Preferred Unit (the "Paired Preferred Units") and upon the redemption
of each Paired Preferred Unit the Operating Partnerships may deliver cash or,
at their election, one share of Paired Common Stock. Upon the redemption of
each of the outstanding Wyndham OP Class A Preferred Units and Wyndham OP Class
C Preferred Units (the "Tracking Preferred Units"), the Operating Partnerships
may deliver one share of Paired Common Stock. The shares of Patriot Series A
Preferred Stock, shares of Wyndham Preferred Stock, Paired Common Units, Paired
Preferred Units and Tracking Preferred Units are referred to herein
collectively as the "Paired Common Stock Equivalents." As of the date hereof,
there are outstanding 155,524,662 shares of Paired Common Stock (excluding
63,895,403 shares of Paired Common Stock issued as collateral to the
counterparties under the Forward Equity Contracts) and 24,964,936 Paired Common
Stock Equivalents (collectively, the "Outstanding Paired Share Amount").
(d) All of the outstanding shares of capital stock of Patriot and Wyndham
and all of the outstanding Patriot OP Units and Wyndham OP Units are duly
authorized, validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued and are
not now in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform to the description thereof in
the SEC Reports. Except as set forth in Section 3.3(a) or 3.3(b) or disclosed
in Section 3.3(d) of the Company Disclosure Letter and except for the
transactions contemplated hereby, (i) there are not authorized, issued,
reserved for issuance or outstanding (A) any shares of capital stock,
partnership interests or other voting securities of any of the Companies or the
Operating Partnerships, (B) any securities convertible into or exchangeable or
exercisable for shares of capital stock, partnership interests or other voting
securities of the Companies or the Operating Partnerships, or any obligation of
any of the Companies or the Operating Partnerships to issue any capital stock,
partnership interests or other voting securities of any of the Companies or the
Operating Partnerships, or (C) any warrants, calls, options or other rights to
acquire from any of the Companies or the Operating Partnerships or any
obligation of any of the Companies or the Operating Partnerships to issue, any
capital stock, voting securities or securities convertible into or exchangeable
or exercisable for capital stock or voting securities of any of the Companies
or the Operating Partnerships, and (ii) there are no outstanding obligations of
any of the Companies or the Operating Partnerships to repurchase, redeem or
otherwise acquire any such securities or to issue, deliver or sell, or cause to
be issued, delivered or sold, any such securities. Except as set forth in
Section 3.3(d) of the Company Disclosure Letter, none of the Companies or the
Subsidiaries is a party to any agreement restricting the transfer of, relating
to the voting of, requiring registration of, or granting any preemptive or
antidilutive rights with respect to, any securities of the type referred to in
the preceding sentence.
Section 3.4 Authority.
(a) Each of the Companies, the Operating Partnerships and any other
Subsidiaries party thereto has all necessary corporate or partnership power and
corporate or partnership authority to enter into this Agreement and the other
agreements, documents and instruments to be executed by the Companies, the
Operating Partnerships and such other Subsidiaries, as the case may be, in
furtherance of the transactions contemplated hereby, including, without
limitation, the commitment letter, dated as of the date of this Agreement,
among the Companies and the Investors (the "Equity Commitment Letter") and the
agreements, the forms of which are attached hereto as exhibits (such commitment
letter and attached agreements, collectively with this Agreement, the
"Transaction Documents"), and to consummate the transactions contemplated
hereby. Except for the Patriot Stockholder Approval and the Wyndham Stockholder
Approval and the approval of the amendment and restatement of the Existing
Patriot OP Partnership Agreement and the Existing Wyndham OP Partnership
Agreement in the manner contemplated by the Patriot OP Consent Solicitation and
the Wyndham OP Consent Solicitation (each as defined in the Restructuring Plan)
by the limited partners of each of Patriot OP and Wyndham OP holding a majority
of the limited partner interests in accordance with applicable law, which for
such purposes shall exclude limited partnership interests held by Patriot or
Wyndham but not exclude any limited partnership interests held by any other
affiliates of the Companies or the Investors (such approval relating to Patriot
OP shall hereinafter be referred to as the "Patriot Partner Approval" and such
approval relating to Wyndham OP shall hereinafter be referred to as the
"Wyndham Partner Approval") the execution and delivery of the Transaction
Documents and the consummation by the Companies, the Operating
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Partnerships and such other Subsidiaries of the transactions contemplated
thereby have been duly authorized by all necessary corporate or partnership
action on the part of the Companies, the Operating Partnerships and such other
Subsidiaries. The only component of the Restructuring Plan for which the
approval of the limited partners of Wyndham or Patriot is required is the
amendment and restatement of the Existing Patriot OP Partnership Agreement and
the Existing Wyndham OP Partnership Agreement in the manner contemplated by the
Patriot OP Consent Solicitation and the Wyndham OP Consent Solicitation.
(b) The Shares, the Rights Offering Shares and the Restructuring Shares have
been duly authorized by Wyndham, and the Shares, the Rights Offering Shares and
the Restructuring Shares, when issued, sold and delivered in accordance with
this Agreement, will be validly issued, fully paid and nonassessable. The
shares of Wyndham Common Stock issuable upon conversion of the Shares and the
Rights Offering Shares have been duly authorized by Wyndham and, when issued in
accordance with the terms of the Shares and the Rights Offering Shares will be
validly issued, fully paid and nonassessable. The shares of Wyndham Common
Stock issuable on conversion of the Shares and the Rights Offering Shares at
the initial conversion price have been reserved for issuance, and no further
approval or authority of the stockholders or the Boards of Directors under the
Delaware General Corporation Law (the "DGCL") or the rules of the New York
Stock Exchange (the "NYSE"), other than the Stockholder Approval, will be
required for such issuance of Wyndham Common Stock. No preemptive rights or
other rights to subscribe for or purchase securities exist with respect to the
issuance and sale of the Shares, the Rights Offering Shares or the
Restructuring Shares by Wyndham pursuant to the Transaction Documents or the
issuance of Wyndham Common Stock on conversion of the Shares or the Rights
Offering Shares.
Section 3.5 Consents and Approvals; Non-Contravention. Other than as
identified in Section 3.5 of the Company Disclosure Letter, the execution and
delivery by the Companies, the Operating Partnerships and the Subsidiaries of
the Transaction Documents to which they are parties, the performance of their
obligations thereunder and the consummation by them of the transactions
contemplated thereby do not and will not (a) require the consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any government agency or body, domestic or foreign,
applicable to any of the Companies or the Subsidiaries or any of their
respective properties or assets, (b) require the consent or approval of any
party other than a court or government agency or body, (c) result in a breach
of any of the terms and provisions of, or constitute a default (or an event
which with notice or lapse of time, or both, would constitute a default) under,
or result in the creation or imposition of any Lien upon any property or assets
of any of the Companies, the Operating Partnerships or the Subsidiaries
pursuant to any agreement, instrument, franchise, license or permit to which
any of the Companies or any of the Subsidiaries is a party or by which any of
the Companies, the Operating Partnerships or any of the Subsidiaries or their
respective properties or assets may be bound or (d) violate any judgment,
decree, order, statute, rule or regulation of any court or any federal, state,
local or foreign government, court, administrative, regulatory or other
governmental agency, commission or authority or any non-governmental self-
regulatory agency, commission or authority (a "Governmental Entity") or body
applicable to any of the Companies or the Subsidiaries or any of their
respective properties or assets. The execution, delivery and performance of the
Transaction Documents by the Companies, the Operating Partnerships and any
other Subsidiaries party thereto and the consummation of the transactions
contemplated thereby do not and will not violate or conflict with any provision
of the certificate of incorporation or by-laws, partnership agreements or
similar governing documents of the Companies or the Subsidiaries, as currently
in effect.
Section 3.6 Enforceability of Transaction Documents. This Agreement has
been, and each of the other Transaction Documents to be executed and delivered
by the Companies, the Operating Partnerships or any other Subsidiaries party
thereto pursuant to this Agreement has been or will be, duly and validly
authorized, executed and delivered by the Companies, the Operating Partnerships
and any other Subsidiaries parties to such other Transaction Documents, and
this Agreement is, and such other Transaction Documents when so executed and
delivered will be, valid and binding obligations of the Companies, the
Operating Partnerships and such other Subsidiaries, enforceable against them in
accordance with their terms, except as such enforceability may
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be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws from time to time affecting the enforcement of creditors'
rights generally.
Section 3.7 SEC Reports.
(a) Each of the Companies (including Patriot American Hospitality, Inc., a
Virginia corporation, the predecessor of Patriot) has timely filed all
documents required to be filed with the Securities and Exchange Commission (the
"SEC") (collectively, including all exhibits and schedules thereto and
documents incorporated therein by reference, the "SEC Reports"). As of their
respective dates, (i) the SEC Reports complied in all material respects with
the requirements of the Securities Act of 1933, as amended (including the rules
and regulations promulgated thereunder, the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (including the rules and
regulations promulgated thereunder, the "Exchange Act"), as applicable, and
(ii) none of the SEC Reports, or, to the knowledge of the Companies, any press
release, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein in order to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.
(b) The Companies and the Subsidiaries are not parties to or otherwise
subject to any contracts or other agreements that were or are required to be
filed as exhibits to, or otherwise disclosed in, the Companies' filings with
the SEC and have not been so filed or disclosed.
Section 3.8 Accountants. Ernst & Young LLP are independent accountants as
required by the Securities Act.
Section 3.9 Financial Statements.
(a) The combined financial statements of the Companies included in the SEC
Reports (collectively, the "Financial Statements"), including without
limitation the combined financial statements included in the Annual Report on
Form 10-K of the Companies for the year ended December 31, 1997 (the "Form 10-
K") and the Quarterly Report on Form 10-Q of the Companies for the quarter
ended September 30, 1998 (the "Third Quarter 10-Q"), complied as to form, as of
their respective dates, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of interim financial statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) (collectively,
"GAAP") and fairly present the consolidated and combined financial positions of
the Companies and their respective consolidated subsidiaries as of the dates
thereof and the consolidated and combined results of operations and cash flows
for the periods then ended (subject, in the case of interim financial
statements, to normal year-end audit adjustments).
(b) Section 3.9(b)(i) of the Company Disclosure Letter contains a Statement
of Pro Forma 1998 EBITDA for the Companies for the year ended December 31,
1998, which is comprised of (a) the Companies' unaudited actual earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the year ended
December 31, 1998 and (b) pro forma adjustments necessary to present the EBITDA
of companies acquired in 1998 as though they were acquired on January 1, 1998,
as described in Section 3.9(b)(i) of the Company Disclosure Letter (the
"Statement of EBITDA"). Section 3.9(b)(ii) of the Company Disclosure Letter
contains a Statement of Adjusted Pro Forma 1998 EBITDA for the Companies for
the year ended December 31, 1998 prepared on the same basis as the Statement of
EBITDA, adjusted to show the pro forma effects of planned transactions in 1999,
as described in Section 3.9(b)(ii) (the "Planned Transactions") as though such
transactions occurred on January 1, 1998 (the "Adjusted Statement of EBITDA").
Section 3.9(b)(iii) of the Company Disclosure Letter contains a December 31,
1998 balance sheet, adjusted to show the pro forma effects of the Planned
Transactions, as described in Section 3.9(b)(iii) of the Company Disclosure
Letter, as though such transactions occurred on December 31, 1998 (the "Pro
Forma December 31, 1998 Balance Sheet"). Section 3.9(b)(iv) of the Company
Disclosure Letter contains a projected Statement of EBITDA for the Companies
for each of the four quarters during the year ending December 31, 1999, which
shall be used in determining the Companies'
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management incentive compensation awards for 1999. The projected Statement of
EBITDA reflects the effects of the Planned Transactions as though such Planned
Transactions occurred on January 1, 1999 as described in Section 3.9 (b)(iv) of
the Company Disclosure Letter (the "Pro Forma Projected Statement of EBITDA").
The actual EBITDA and balance sheet information included in the Statement of
EBITDA, the Adjusted Statement of EBITDA and the Pro Forma December 31, 1998
Balance Sheet was prepared from income statements and balance sheets that were
prepared in accordance with GAAP based on the books and records of the
Companies and the Subsidiaries, and to the knowledge of the Companies, presents
fairly the combined financial positions and EBITDA for the Companies and their
respective subsidiaries as of December 31, 1998 and for the year then ended.
The pro forma adjustments to the Statement of EBITDA, the Adjusted Statement of
EBITDA, the Pro Forma December 31, 1998 Balance Sheet and the Pro Forma
Projected Statement of EBITDA were properly prepared on the bases described in
Sections 3.9(b)(i), (ii), (iii) and (iv) of the Company Disclosure Letter. The
projected results of operations for the year ending December 31, 1999 included
in the Pro Forma Projected Statement of EBITDA were prepared in good faith
based on management's best estimates of the combined EBITDA for the Companies
for the year ending December 31, 1999 on the basis described in Section
3.9(b)(iv).
(c) Section 3.9(c) of the Company Disclosure Letter sets forth a true and
complete copy of the capital expenditure budget of the Companies and the
Subsidiaries for the year ending December 31, 1999 (the "Capital Expenditure
Budget").
Section 3.10 Absence of Certain Material Changes. Except as disclosed in
Section 3.10 of the Company Disclosure Letter, since September 30, 1998, there
has been no material adverse change in the business, properties, prospects,
operations, financial condition or results of operations of Patriot, Wyndham
and their respective subsidiaries, taken as a whole (a "Material Adverse
Change"), whether or not arising from transactions in the ordinary course of
business.
Section 3.11 Actions. Except as described in Section 3.11 of the Company
Disclosure Letter, there is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission, domestic or foreign, to which any of the
Companies or the Subsidiaries is a party or to which any property of any of the
Companies or the Subsidiaries is subject which involves a claim or potential
claim of more than $100,000, and to the knowledge of the Companies and the
Operating Partnerships, there is no valid basis for any such action, suit,
inquiry, proceeding or investigation. None of the Companies or the Subsidiaries
is subject to any judgment, order or decree which could reasonably be expected
to result in a Material Adverse Change.
Section 3.12 No Undisclosed Liabilities. Except (a) as set forth in the SEC
Reports filed prior to the date of this Agreement, (b) as set forth in Section
3.12 of the Company Disclosure Letter, (c) as incurred in the ordinary course
of the hotel management or hospitality business of the Companies, (d) for any
expenses incurred in connection with transactions contemplated by this
Agreement or (e) for liabilities or obligations relating to contractual
obligations, indebtedness, litigation or other matters which are covered by
other representations and warranties in this Agreement or otherwise identified
in the Company Disclosure Letter, none of the Companies nor any of the
Subsidiaries has any liabilities or obligations (direct or indirect, contingent
or absolute, known or unknown, matured or unmatured), whether arising out of
contract, tort, statute or otherwise ("Liabilities"). The reserves reflected on
the balance sheet dated September 30, 1998 and the balance sheet dated December
31, 1998 are appropriate and reasonable and have been calculated in a manner
consistent with past practice.
Section 3.13 Investment Company Act. None of the Companies nor any of the
Subsidiaries is (i) an "investment company" or a company "controlled" by an
investment company within the meaning of the Investment Company Act of 1940, as
amended, (ii) a "holding company" or a "subsidiary company" of a holding
company or an "affiliate" thereof within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or (iii) subject to regulation under
the Federal Power Act or the Interstate Commerce Act.
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Section 3.14 Reporting. Each of the Companies is subject to Section 13 of
the Exchange Act and is in compliance in all material respects with the
provisions of such section.
Section 3.15 Registration and Qualification. Assuming the accuracy of the
representations and warranties made by the Investors set forth in Article IV
hereof, it is not necessary in connection with the offer, sale and delivery of
the Shares to the Investors in the manner contemplated by this Agreement to
register the Shares, or the shares of the Wyndham Common Stock issuable upon
conversion of the Shares, under the Securities Act or the securities laws of
any state thereof.
Section 3.16 Indebtedness and Certain Other Contracts.
(a) Set forth in Section 3.16(a) of the Company Disclosure Letter is a list
of the following:
(i) each agreement or other instrument evidencing indebtedness for money
borrowed (other than intercompany indebtedness), capitalized leases,
guarantees to which the Companies or the Subsidiaries is a party or
security interests of, by or affecting the property of either of the
Companies or any of the Subsidiaries, in each case under which the
Companies or the Subsidiaries are the obligors;
(ii) each contract of sale, purchase agreement, contribution agreement
or other agreement pursuant to which the Companies or the Subsidiaries have
purchased real property or other assets that contains any continuing
obligations of the Companies or their Subsidiaries to make payments to or
on behalf of another entity or to expend sums on improvements, each
agreement prohibiting or restricting the disposition of any such assets,
and each agreement containing any non-competition or non-solicitation
provisions or rights to repurchase or rights of first refusal; and
(iii) each Forward Equity Contract or other instrument under which the
Companies or the Subsidiaries are obligated to issue or deliver as
collateral any of their equity securities.
(b) Section 3.16(b) of the Company Disclosure Letter sets forth the amount
of principal and unpaid interest outstanding under each agreement or other
instrument evidencing indebtedness of the Companies and the Subsidiaries, if
any, that will accelerate or become due or result in a right on the part of the
holder of such indebtedness (with or without due notice or lapse of time) to
require prepayment, redemption or repurchase (i) on or prior to June 30, 1999
or (ii) as a result of the execution of the Transaction Documents or the
consummation of any of the transactions contemplated thereby. Except as set
forth in Section 3.16(b) of the Company Disclosure Letter, there are no other
agreements, arrangements or understandings that would require payments to be
made by any of the Companies or the Subsidiaries as a result of the execution
of the Transaction Documents or the consummation of any of the transactions
contemplated thereby. Except as set forth in Section 3.16(b) of the Company
Disclosure Letter, no indebtedness of the Companies or the Subsidiaries
contains any restriction upon the prepayment of any such indebtedness.
Section 3.17 No Defaults. Except as disclosed in Section 3.17 of the Company
Disclosure Letter, none of the Companies or the Subsidiaries is in violation or
default under any provision of its certificate of incorporation, by-laws,
partnership agreement or other organizational documents, or is in breach of or
default with respect to any provision of any agreement, judgment, decree,
order, mortgage, deed of trust, lease, franchise, license, indenture, permit or
other instrument to which it is a party or by which it or any of its properties
are bound; and there does not exist any state of facts which would constitute
an event of default on the part of any of the Companies or the Subsidiaries as
defined in such documents which, with notice or lapse of time or both, would
constitute a default.
Section 3.18 Violations of Law.
(a) Except as identified in Section 3.18(a) of the Company Disclosure Letter
or otherwise identified in Sections 3.19, 3.20, 3.21, 3.22, 3.23 or 3.24 or in
Sections 3.19, 3.20, 3.21, 3.22, 3.23 or 3.24 of the Company Disclosure Letter,
each of the Companies and the Subsidiaries is in compliance and has complied in
all material respects and at all times during the past three years with all
applicable federal, state and local statutes, codes, ordinances, rules and
regulations, judgments, decrees, orders, writs and injunctions of the United
States and all
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other countries and subdivisions thereof to the extent applicable, and during
such three year period, no notice, charge, claim, action or assertion has been
received by the Companies or the Subsidiaries or has been filed, commenced or,
to the knowledge of the Companies and the Subsidiaries, threatened against the
Companies or the Subsidiaries alleging any violation of any of the foregoing.
(b) None of the Companies or the Subsidiaries has at any time (i) made any
unlawful contribution to any candidate for domestic or foreign office or failed
to disclose fully any contribution in violation of law or (ii) made any payment
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
Section 3.19 Properties. Except as disclosed in Section 3.19 of the Company
Disclosure Letter:
(a) The Companies, the Subsidiaries and the Joint Ventures (as defined
below) have (i) good and marketable fee simple title to, (ii) good and valid
ground leasehold interests in, and (iii) good and valid capital leasehold
interests in, all the properties (including all improvements thereon) as
indicated in Section 3.19(a) of the Company Disclosure Letter, which properties
constitute all the real estate properties owned in fee, ground leased or held
pursuant to capital leases by the Companies, the Subsidiaries and the Joint
Ventures (the "Owned Properties"). Each outstanding loan secured by one or more
of the Owned Properties (the "Mortgages") is listed opposite the Owned
Properties in Section 3.19(a) of the Company Disclosure Letter, and Section
3.19(a) of the Company Disclosure Letter lists, individually, the lender, the
unpaid principal amount of the Mortgage and the accrued but unpaid interest, if
delinquent, on the Mortgage. The Owned Properties are not subject to any Lien
of any kind except for the Mortgages or Liens for non-delinquent real estate
taxes or assessments. Section 3.19(a) of the Company Disclosure Letter lists
all joint ventures or other entities that are not Subsidiaries in which the
Companies or the Subsidiaries have an equity ownership interest of at least
30%, and which own or lease real estate property (the "Joint Ventures"), the
Companies' or the Subsidiaries' respective interests in the Joint Ventures and
any commitments any of the Companies or any of the Subsidiaries may have to
make additional investments or loans to the Joint Ventures.
(b) The leases of any real property (including all improvements thereon)
held under lease, as lessee, by the Companies, the Subsidiaries or the Joint
Ventures (the "Leased Properties") are in full force and effect, and none of
the Companies, the Joint Ventures or the Subsidiaries is in default in respect
of any of the terms or provisions of such leases or has received notice of the
assertion of any claim adverse to its rights as lessee under such leases, or
affecting or questioning its right to the continued possession or use of the
real property and buildings held under such leases or of a default under such
leases. The Leased Properties are listed in Section 3.19(b) of the Company
Disclosure Letter and constitute all the real estate properties leased by the
Companies, the Subsidiaries and the Joint Ventures. The Leased Properties,
together with the Owned Properties, are herein referred to as the "Properties."
(c) Section 3.19(c) of the Company Disclosure Letter lists all leases
(excluding intercompany leases and leases entered into in the ordinary course
of business with third party vendors for space at the Properties (e.g., gift
shop leases)) pursuant to which any of the Companies, the Subsidiaries or the
Joint Ventures, as lessor, leases its Properties (the "Third Party Leases").
None of the Companies, the Subsidiaries, the Joint Ventures or any tenant of
any of the Properties is in default under any of the Third Party Leases (and
there exists no event which, with the lapse of time or giving of notice, or
both, would constitute a default under any of such leases).
(d) Except as disclosed in Section 3.19(d) of the Company Disclosure Letter,
(i) no person has an option or right of first refusal to purchase all or part
of any Properties or any interest therein, (ii) none of the Companies, the
Subsidiaries nor the Joint Ventures has any take out or other commitments to
make, directly or indirectly, investments in, or extend loans in connection
with, any real estate properties and (iii) none of the Companies nor their
respective affiliates are, nor immediately following the Closing shall they be,
subject to any non-competition, geographical restriction or similar agreement.
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(e) Except as disclosed in Section 3.19(e) of the Company Disclosure Letter,
each of the Properties complies in all material respects with all applicable
codes, laws and regulations (including, without limitation, building and zoning
codes, laws and regulations and laws relating to access to the Properties).
(f) Except as disclosed in Section 3.19(f) of the Company Disclosure Letter,
there are no pending or, to the knowledge of the Companies and the Subsidiaries
threatened condemnation proceedings, zoning changes, or other proceedings or
actions that will in any manner adversely affect the size of, use of,
improvements on, construction on or access to the Properties or any property
underlying indebtedness held by the Companies, the Subsidiaries or the Joint
Ventures, as lender from third party borrowers (the "Owned Mortgages"). The
Owned Mortgages constitute all of the indebtedness from third party borrowers
secured by property held by the Companies, the Subsidiaries and the Joint
Ventures and is listed in Section 3.19(f) of the Company Disclosure Letter,
which list sets forth the borrower, outstanding loan amount, underlying
collateral, interest rate and delinquencies, if any, relating thereto.
(g) Except as disclosed in Section 3.19(g) of the Company Disclosure Letter,
(i) there are no structural defects relating to any of the Properties, (ii) the
building systems for the Properties are in good working order and (iii) there
is no physical damage to the Properties, in each case with such exceptions as
would not have a material adverse impact on the operation of the affected
Property or require capital expenditures not provided for in the Capital
Expenditure Budget or otherwise fully and completely covered by insurance.
(h) The Companies, the Subsidiaries or the Joint Ventures have good title,
licenses or leasehold interests in and to all personal property and other
assets that are required for the effective operation of the Properties in the
manner in which they currently are operated. The leases relating to any such
property are in full force and effect, and none of the Companies, the
Subsidiaries or the Joint Ventures is in default in respect of any of the terms
or provisions of such leases or has received notice of the assertion of any
claim adverse to its rights as lessee under such leases, or affecting or
questioning its right to the continued possession or use of such property or of
a default under such leases.
(i) Section 3.19(i) of the Company Disclosure Letter sets forth (i) a
comprehensive list of all management, franchise and similar agreements wherein
the Companies, the Subsidiaries or the Joint Ventures have contracted with a
third party, (ii) the Properties subject to such agreements, (iii) the term of
each of such agreements and (iv) agreed or asserted property improvement plans
with respect to each Property subject to such agreements and the party
responsible therefor. None of the Companies, the Subsidiaries or the Joint
Ventures or any third party of such agreements is in default thereunder (and
there exists no event which, with the lapse of time or giving of notice, or
both, would constitute a default under any of such agreements).
(j) Except as set forth in Section 3.19(j) of the Company Disclosure Letter,
none of the Companies, the Subsidiaries or the Joint Ventures has entered into
any contract, letter of intent, other agreement or instrument or listing
arrangement to purchase, sell or invest in, or to lend or borrow money in
connection with, real property, companies, partnerships, limited liability
companies or other entities, whether or not such real property and entities are
currently owned by the Companies, the Subsidiaries or the Joint Ventures.
(k) Section 3.19(k) of the Company Disclosure Letter sets forth (i) each
Property that is subject to divestiture pursuant to the terms of any agreement
to which the Companies, the Subsidiaries or the Joint Ventures are parties,
including without limitation the Settlement Agreement, dated as of May 27,
1998, among Marriott International, Inc., Interstate Hotels Corporation,
Interstate Hotels Company, Patriot and Wyndham, as amended through the date of
this Agreement, including for such purposes the proposed amendments described
in Section 3.19(k) of the Company Disclosure Letter (the "Marriott Settlement
Agreement"), and the material terms of such divestiture and (ii) any taxes or
indemnification obligations for which the Companies, the Subsidiaries or the
Joint Ventures will be responsible by reason of each divestiture identified
under clause (i).
Section 3.20 Intellectual Property. Set forth in Section 3.20 of the Company
Disclosure Letter is a list of each trademark, trade name, patent, copyright or
other similar right that is owned by the Companies or the
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Subsidiaries and each license or other agreement under which the Companies or
the Subsidiaries have valid rights to use trademarks, trade names, patents,
copyrights or other similar rights that are owned by others. Except as
disclosed in Section 3.20 of the Company Disclosure Letter, the Companies and
the Subsidiaries have sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals and governmental authorizations to conduct
their businesses as now conducted; and none of the Companies or the
Subsidiaries has knowledge of any infringement by it of any trademark, trade
name, patent, copyright, license, trade secret or other similar rights of
others, and there is no claim being made against either of the Companies or any
of their Subsidiaries regarding trademark, trade name, patent, copyright,
license, trade secret or other infringement.
Section 3.21 Taxes. Except as set forth in Section 3.21 of the Company
Disclosure Letter:
(a) Each of the Companies and the Subsidiaries has timely filed (or there
has been filed on its behalf) all Tax Returns required to be filed by it under
applicable law, and all such Tax Returns were and are true, complete and
correct in all material respects. Except to the extent adequately reserved for
in accordance with GAAP and reflected on the balance sheets of the Companies
dated December 31, 1998, all Taxes due and payable by the Companies or any of
the Subsidiaries have been timely paid in full.
(b) There are no Tax Liens upon the assets of any of the Companies or the
Subsidiaries except Liens for Taxes not yet due.
(c) Each of the Companies and the Subsidiaries has complied with the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to the withholding of Taxes, as well as similar provisions under any
other laws, and have, within the time and in the manner prescribed by law,
withheld, collected and paid over to the proper governmental authorities all
amounts required.
(d) No audits or other administrative proceedings or court proceedings are
presently pending or, to the knowledge of the Companies, asserted with regard
to any Taxes or Tax Returns of the Companies or any of the Subsidiaries.
(e) None of the Companies or any of the Subsidiaries has received a written
ruling of a taxing authority relating to Taxes or entered into a written and
legally binding agreement with a taxing authority relating to Taxes with any
taxing authority.
(f) None of the Companies or the Subsidiaries has requested any extension of
time within which to file any Tax Return, which Tax Return has not since been
filed, and the statute of limitations for the assessment of federal, state,
local and foreign income Taxes has expired for all applicable returns of the
Companies and any of the Subsidiaries or those returns have been examined by
the appropriate taxing authorities for all periods.
(g) None of the Subsidiaries has agreed to and is required to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of such Subsidiary,
and there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of any of the Subsidiaries.
To the knowledge of the Companies, the Internal Revenue Service (the "IRS") has
not proposed any such adjustment or change in accounting method.
(h) Neither Wyndham nor any of its Subsidiaries has filed, as a common
parent corporation of an affiliated group (within the meaning of 1504(a) of the
Code), a consolidated return for federal income tax purposes on behalf of
itself and those Includible Subsidiaries (as described in Section 3.21(h) of
the Company Disclosure Letter). None of the Subsidiaries are or have ever been
subject to the provisions of Section 1503(f) of the Code.
(i) Other than as set forth in Section 3.21(i) of the Company Disclosure
Letter, none of the Companies or any of the Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes or indemnification
by the Companies or the Subsidiaries of any other person in respect of Taxes.
Section 3.21(i) of the Company Disclosure Letter contains a brief description
of the terms of any such agreements.
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(j) None of the Companies or any of the Subsidiaries is a party to any
agreement, contract, or arrangement that would result, individually or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(k) To the knowledge of the Companies, none of the Companies or any of the
Subsidiaries has or ever had any income which is includible in computing the
taxable income of a United States person (as determined under Section 7701 of
the Code) under Section 951 of the Code. To the knowledge of the Companies,
none of the Companies or any of the Subsidiaries is or has ever been a Passive
Foreign Investment Company within the meaning of Section 1297 of the Code. To
the knowledge of the Companies, none of the Companies or any of the
Subsidiaries are or have ever been a Personal Holding Company within the
meaning of Section 542 of the Code. To the knowledge of the Companies, there
are no gain recognition agreements, within the meaning of Treasury Regulation
1.367(a)-8 or any predecessor provision, between the Companies or any of the
Subsidiaries, on one hand, and a stockholder of the Companies, on the other.
There is no pending or, to the knowledge of the Companies, threatened action,
proceeding or investigation by any taxing authority for assessment or
collection of Taxes with respect to the Companies or any of the Subsidiaries in
any jurisdiction where the Companies or the Subsidiaries has not filed a Tax
Return. All dealings and arrangements between and among the Companies and each
Subsidiary and among the Subsidiaries are at arm's length and consistent with
arm's length dealings and arrangements between or among unrelated, uncontrolled
taxpayers.
(l) Commencing with its first taxable year ended December 31, 1983 and
continuing through and including December 31, 1998, Patriot has been organized,
operated and duly qualified as a Real Estate Investment Trust (a "REIT") under
Section 856 of the Code. The Operating Partnerships and each other Subsidiary
which is a partnership, joint venture or limited liability company has been
treated since its formation and continues to be treated for federal income tax
purposes as a partnership and not as a corporation or as an association taxable
as a corporation.
(m) Williams Hospitality Group, Inc., as operator of the El Conquistador
Hotel, the Condado Plaza Hotel and the Hotel San Juan, El Conquistador
Partnership, L.P., owner of the El Conquistador Hotel, Posadas de San Juan
Associates, owner of the Hotel San Juan, and Posadas de Puerto Rico Associates,
Inc., owner of the Condado Plaza are each qualified and will continue to
qualify under the Puerto Rico Tourism Development Act of 1993 for (i) the 90%
exemption on (A) municipal and Commonwealth taxes on personal and real
property, (B) license fees, excise taxes and other municipal taxes, (C) income
taxes on income derived from its tourist activity (not including casino
operations) and reinvestment thereof in said activities, income from the
investment of funds deposited in depository institutions as provided in section
2(l) of the regulations, (D) gain on sale of all of the assets used in the
tourist activity and (E) gain on the sale of stock or a partnership interests,
(ii) the 100% exemption on municipal construction excise taxes, and (iii) the
100% exemption on use or consumption taxes, for the taxable periods listed in
Section 3.21(m) of the Company Disclosure Letter.
(n) As used in this Section 3.21, (i) the term "Taxes" means any federal,
state, county, local or foreign taxes, charges, fees, levies or other
assessments, including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal property, gross
receipt, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any Governmental Entity, and includes
any interest and penalties (civil or criminal) on or additions to any such
taxes, and (ii) the term "Tax Return" means a report, return or other
information required to be supplied to a Governmental Entity with respect to
Taxes including, where permitted or required, combined or consolidated returns
for any group of entities that includes the Companies or any of the
Subsidiaries.
Section 3.22 Employee Matters; ERISA. Except as set forth in Section 3.22 of
the Company Disclosure Letter:
(a) Section 3.22(a) of the Company Disclosure Letter contains a true and
complete list of each written material employee benefit plan, policy or
agreement covering employees, former employees or directors of any
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of the Companies or the Subsidiaries or their beneficiaries, or providing
benefits to such persons in respect of services provided to any such entity,
including without limitation any employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any employment, retention, severance or change in control
agreement, in each case that is sponsored, maintained or contributed to or
required to be contributed to by the Companies or the Subsidiaries or by any
trade or business, whether or not incorporated (an "ERISA Affiliate") that,
together with either Patriot or Wyndham or any of the Subsidiaries, would be
deemed a "single employer" within the meaning of Section 4001(b) of ERISA
(collectively, the "Benefit Plans"). Other than as set forth in Section 3.22(a)
of the Company Disclosure Letter, since December 31, 1997, there have been no
new plans adopted nor changes, additions or modification to any Benefit Plan.
As of the date hereof, none of the Companies or the Subsidiaries has any plans
to adopt, change, add or modify any Benefit Plan.
(b) All material contributions and other payments required to have been made
by any of the Companies or any of the Subsidiaries to any Benefit Plan (or to
any person pursuant to the terms thereof) have been made or the amount of such
payment or contribution obligation has been reflected in the financial
statements in the Third Quarter 10-Q.
(c) Each of the Benefit Plans intended to be "qualified" within the meaning
of Section 401(a) or Section 501(c)(9) of the Code has been determined by the
IRS to be so qualified, and no circumstances exist that could reasonably be
expected to result in the revocation of any such determination. Each of the
Companies and the Subsidiaries and any ERISA Affiliate is in compliance in all
material respects with, and each of the Benefit Plans is and has been operated
in all material respects in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA and the
Code. Each Benefit Plan intended to provide for the deferral of income, the
reduction of salary or other compensation, or to afford other income tax
benefits, complies with the requirements of the applicable provisions of the
Code or other laws, rules and regulations required to provide such income tax
benefits. No prohibited transactions (as defined in Section 406 or 407 of ERISA
or Section 4975 of the Code) have occurred for which a statutory exemption is
not available with respect to any Benefit Plan, and which could give rise to
liability on the part of the Companies, any of the Subsidiaries, any ERISA
Affiliate, any Benefit Plan, or any fiduciary, party in interest or
disqualified person with respect thereto that would be material to either of
the Companies or would be material to either of the Companies if it were its
liability.
(d) With respect to the Benefit Plans, individually and in the aggregate, no
event has occurred, there does not now exist any condition or set of
circumstances, that could subject the Companies, any of the Subsidiaries or any
ERISA Affiliate to any material liability arising under the Code, ERISA or any
other applicable law, or under any indemnity agreement to which the Companies,
any of the Subsidiaries or any ERISA Affiliate is a party, excluding liability
relating to benefit claims and funding obligations payable in the ordinary
course.
(e) Other than continuation coverage required to be provided under Section
4980B of the Code or Part 6 of Title I of ERISA or otherwise as provided by
state law, none of the Benefit Plans that are "welfare plans," within the
meaning of Section 3(1) of ERISA, provides for any benefits with respect to
current or former employees for periods extending beyond their retirement or
other termination of service
(f) All amounts payable under the Benefit Plans are deductible for federal
income tax purposes. The consummation of the transactions contemplated by the
Transaction Documents will not, either alone or in combination with another
event undertaken by any of the Companies or the Subsidiaries prior to the date
hereof, (i) entitle any current or former employee, agent, independent
contractor or officer of the Companies or their subsidiaries to severance pay,
unemployment compensation or any other payment, (ii) accelerate the time of
payment or vesting or increase the amount of compensation due any such
employee, officer, agent or independent contractor, or (iii) constitute a
"change in control" under any Benefit Plan, and each of the Companies and the
Subsidiaries has taken all required actions to effect the foregoing.
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Section 3.23 Environmental Matters. Except as set forth in Section 3.23 of
the Company Disclosure Letter:
(a) Each of the Companies, the Subsidiaries and the Joint Ventures has been
and is in material compliance with all applicable Environmental Laws (as
defined in Section 3.23(g)) and none of the Companies, the Subsidiaries or the
Joint Ventures has received any written communication from any person or
governmental authority that alleges that any of the Companies, the Subsidiaries
or the Joint Ventures has not been and is not in compliance with applicable
Environmental Laws. Compliance with all applicable Environmental Laws will not
require the Companies, the Subsidiaries or the Joint Ventures to incur costs
materially in excess of amounts reserved against in the financial statements in
the Third Quarter 10-Q or in excess of amounts budgeted for such compliance as
specifically reflected in the Capital Expenditure Budget during the periods
covered by the Third Quarter 10-Q or the Capital Expenditure Budget, as the
case may be.
(b) Each of the Companies, the Subsidiaries and the Joint Ventures has
obtained or has applied for all environmental, health and safety permits and
governmental authorizations (collectively, the "Environmental Permits")
necessary for the conduct of their operations, and all such Environmental
Permits are in effect or, where applicable, a renewal application has been
timely filed and is pending agency approval, and each of the Companies, the
Subsidiaries and the Joint Ventures has been and is in material compliance with
all terms and conditions of all such Environmental Permits.
(c) There is no Environmental Claim (as defined in Section 3.23(g)) pending
(i) against the Companies, the Subsidiaries or the Joint Ventures, (ii) against
any person or entity whose liability for any Environmental Claim either of the
Companies, the Subsidiaries or the Joint Ventures has retained or assumed
either contractually or by operation of law, or (iii) against any real or
personal property or operations which the Companies, the Subsidiaries or the
Joint Ventures own, lease or manage, in whole or in part.
(d) There have been no Releases (as defined in Section 3.23(g)) of any
Hazardous Material (as defined in Section 3.23(g)) that could reasonably form
the basis of any Environmental Claim against any of the Companies, the
Subsidiaries or the Joint Ventures or against any person or entity whose
liability for any Environmental Claim any of the Companies, the Subsidiaries or
the Joint Ventures has retained or assumed either contractually or by operation
of law.
(e) No remediation of Releases has occurred on any property owned, leased or
managed by the Companies, the Subsidiaries or the Joint Ventures that could
result in the assertion or creation of a Lien on said property by any
governmental body pursuant to an applicable Environmental Law, nor has any such
assertion of a Lien been made with respect thereto.
(f) To the knowledge of the Companies or the Operating Partnerships, there
are no past, present or anticipated future events, conditions, circumstances,
activities, practices, incidents, actions, or plans relating to the Companies,
the Subsidiaries or the Joint Ventures that may interfere with or prevent
compliance or continued compliance with applicable Environmental Laws or which
may give rise to any liability under the Environmental Laws, or otherwise form
the basis of any Environmental Claim.
(g) As used in this Section 3.23:
(i) "Environmental Claim" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, orders,
claims, Liens, investigations, proceedings or notices of noncompliance or
violation by any person or entity (including any governmental authority)
alleging potential liability (including, without limitation, potential
responsibility for or liability for enforcement, investigatory costs,
cleanup costs, governmental response costs, removal costs, remediation
costs, natural resources damages, property damages, personal injury, bodily
injury, wrongful death or penalties) arising out of, based on or resulting
from (A) the presence, Release or threatened Release of any Hazardous
Materials at any location, whether or not owned, operated, leased or
managed by any of the Companies or
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the Subsidiaries; or (B) circumstances that form the basis of any violation
or alleged violation of any Environmental Law.
(ii) "Environmental Laws" means all federal, state and local laws, rules
and regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health and safety, including,
without limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation and transformers or other
equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBs"); (B) any chemicals, materials or substances which are
now defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," or
words of similar import under any Environmental Law and (C) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a
jurisdiction in which the Companies or any of the Subsidiaries operate.
(iv) "Release" means any spill, emission, leaking, injection, deposit,
disposal, discharge, dispersal or leaching into the atmosphere, soil,
surface water or groundwater.
(h) The Companies have heretofore delivered to the Investors a list of all
the environmental reports in the last five years relating to any of the
properties currently or formerly owned, leased or managed by any of the
Companies, the Subsidiaries or the Joint Ventures, and have delivered or made
available to the Investors for review copies of said environmental reports.
Section 3.24 Labor Matters. Except as set forth in Section 3.24 of the
Company Disclosure Letter: (i) none of the Companies or the Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization; (ii) to
knowledge of the Companies and the Operating Partnerships, no union claims to
represent the employees of any of the Companies or the Subsidiaries; (iii) none
of the employees of any of the Companies or the Subsidiaries is represented by
any labor organization and the Companies have no knowledge of any current union
organizing activities among the employees of the Companies or any of the
Subsidiaries, nor does any question concerning representation exist concerning
such employees; (iv) none of the Companies nor any of the Subsidiaries is the
subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages or conditions of employment; (v) there is no strike, work stoppage,
lockout or other labor dispute involving any of the Companies or the
Subsidiaries pending or threatened; (vi) no action, suit, complaint, charge,
arbitration, inquiry, proceeding or investigation by or before any Governmental
Entity brought by or on behalf of any employee, prospective employee, former
employee, retiree, labor organization or other representative of its employees
is pending or, to the knowledge of the Companies, threatened against any of the
Companies or the Subsidiaries; (vii) to the knowledge of the Companies, no
grievance is threatened against any of the Companies or the Subsidiaries;
(viii) none of the Companies nor any of the Subsidiaries is a party to, or
otherwise bound by, any consent decree with, or citation by, any Governmental
Entity relating to employees or employment practices; (ix) there are no written
personnel policies, rules or procedures applicable to employees of any of the
Companies or the Subsidiaries, other than those set forth in Section 3.24 of
the Company Disclosure Letter, true and correct copies of which have heretofore
been delivered to the Investors; (x) the Companies and the Subsidiaries are,
and have at all times been, in material compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health, and are
not engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable law, ordinance or regulation; (xi) since the
enactment of the Worker Adjustment and Retraining Notification Act (the "WARN
Act"), none of the Companies or the Subsidiaries has effectuated (A) a "plant
closing" (as defined in the
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WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of any of the
Companies or the Subsidiaries; or (B) a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or facility of any of the Companies or
the Subsidiaries, in either case, other than in substantial compliance with the
WARN Act; nor has any of the Companies or the Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state, local or foreign law or
regulation; and (xii) none of the Companies nor any of the Subsidiaries is
aware that it has any liability or potential liability under the Multi-Employer
Pension Plan Act.
Section 3.25 Year 2000 Compliance.
(a) Each of the Companies, the Operating Partnerships and the Subsidiaries
has (i) completed a review and assessment of all areas within its business and
operations that could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by the Companies or the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timetable addressing the Year 2000 Problem on
a timely basis (the "Year 2000 Plan"), a true and complete copy of which is
attached to Section 3.25 of the Company Disclosure Letter, and (iii) to date
implemented the Year 2000 Plan in accordance with the timetable and the
expenditures set forth in the Year 2000 Plan. The Companies have inquired as to
the Year 2000 compliance of service contractors and suppliers and other third
parties with whom they conduct business and, to their knowledge, the effect of
the Year 2000 Problem on such third parties would not reasonably be expected to
adversely affect the Companies.
(b) All computer software, computer firmware, computer hardware (whether
general or special purpose), and other similar or related items of automated,
computerized, and/or software systems, that are used or relied on by the
Companies, the Operating Partnerships or by any of the Subsidiaries in the
conduct of their respective businesses will, on a timely basis, be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 Compliant"). The costs of all
assessment, remediation, testing and integration related to the Year 2000 Plan
for becoming Year 2000 Compliant will not exceed the amounts as set forth in
the Year 2000 Plan.
(c) All of the products and services sold, licensed, rendered, or otherwise
provided by the Companies, the Operating Partnerships or by any of their
Subsidiaries in the conduct of their respective businesses will be Year 2000
Compliant and none of the Companies, the Operating Partnerships nor any of
their Subsidiaries is and shall be subject to claims or liabilities arising
from their failure to do so.
(d) Except as set forth in Section 3.25(d) of the Company Disclosure Letter,
none of the Companies, the Operating Partnerships nor any of their Subsidiaries
has made other representations or warranties regarding the ability of any
product or service sold, licensed, rendered or otherwise provided by any of
them to be Year 2000 Compliant.
Section 3.26 Insurance. Each of the Companies and the Subsidiaries maintains
primary, excess and umbrella insurance of types and amounts customary for its
business against general liability, fire, workers' compensation, products
liability, theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect
and with respect to property insurance for assets for which it is customary to
have replacement cost coverage or there are coinsurance provisions, the amount
of such insurance is sufficient to provide for such coverage or to prevent the
application of the coinsurance provision.
Section 3.27 Affiliate Transactions.
(a) Except as set forth in Section 3.27(a) of the Company Disclosure Letter,
there is no transaction and no transaction is now proposed, to which the
Companies or the Subsidiaries is or is to be a party in which any current
stockholder (holding in excess of 5% of the Companies' common stock or any
securities convertible
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into or exchangeable for such common stock), general partner, limited partner
(holding in excess of 5% of the limited partnership interests), director or
executive officer of the Companies or the Subsidiaries has a direct or indirect
interest.
(b) Messrs. Nussbaum, Lattin and Stewart hold the only equity interests in
the Crown Plaza/Ravinia and Wyndham Wyndwatch/Happauge not owned by the
Companies. Messrs. Nussbaum and Lattin have agreed to recontribute such
interests to the Companies in cancellation of the promissory notes between them
and the Companies entered into in connection with the organization of the
entities holding such properties. After giving effect to such recontributions,
the Companies will have a controlling voting interest and a 99 2/3% economic
interest in the Crown Plaza/Ravinia and Wyndham Wyndwatch/Happauge.
Section 3.28 Delaware General Corporation Law Section 203. The Boards of
Directors have taken such action as necessary to approve for purposes of
Section 203 of the DGCL the Transaction Documents and the transactions
contemplated thereby.
Section 3.29 Actions Regarding the Patriot Shareholder Rights Plan. Patriot
has taken all actions necessary to amend the Patriot Rights Plan as necessary
to ensure that the Transaction Documents and the consummation of any of the
transactions contemplated thereby will not result in the distribution of
separate rights certificates or the occurrence of a "Distribution Date" under
the Patriot Rights Plan.
Section 3.30 Brokers and Finders; Transaction Expenses.
(a) No agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by the Transaction Documents, except for the firms identified in
Section 3.30(a) of the Company Disclosure Letter, complete and accurate copies
of whose engagement letters have been provided to the Investors and will not be
amended, without the consent of the Investors, to (i) increase the fees and
expenses payable thereunder or (ii) extend the period for which services are to
be performed beyond the Closing Date.
(b) Section 3.30(b) of the Company Disclosure Letter sets forth a good faith
estimate by the Companies of fees and expenses (excluding those expenses of the
Investors reimbursable by the Companies, the "Transaction Expenses"), by
professional firm (for each such firm that has fees and expenses in excess of
$1,000,000) and by category of the transaction, that have been paid by the
Companies since September 30, 1998 or the Companies anticipate will be payable
by the Companies or the Subsidiaries in connection with the transactions
contemplated by this Agreement, the Companies' review and consideration of
alternative transactions, the restructuring of the Companies' consolidated
indebtedness, the Forward Equity Contracts and proposed or completed
acquisitions or divestitures.
Section 3.31 Opinion of Financial Advisor. The Companies have received the
opinion of Morgan Stanley & Co. Incorporated (the "Financial Advisor"), dated
the date hereof, to the effect that the Investment is fair, from a financial
point of view, to the holders of Patriot Common Stock and the holders of
Wyndham Common Stock.
Section 3.32 Full Disclosure. To the knowledge of the Companies, the
Companies have not failed to disclose to the Investors any facts material to
the business, properties, prospects, operations, financial condition or results
of operations of Patriot, Wyndham and their respective subsidiaries, taken as a
whole. To the knowledge of the Companies, no representation or warranty by any
of the Companies or the Operating Partnerships contained in this Agreement and
no statement contained in any document (including historical financial
statements and the Company Disclosure Letter), certificate or other writing
furnished or to be furnished by any of the Companies or the Operating
Partnerships to the Investors or any of its representatives pursuant to the
provisions hereof or in connection with the transactions, contains or will
contain any untrue statement of material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was
made, in order to make the statements herein or therein not misleading. This
Section 3.32 shall not apply to financial projections made by the Companies.
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ARTICLE IV
Representations and Warranties of the Investors
As an inducement to the Companies and the Operating Partnerships to enter
into this Agreement and to consummate the transactions contemplated hereby,
each Investor, severally but not jointly with the other Investors, hereby
represents and warrants to the Companies and the Operating Partnerships as
follows; provided that for all purposes of this Agreement no representation or
warranty set forth in this Article IV shall fail to be true and complete or to
have been breached in all material respects by reason of one or more
inaccuracies which individually would give rise to a Loss of less than $50,000:
Section 4.1 Investment.
(a) Each Investor is acquiring Shares and the shares of Wyndham Common Stock
issuable upon conversion of such Shares for investment for its own account, and
not with a view to any distribution thereof in violation of the securities
laws. Each Investor understands that such Shares and the shares of Wyndham
Common Stock issuable upon conversion of such Shares have not been registered
under the Securities Act by reason of specific exemptions therefrom which
depend upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Investor's representations as expressed herein.
(b) Each Investor's financial condition and investments are such that it is
in a position to hold such Shares and the shares of Wyndham Common Stock
issuable upon conversion of such Shares for an indefinite period, bear the
economic risks of the investment and withstand the complete loss of the
investment. Each Investor has extensive knowledge and experience in financial
and business matters and has the capability to evaluate the merits and risks of
such Shares and the shares of Wyndham Common Stock issuable upon conversion of
such Shares. Each Investor qualifies as an "accredited investor" as such term
is defined in Section 2(15) of the Securities Act and Regulation D promulgated
thereunder.
Section 4.2 Rule 144. Each Investor acknowledges that the Shares to be
purchased by the Investors and the shares of Wyndham Common Stock issuable upon
conversion of the Shares must be held indefinitely unless subsequently
registered under the Securities Act or any applicable state securities laws or
unless exemptions from such registrations are available. Each Investor is aware
of the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions.
Section 4.3 Organization of the Investors. Each Investor is duly organized
and validly existing under the laws of the jurisdiction of its organization.
Section 4.4 Current Ownership. Except as set forth on Section 4.4 of the
letter of the Investors to the Companies to be dated as of the Effective Date
(the "Investor Disclosure Letter"), as of the date hereof, each Investor
represents that it does not beneficially own any capital stock of the Companies
or any partnership interests in the Operating Partnerships.
Section 4.5 No Voting Agreements. Except as disclosed in Section 4.5 of the
Investor Disclosure Letter, the Investors have not entered into any voting
agreement relating to the Shares prior to the date hereof.
Section 4.6 Authority of the Investors.
(a) Each Investor has the power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to comply
with the terms, conditions and provisions hereof.
(b) The execution, delivery and performance of this Agreement by each
Investor has been duly authorized and approved by such Investor and does not
require any further authorization or consent of such Investor or its beneficial
owners. This Agreement is the legal, valid and binding agreement of the
Investor, enforceable against the Investor in accordance with its terms, except
as such enforceability may be limited by applicable
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bankruptcy, insolvency, reorganization, moratorium or other similar laws from
time to time affecting the enforcement of creditors' rights generally.
Section 4.7 Non-Contravention. The execution, delivery and performance of
this Agreement by the Investors and the consummation of any of the transactions
contemplated hereby by the Investors will not (a) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any Lien, charge or
encumbrance upon any property or assets of the Investors pursuant to any
agreement, instrument, franchise, license or permit to which the Investors are
a party or by which any of its properties or assets may be bound or (b) violate
or conflict with any judgment, decree, order, statute, rule or regulation of
any court or any public, governmental or regulatory agency or body applicable
to each Investor or any of its properties or assets, other than such breaches,
defaults or violations that are not reasonably expected to impair the ability
of each Investor to consummate the transactions contemplated by this Agreement.
The execution, delivery and performance of this Agreement by each Investor and
the consummation of the transactions contemplated hereby by each Investor does
not and will not violate or conflict with any provision of the organizational
documents of such Investor, as currently in effect. Except for filings under
the HSR Act, no consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any government agency
or body applicable to the Investors is required for the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
Section 4.8 Brokers and Finders; Transaction Expenses.
(a) No agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by the Transaction Documents, except for Bear, Stearns & Co. Inc.,
a complete and accurate copy of whose engagement letter has been provided to
the Companies and will not be amended, without the consent of the Companies, to
(i) increase the fees or expenses payable thereunder or (ii) extend the period
for which services are to be performed beyond the Closing Date.
(b) Section 4.8(b) of the Investor Disclosure Letter sets forth a good faith
estimate by the Investors of the Transaction Expenses, by professional firm
(for each such firm that has fees and expenses in excess of $1,000,000) and by
category of the transaction, that have been paid by the Investors since
September 30, 1998 or the Investors anticipate will be payable by the Investors
in connection with the transactions contemplated by this Agreement.
ARTICLE V
Conditions Precedent
Section 5.1 Conditions to Each Party's Obligation. The respective obligation
of each party to consummate the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions:
(a) HSR Approval. The applicable waiting period (and any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), relating to the transactions contemplated by the
Transaction Documents shall have been terminated or shall have expired.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction (collectively, "Restraints") preventing consummation
of any of the transactions contemplated hereby shall be in effect.
(c) Patriot Stockholder Approval. The approval of holders of the
requisite number of the shares of Patriot Common Stock outstanding on the
record date (the "Record Date") for the Stockholders Meeting (as defined in
Section 6.5(a)(ii)) shall have been received for (i) the Merger and (ii)
the Pairing
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Termination, in accordance with the requirements of the DGCL and the rules
of the NYSE (the "Patriot Stockholder Approval").
(d) Wyndham Stockholder Approval. The approval of holders of the
requisite number of the shares of Wyndham Common Stock outstanding on the
Record Date for the Stockholders Meeting shall have been received for (i)
the issuance of the Shares, the Restructuring Shares and the shares of
Wyndham Common Stock issuable upon conversion of the Shares, (ii) the
Pairing Termination, and (iii) the Wyndham Charter Amendment, in accordance
with the requirements of the DGCL and the rules of the NYSE (the "Wyndham
Stockholder Approval").
Section 5.2 Conditions to the Investors' Obligation. The obligation of each
of the Investors to consummate the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions:
(a) Representations and Warranties. All of the representations and
warranties of each of the Companies and the Operating Partnerships set
forth in this Agreement, in the aggregate, shall be true and complete in
all material respects, in each case as of the date of this Agreement and as
of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such date)
and each of the Companies and the Operating Partnerships shall have
delivered to the Investors at the Closing a certificate signed by its Chief
Executive Officer and Chief Financial Officer or Treasurer, dated the
Closing Date, in form and substance reasonably satisfactory to the
Investors, to the foregoing effect.
(b) Performance of Obligations. The Companies and the Operating
Partnerships shall have performed in all material respects all obligations
required to be performed by any of them under this Agreement at or prior to
the Closing and each of the Companies and the Operating Partnerships shall
have delivered to the Investors at the Closing a certificate signed by its
Chief Executive Officer and Chief Financial Officer or Treasurer, dated the
Closing Date, in form and substance reasonably satisfactory to the
Investors, to the foregoing effect.
(c) Material Adverse Change. Since September 30, 1998, there shall not
have occurred any event that could reasonably be expected to have a
Material Adverse Change (or development that is reasonably likely to result
in any Material Adverse Change) and each of the Companies and the Operating
Partnerships shall have delivered to the Investors at the Closing a
certificate signed by its Chief Executive Officer, dated the Closing Date,
in form and substance reasonably satisfactory to the Investors, to the
foregoing effect.
(d) Projected EBITDA. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the Companies and their consolidated
subsidiaries, as adjusted for the items described in Section 5.2(d) of the
Company Disclosure Letter ("Adjusted EBITDA"), shall be set forth in a
certificate, dated the Closing Date, delivered to the Investors and signed
by the Chief Executive Officer of Wyndham. Adjusted EBITDA shall have been
at least the indicated amounts for the indicated periods in Section 5.2(d)
of the Company Disclosure Letter. For purposes of this Section 5.2(d),
EBITDA and Adjusted EDITDA shall be calculated in accordance with Section
5.2(d) of the Company Disclosure Letter on a prorated basis which shall be
measured through either (i) the end of the calendar month immediately
preceding the month in which the Closing occurs if the Closing occurs
following the 20th day of any calendar month or (ii) the end of the second
calendar month preceding the month in which the Closing occurs if the
Closing occurs on or prior to the 20th day of any calendar month.
(e) Receipt of Consents. The Companies shall have obtained the consents
contemplated by Section 5.2(e) of the Company Disclosure Letter and a copy
of each such consent or evidence thereof reasonably satisfactory to the
Investors shall have been provided to the Investors at or prior to the
Closing. In obtaining such consents and amendments, the Companies, the
Operating Partnerships and the Subsidiaries shall have complied with
Section 11.13.
(f) Capital Expenditure Budget. The Companies shall have made on a
timely basis the expenditures set forth under the caption "Maintenance
Capital Expenditures" in the Capital Expenditure Budget.
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(g) Year 2000 Compliance. The Companies shall have delivered to the
Investors a certificate, dated the Closing Date and signed by the Chief
Executive Officer of Wyndham, to the effect that (i) the central
reservation system comprised of the facilities and systems set forth on
Section 5.2(g)(i) of the Company Disclosure Letter (the "Central
Reservation System") is Year 2000 Compliant and (ii) with respect to all
other facilities or systems identified on Section 5.2(g)(ii) of the Company
Disclosure Letter, as of the Closing Date, the Year 2000 Plan has been
implemented, and such plan's other enumerated performance goals have been
substantially achieved, in accordance with the timetable as set forth on
Schedule 5.2(g)(ii) of the Company Disclosure Letter; excluding solely for
purposes of this Section 5.2(g) any adverse developments to the extent
attributable to the failure of third parties which have the effect,
subsequent to the mailing of the Disclosure Document in connection with the
Stockholders' Meeting, of causing the Companies to fail to satisfy this
condition.
(h) Restructuring Plan. The Restructuring Plan shall have been completed
in accordance with its terms.
(i) Marriott Settlement Agreement. The Companies shall have completed
the divestiture of the third party hotel management business previously
conducted by Interstate Hotels Corporation in accordance with the Marriott
Settlement Agreement (including any extension to the term thereof and any
other amendment, in each case approved in advance by the Investors),
without incurring any penalties, fees or damages thereunder for failure to
complete such divestiture in a timely fashion or modifying the transactions
contemplated thereby without the consent of the Investors; provided, that
the Investors shall respond within five business days following their
receipt of any request by the Companies to obtain the Investors' consent to
any proposed modification of the Marriott Settlement Agreement under this
Section 5.2(i), and provided further that the Investors shall be deemed to
have consented to any amendment which has the sole effect of extending the
completion of such divestiture until not later than June 20, 1999.
(j) "Project D" Divestiture. Either (i) the Companies shall have
completed the divestiture of the "Project D" assets in accordance with the
Purchase and Sale Agreement, dated December 15, 1998 and amended December
22, 1998, January 31, 1999, February 5, 1999, February 10, 1999 and as of
February 15, 1999 (the "Project D Agreement"), among Patriot, Patriot OP
and PW Holding I, LLC, without incurring any penalties, fees or damages
thereunder for failure to complete such divestiture in a timely fashion or
modifying the transactions contemplated thereby without the consent of the
Investors; provided, that the Investors shall respond within five business
days following their receipt of any request by the Companies to obtain the
Investors' consent to any proposed modification of the Project D Agreement
under this Section 5.2(j), or (ii) the divestiture of such assets shall not
have been completed due to a failure of the conditions thereto which
failure is not caused by a breach by the Companies.
(k) Financing. The Companies shall have entered into definitive
agreements with respect to (i) a new $1.8 billion senior bank facility (the
"Bank Facility") substantially on the terms set forth in the commitment
letter, dated as of February 19, 1999, among The Chase Manhattan Bank
("Chase"), Chase Securities, Inc. ("CSI") and Patriot and without giving
effect to any "market flex" provisions contained in such commitment letter
(other than with respect to the re-allocation of commitments (without
reduction of the total amount of the Bank Facility and the IRL Facility
described below) and the increases in pricing solely to the extent agreed
therein) and (ii) $650 million of fully underwritten increasing rate loans
(the "IRL Facility"), substantially on the terms set forth in the
commitment letter, dated as of February 19, 1999, among Chase, CSI, Bear,
Stearns & Co. Inc. ("Bear Stearns"), The Bear Stearns Companies Inc.
("BSC") and Patriot, all such definitive agreements to be in forms
reasonably acceptable to the Investors and without giving effect to any
"market flex" provisions contained in such commitment letter (other than
with respect to the re-allocation of commitments (without reduction of the
total amount of the Bank Facility and the IRL Facility described below) and
the increases in pricing solely to the extent agreed therein); provided,
that the IRL Facility may be replaced in whole or in part by the issuance
of debt securities (the "Debt Securities"), the aggregate amount of which
may exceed the original amount of the IRL Facility, substantially on the
terms set forth in the engagement letter, dated as of February 19, 1999,
among CSI, Bear Stearns, Patriot and Wyndham, with all definitive
agreements (including the Debt
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Securities) to be in forms reasonably acceptable to the Investors. The
initial fundings under such facilities shall have occurred and the proceeds
of such fundings, together with the proceeds from the issuance of the
Shares, shall have been applied as specified in such commitment letters. At
the time of the Closing, the Companies will have outstanding the full
amount of mortgage debt permitted under the Bank Facility and the IRLs.
(l) NYSE Listing. The Restructuring Shares and the shares of Wyndham
Class A Common Stock issuable upon conversion of the Shares shall have been
approved for listing on the NYSE, subject to official notice of issuance.
(m) Opinions of Counsel. The Investors shall have received at the
Closing opinions dated the Closing Date of counsel to the Companies, in
form and substance reasonably satisfactory to the Investors taking into
account, if such counsel so desires, the ABA Guidelines regarding legal
opinions, covering the matters set forth in Schedule 5.2(m) of the Company
Disclosure Letter.
Section 5.3 Conditions to the Obligations of the Companies and the Operating
Partnerships. The respective obligation of the Companies and the Operating
Partnerships to consummate the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions:
(a) Representations and Warranties. All of the representations and
warranties of the Investors set forth in this Agreement shall be true and
complete in all material respects, in each case as of the date of this
Agreement and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case
as of such date).
(b) Performance of Obligations. The Investors shall have performed in
all material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing.
(c) Officers' Certificates. Each of the Investors shall have delivered
to the Companies a certificate signed by an executive officer of such
Investor, dated the Closing Date, in form and substance reasonably
satisfactory to the Companies, to the effect that (i) as of the date hereof
and as of the Closing Date, the representations and warranties of such
Investor set forth in this Agreement, in the aggregate, are true and
complete in all material respects and (ii) the obligations of such Investor
to be performed hereunder on or prior to the Closing Date have been
performed in all material respects.
(d) Opinion of Counsel. The Companies shall have received at the Closing
opinions dated the Closing Date of counsel to the Investors, in form and
substance reasonably satisfactory to the Companies taking into account, if
such counsel so desires, the ABA Guidelines regarding legal opinions,
covering the matters set forth in Schedule 5.3(d) of the Investor
Disclosure Letter.
ARTICLE VI
Covenants of the Companies
As an inducement to the Investors to enter into this Agreement and to
consummate the transactions contemplated hereby, the Companies and the
Operating Partnerships hereby covenant with the Investors as follows:
Section 6.1 Conduct of Business Pending the Closing.
(a) Except as set forth in Section 6.1 of the Company Disclosure Letter or
as otherwise expressly contemplated by this Agreement or as consented to by the
Investors in writing, during the period from the date of this Agreement through
and including the Closing Date, the Companies and the Operating Partnerships
shall, and shall cause the Subsidiaries to, carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, shall use reasonable efforts to
preserve intact their current business organizations,
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use reasonable efforts to keep available the services of their current officers
and other employees and use reasonable efforts to preserve their relationships
with those persons having business dealings with them. Without limiting the
generality of the foregoing, except as set forth in Section 6.1 of the Company
Disclosure Letter or as otherwise expressly contemplated by this Agreement,
including without limitation the Restructuring Plan, or as consented to by the
Investors in writing, during the period from the date of this Agreement through
the Closing Date, the Companies and the Operating Partnerships shall not, and
shall not permit any of the Subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned Subsidiary to the Companies or one of their wholly owned
Subsidiaries, (A) declare, set aside or pay any dividends (payable in cash,
stock, property or otherwise) on, make any other distributions in respect
of, or enter into any agreement with respect to the voting of, any of its
capital stock or partnership or other equity interests, (B) split, combine
or reclassify any of its capital stock or partnership or other equity
interests or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
or partnership or other equity interests, or (C) purchase, redeem or
otherwise acquire any capital stock or partnership or other equity
interests in the Companies or any of the Subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities, provided that the Companies may redeem
partnership units in Patriot OP and Wyndham OP to the extent required under
the applicable limited partnership agreement, provided that any such
redemption is effected solely with shares of Paired Common Stock (unless
otherwise agreed to in writing by the Investors);
(ii) other than issuances of shares of Paired Common Stock pursuant to
the terms of Paired Share Equivalents or Options (as defined in Section
6.8(a)) outstanding as of the date of this Agreement and disclosed pursuant
to this Agreement, issue, deliver, sell, pledge or otherwise encumber or
subject to any Lien any of its shares of capital stock or partnership or
other equity interests or any other voting securities or any securities
convertible into, exercisable for or exchangeable with, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;
(iii) amend its certificate of incorporation, by-laws, partnership
agreement or other comparable organizational documents or amend the Patriot
Rights Plan;
(iv) acquire any business (whether by merger, consolidation, purchase of
assets or otherwise) or acquire any equity interest in any person not an
affiliate (whether through a purchase of stock, establishment of a joint
venture or otherwise);
(v) other than as identified in Section 6.1(a)(v) of the Company
Disclosure Letter, (A) sell, lease, exchange, license, mortgage or
otherwise encumber or subject to any Lien or otherwise dispose of any of
its real properties or other assets, (B) enter into any new franchise
agreements with the Companies or any Subsidiary as the franchisor, (C)
enter into any new joint ventures or similar projects, or (D) enter into
any new development projects;
(vi) change its methods of accounting (or underlying assumptions) in
effect at December 31, 1997, except as required by changes in GAAP or law
or regulation or as disclosed in the SEC Reports filed prior to the date of
this Agreement, or change any of its methods of reporting income and
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns of the Companies for the
taxable years ended December 31, 1997, except as required by changes in law
or regulation;
(vii) create, renew, amend, terminate or cancel, or take any other
action that could reasonably be expected to result in the creation,
renewal, amendment, termination or cancellation of any agreement or
instrument that is material to the Companies and their respective
subsidiaries, taken as a whole;
(viii) incur any indebtedness for borrowed money;
(ix) enter into any new capital or take out commitments or increase any
existing capital or take out commitments (except as set forth in the
Capital Expenditure Budget);
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(x) other than with respect to the individual previously disclosed to
the Investors, but only to the extent previously approved by the Investors
in writing and except as set forth on Section 3.22(a) of the Company
Disclosure Letter, (A) grant to any current or former director, executive
officer or other key employee of the Companies or any Subsidiary any
increase in compensation, bonus or other benefits (other than increases in
base salary in the ordinary course of business consistent with past
practice or arising due to a promotion or other change in status and
consistent with generally applicable compensation practices), (B) grant to
any such current or former director, executive officer or other employee
any increase in severance or termination pay, (C) amend or adopt any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or employee, (D) amend, adopt or terminate any Benefit
Plan, except as may be required to retain qualification of any such plan
under Section 401(a) of the Code or (E) make any additions or changes to
the Companies' senior management at the level of divisional President or
higher;
(xi) except pursuant to agreements or arrangements in effect on the date
hereof or as otherwise contemplated by this Agreement which have been
disclosed in Section 6.1 of the Company Disclosure Letter, pay, loan or
advance any amount to, or sell, transfer or lease any properties or assets
(real, personal or mixed, tangible or intangible) to, or purchase any
properties or assets, or enter into any agreement or arrangement with, any
of its officers or directors or any affiliate or the immediate family
members or associates of any of its officers or directors, other than
payment of compensation at current salary, incentive compensation and
bonuses and other than properly authorized business expenses in the
ordinary course of business, in each case consistent with past practice;
(xii) settle or compromise any pending or threatened suit, action or
claim (A) asserted by one or more stockholders of the Companies or the
Subsidiaries or one or more limited partners of the Operating Partnerships,
(B) that involves amounts, individually in or in the aggregate, in excess
of $100,000 net of insurance or (C) which relates to the transactions
contemplated by the Transaction Documents (excluding the obtaining of any
consents under the Restructuring Plan);
(xiii) permit any material insurance policy naming the Companies or any
Subsidiary as a beneficiary or a loss payable payee to be canceled or
terminated;
(xiv) enter into or amend in a manner adverse to the Investors any new
agreement which has a non-competition, geographical restriction or similar
covenant; or
(xv) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Without limiting the foregoing, the Companies and the Operating
Partnerships shall, and shall cause the Subsidiaries to, (i) make the
expenditures set forth under the caption "Maintenance Capital Expenditures" in
the Capital Expenditure Budget, and (ii) implement the performance goals in
accordance with the timetable set forth in Section 5.2(g)(ii) of the Company
Disclosure Letter.
Section 6.2 Reporting. The Companies shall, so long as the Shares or the
shares of Wyndham Common Stock issuable upon conversion thereof are outstanding
and are "restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, file reports and other information with the SEC under Section
13 or 15(d) of the Exchange Act.
Section 6.3 Payment of Expenses.
(a) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, the Companies and the Operating
Partnerships hereby agree, jointly and severally, (i) to pay all costs and
expenses incident to the performance of the obligations of the Companies and
the Operating Partnerships hereunder, including those in connection with (A)
the issuance, transfer and delivery of the Shares or the shares of Wyndham
Common Stock issuable upon conversion thereof to the Investors, including any
transfer or similar taxes payable with respect thereto, (B) the qualification
of the Shares or the shares of Wyndham Common Stock issuable upon conversion
thereof under state or foreign securities or Blue Sky laws, (C) the cost of
printing the certificates for the Shares or the shares of Wyndham Common Stock
issuable upon
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conversion thereof and (D) the costs and charges of any transfer agent,
registrar, trustee or fiscal paying agent, and (ii) to promptly pay, upon the
Closing or the termination of this Agreement (other than as set forth in
Section 6.3(c)), all out-of-pocket costs and expenses up to an aggregate of $25
million (including any such payments made to the Investors prior to the date
hereof or through the Closing Date), including fees and expenses of advisors,
accountants, attorneys, consultants and other parties whom the Investors have
engaged to assist them in connection with a possible investment in the
Companies, incurred by the Investors in connection with the evaluation,
negotiation and consummation of this Agreement, the other Transaction Documents
and the transactions contemplated hereby and thereby or incurred by them in
connection with any litigation that relates to the transactions contemplated by
this Agreement.
(b) Without limiting the foregoing, the Companies shall pay the Investors,
as reimbursement of their out-of-pocket costs and expenses, (i) $2,500,000 on
the Effective Date, except to the extent that the Companies provide evidence
reasonably satisfactory to the Investors demonstrating that the Companies have
paid such amount prior to the date of this Agreement and (ii) $7,500,000 as
soon as practicable following the date of this Agreement using the first
proceeds from mortgage indebtedness of the Companies or the Subsidiaries
received after the Effective Date.
(c) Each of the following obligations is independent of and not limited in
any way by the Companies' or the Operating Partnerships' obligations in respect
of any of the other following obligations: (i) the payment obligation under
Section 6.3(a); (ii) the reimbursement of $2.5 million of the Investors' costs
and expenses that the Companies have heretofore reimbursed or are reimbursing
on the Effective Date (as defined below) of this Agreement; (iii) the separate
fees that are payable pursuant to the Equity Commitment Letter; (iv) the
separate fee that may become payable pursuant to Section 6.7; and (v) the
Companies' and the Operating Partnerships' indemnification obligations under
Section 10.2 and any adjustment to the conversion price of the Shares pursuant
to the Series B Certificate of Designation.
Section 6.4 Availability of Wyndham Common Stock. Wyndham shall at all times
reserve and keep available out of its authorized but unissued common stock, for
the purpose of effecting the conversion of the Shares, the full number of
shares of Wyndham Common Stock then issuable upon the conversion of the Shares.
Wyndham will, from time to time, in accordance with the laws of the State of
Delaware, increase the authorized amount of Wyndham Common Stock if at any time
the number of shares of Wyndham Common Stock remaining unissued and available
for issuance shall be insufficient to permit conversion of the Shares.
Section 6.5 Disclosure Documents; Stockholder and Partner Approvals.
(a) Each of Patriot and Wyndham shall, in accordance with applicable law and
its Certificate of Incorporation and By-Laws:
(i) promptly file with the SEC confidential (to the extent required to
be so filed and permitted by law), preliminary copies of the disclosure
documents to be sent to securityholders in connection with the transactions
contemplated by this Agreement (the "Disclosure Documents") and use its
reasonable efforts to obtain the clearance by the SEC of those Disclosure
Documents requiring clearance by the SEC as promptly as practicable
thereafter;
(ii) promptly and duly call, give notice of, convene and hold not later
than 50 calendar days following the clearance of the Disclosure Documents
by the SEC a meeting of its stockholders for the purpose of obtaining the
Patriot Stockholder Approval and the Wyndham Stockholder Approval (each, a
"Stockholders Meeting");
(iii) except to the extent such Board of Directors determines in good
faith, after consultation with outside counsel, that contrary action is
required by such Board of Directors' fiduciary duties under applicable law,
recommend the Patriot Stockholder Approval in the case of Patriot, the
Wyndham Stockholder Approval in the case of Wyndham, the Patriot Partner
Approval in the case of Patriot OP, the Wyndham Partner Approval in the
case of Wyndham OP and the acceptance by stockholders and limited partners
of the Exchange Offers, and include in the Disclosure Documents such
recommendations and the
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written opinion of the Financial Advisor that the financial consideration
to be received upon the sale of the Series B Preferred Stock is fair, from
a financial point of view, to the stockholders of the Companies, and take
all lawful action to solicit such approvals and acceptances; and
(iv) as promptly as practicable following the clearance by the SEC of
the Disclosure Documents requiring such clearance cause the definitive
Disclosure Documents to be mailed to its stockholders and the limited
partners of the Operating Partnerships.
(b) The Companies may, prior to the mailing of the Disclosure Documents to
stockholders in connection with the Stockholders' Meeting, deliver to the
Investors an updated Company Disclosure Letter dated as of the date thereof
(the "Updated Company Disclosure Letter") which supplements the Company
Disclosure Letter to reference all items that would have been required to be
disclosed in the Company Disclosure Letter had they been known at the time of
execution and delivery of this Agreement. Within 10 business days following
receipt of the Updated Company Disclosure Letter, the Investors will notify the
Companies whether the Investors believe that a Material Adverse Change has
occurred based on the information that has been provided to the Investors in
the Updated Company Disclosure Letter. Under no circumstances shall such a
notification of the Investors' determination affect in any way the Investors'
right to assert that the condition set forth in Section 5.2(a) or 5.2(c) has
not been satisfied and shall not affect in any way the Investors' rights to
indemnification pursuant to Section 10.2. In making their determination as to
whether the condition set forth in Section 5.2(a) or 5.2(c) has not been
satisfied for purposes of this Section 6.5(b), the Investors shall be deemed to
have relied solely on the information provided in the Company Disclosure Letter
and the Updated Company Disclosure Letter and to have knowledge only of the
events or items set forth on the Company Disclosure Letter and the Updated
Company Disclosure Letter, if any. Under no circumstance shall the Investors be
held liable for any notification given pursuant to this Section 6.5(b),
including without limitation in a circumstance where a contrary determination
is made by the Investors at or prior to the Closing.
(c) The Companies shall use reasonable efforts to ensure that the Disclosure
Documents (including without limitation any SEC Reports incorporated by
reference therein), the Exchange Offers, the Patriot OP Consent Solicitation
and the Wyndham OP Consent Solicitation shall comply with all applicable
federal or other securities laws, except that the Companies shall have no
obligation as to information provided by the Investors.
(d) The filing with the SEC, or the transmission to any of the Companies'
securityholders, of any Disclosure Document, or any amendment thereof, relating
to the transactions contemplated by this Agreement shall be subject to the
prior approval of the Investors and their counsel, which approval shall not be
unreasonably withheld or delayed.
Section 6.6 Restructuring Plan. At or prior to the Closing, the Companies
shall use reasonable efforts to take all actions necessary to effect the
actions set forth in the Restructuring Plan.
Section 6.7 No Solicitation of Competing Transactions.
(a) Except as expressly permitted in writing by the Investors, the Companies
shall not, nor shall they authorize or permit any of the Subsidiaries or any of
the Companies' or the Subsidiaries' directors, officers, employees,
representatives, agents and advisors (including any investment banker,
financial advisor, attorney, accountant or other representative retained by any
of them), directly or indirectly, to (i) solicit, initiate, encourage
(including by way of furnishing nonpublic information), respond to (other than
by bare statement, without any further detail or explanation, that they are not
permitted to respond), or take any other action designed to facilitate, any
inquiries or the making of any proposal with respect to any merger,
consolidation, transfer of substantial assets, sale or exchange of shares or
similar transaction (except as set forth in Section 6.7 of the Company
Disclosure Letter) (collectively, a "Competing Transaction"), (ii) participate
in any substantive discussions or negotiations regarding any Competing
Transaction or (iii) enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Competing
Transaction. Upon execution of this Agreement, the Companies and the
Subsidiaries shall immediately cease
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any existing activities, discussions or negotiations with any parties
heretofore conducted with respect to any of the foregoing. Notwithstanding the
foregoing, the Companies will not be precluded from providing information to,
or discussing, negotiating and executing agreements with, any person or entity
that makes a written proposal pursuant to which such other person or entity
would (i) make a significant equity investment in the Companies, (ii) acquire
all or a substantial portion of the assets of the Companies or (iii) acquire
the Companies, if and to the extent that the Boards of Directors of the
Companies reasonably determine in good faith (after consultation with outside
counsel) that they are required to do so by their fiduciary duties.
(b) The Companies shall promptly (but in any event within 24 hours) advise
the Investors in writing of any inquiries, discussions, negotiations, proposals
or requests for information received on or after the date of this Agreement
relating to any Competing Transaction, the material terms and conditions
thereof and the identity of the person making such request or Competing
Transaction. The Companies shall promptly advise the Investors of any
development relating to any inquiries, discussions, negotiations, proposals or
requests for information relating to a Competing Transaction, whether the
original inquiries, discussions, negotiations, proposals or requests for
information occurred before, on or after the date of this Agreement.
(c) If, prior to the Closing or during the 180-day period following any
termination of this Agreement, either of the Companies or any Subsidiary enters
into any other agreement or agreements with a third party (a "Third Party"),
without the prior consent of the Investors, providing for the issuance of
equity or other securities convertible into or exchangeable or exercisable for
equity, in one or a series of transactions, with aggregate net proceeds of at
least $50 million or providing for or contemplating any merger, consolidation,
transfer of substantial assets, any tender or exchange offer to acquire
securities of the Companies or similar transaction involving the Companies (a
"Third Party Agreement"), and the Companies shall have not have consummated the
transactions contemplated hereby other than solely by reason of the Investors
being unwilling to proceed with the Closing notwithstanding that the conditions
to their obligations set forth in Article V have been satisfied, the Companies
agree to pay to the Investors within five business days after the entry by
either of the Companies or any Subsidiary into any Third Party Agreement, in
addition to any amounts otherwise provided hereunder, an aggregate amount (the
"Breakup Fee") in cash equal to $30 million; provided, that, if the Third Party
is (a) Hilton Hotels Corporation ("Hilton"), (b) any subsidiary or affiliate of
Hilton, (c) any financial advisor or financing source of Hilton or a subsidiary
or affiliate thereof working on behalf of, or with, Hilton in connection with
the transactions contemplated by a Third Party Agreement or (d) any entity that
has an agreement, arrangement or understanding with Hilton or any of the
foregoing, or any group including any of the foregoing, which agreement,
arrangement or understanding provides for work on behalf of, or with, Hilton in
connection with the transactions contemplated by a Third Party Agreement, the
Third Party Agreement shall be deemed to include not only those agreements set
forth above but also any agreement contemplating an asset purchase from or
provision of financing to or financial support in favor of the Companies and
the Breakup Fee shall be an amount in cash equal to $50 million; and provided
further that the term "Third Party Agreement" shall not include any agreement
that provides solely for the sale of any of the assets listed on Section 6.7(c)
of the Company Disclosure Letter. The Breakup Fee shall be paid as liquidated
damages to the various Investors in accordance with their respective Investor
Percentages. The Companies agree that (i) actual damages relating to the
foregoing are impossible to determine with certainty and (ii) such sum is a
reasonable estimate of the Investors' damages (and shall be deemed when paid,
together with the payment of the fees contemplated by the Equity Commitment
Letter and the reimbursement of expenses pursuant to Section 6.3, to have fully
reimbursed the Investors for all such damages) arising from lost opportunities,
executive time and other causes.
Section 6.8 Benefit Plans.
(a) Each option ("Option") granted under the Stock Incentive Plans (as
defined below) or granted pursuant to the stock option agreements covered by
the Form S-8 Registration Statement (File No. 333-41927) filed with the SEC on
December 10, 1997 to acquire shares of the Paired Common Stock that is
outstanding immediately prior to the Closing Date, shall, after giving effect
to the Merger and the Reverse Stock Split, become and represent an option to
acquire the same number of shares of Wyndham Class A Common Stock at the same
exercise price per share of Wyndham Common Stock; provided, however, that in
the case of any
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Option to which Section 421 of the Code applies by reason of its qualification
as an incentive stock option under Section 422 of the Code, the conversion
formula shall be adjusted if necessary to comply with Section 424(a) of the
Code. Except as provided above, each Option shall be exercisable upon the same
terms and conditions as were applicable to the Option immediately prior to the
Closing Date. "Stock Incentive Plans" means the Wyndham International, Inc.
1997 Stock Incentive Plan, the Patriot American Hospitality, Inc. 1997 Stock
Incentive Plan, the Patriot American Hospitality, Inc. 1995 Stock Incentive
Plan, the Wyndham Hotel Corporation Amended and Restated 1996 Long Term
Incentive Plan, the Cal Jockey Incentive Plan, the Bay Meadows Operating
Company 1988 Stock Option Plan and the Patriot American Hospitality, Inc. Non-
Employee Directors' Incentive Plan.
(b) Each other outstanding award made pursuant to the Stock Incentive Plans
which provide for grants of equity-based awards in respect of shares of Paired
Common Stock (the "Other Awards") shall be amended or converted into a similar
equity-based award solely in respect of shares of Wyndham Common Stock, with
such appropriate adjustments to the terms of such Other Awards to preserve the
value inherent therein with no detrimental effects on the holders thereof.
(c) Prior to the Closing Date, the Companies shall amend the terms of each
of the Stock Incentive Plans, to the extent necessary or appropriate, to give
effect to the provisions of this Section 6.8 and to reflect the transactions
contemplated by the Transaction Documents.
(d) Prior to the Closing Date, the Companies shall (i) amend the Patriot
American Hospitality/Wyndham International Employee Savings and Retirement Plan
(the "Savings Plan") to provide that the investment alternative to invest in
shares of Paired Common Stock shall become an investment alternative to invest
in shares of Wyndham Common Stock and (ii) take all such action necessary to
effectuate any such amendments.
(e) Prior to the Closing Date, the Companies shall use their reasonable
efforts to amend the agreements listed in Section 6.8(e) of the Company
Disclosure Letter to remove from such agreements the requirement that the
Companies establish and fund "rabbi trusts" to satisfy obligations of the
Companies under such agreements (the "Rabbi Trust Amendments").
Section 6.9 No General Solicitation. None of the Companies, their affiliates
(as defined in Rule 501(b) under the Securities Act) or any person acting on
their behalf will offer to sell, sell or solicit any offer to buy the Shares by
means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act that would require the registration of the Shares under the
Securities Act unless the Shares are so registered.
Section 6.10 Preemptive Rights. Until the fifth anniversary of the Closing
Date, for so long as the Investors own Shares or Wyndham Common Stock acquired
upon conversion of Shares or pursuant to this Section 6.10 together
representing or convertible into more than 15% of the fully diluted shares of
Wyndham Common Stock, they shall have a preemptive right after the Closing
Date, upon any issuance after the Closing Date of Wyndham Common Stock (other
than those issued upon the conversion, exercise or exchange of any securities
convertible into, exercisable for or exchangeable with Wyndham Common Stock) or
securities which are issued after the date hereof convertible into, exercisable
for or exchangeable with Wyndham Common Stock (including any Patriot OP Units
or Wyndham OP Units redeemable for Wyndham Common Stock issued after the date
hereof but excluding any shares issued upon conversion of Series A Preferred
Stock, Series B Preferred Stock or Class B Common Stock), to purchase the same
percentage of such securities as the percentage of the outstanding Wyndham
Common Stock (including for such purpose shares issuable upon conversion of the
Shares and the Rights Offering Shares) then held by the Investors (assuming for
such purpose the full conversion of all Shares then held by the Investors,
including any Shares issued to the Investors as dividends on the Shares, and
any Shares issuable to the Investors as a dividend on the Shares for the
dividend period in which the Investors' ownership is measured, prorated for the
number of days elapsed during such period); provided that to the extent that
one or more of the Investors do not exercise such preemptive rights in
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full, the unexercised portion of such Investors' preemptive rights shall be
allocated among the other Investors pro rata in accordance with the number of
the shares of Wyndham Common Stock (including any shares issuable upon
conversion of the Shares) then held by them. In connection with this preemptive
right, Wyndham shall provide written notice to each Investor within ten
business days following the end of each fiscal quarter of Wyndham of all
issuances by Wyndham or its Subsidiaries giving rise to preemptive rights
during such fiscal quarter and the Investors shall provide written notice to
Wyndham of the extent to which they are exercising their preemptive rights and
their interest in exercising preemptive rights that are not being exercised by
other Investors and close any transaction relating to the exercise of
preemptive rights hereunder on the 20th business day following receipt of such
notice by Wyndham. Any preemptive right not exercised by the end of such period
will expire, lapse and be of no effect. This Section 6.10 will not apply to the
Rights Offering or to any other equity issuance by Wyndham during the six month
period following the Closing.
Section 6.11 Non-Competition and Other Restrictions. From and after the
Closing, for so long as the Investors beneficially own an aggregate of 5% of
the outstanding shares of Wyndham Common Stock (including shares of Wyndham
Common Stock issuable upon conversion of Shares and Rights Offering Shares),
Wyndham shall not, and shall not permit the Subsidiaries to, without the
approval of a majority of the Class B Directors (as defined in the New Wyndham
Certificate), enter into or amend any new agreement which has a non-
competition, geographical restriction or similar covenant that will apply to
and restrict the activities of any of the Investors.
Section 6.12 Access to Information.
(a) The Companies and the Operating Partnerships shall, and shall cause the
Subsidiaries to, afford to each Investor (including for such purposes only
those Permitted Third Party Transferees with an investment in the Companies of
at least $20 million) and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such Investor, reasonable
access during normal business hours from the date hereof until and after the
Closing to all the properties, books, contracts, commitments, personnel,
reports and records of or relating to the Companies or the Subsidiaries, and
the Companies and the Operating Partnerships shall, and shall cause the
Subsidiaries to, furnish promptly to the Investors, any financing source
identified by the Investors in connection with the transactions contemplated
hereby and to any other person that the Investor may reasonably request (i) a
copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state
securities laws, (ii) such weekly, monthly, quarterly, annual and other
operating reports, financial reporting packages and other operational and/or
financial information sent to management or the Board of Directors of the
Companies or to the banks with whom the Companies and the Subsidiaries maintain
credit facilities or lines of credit and (iii) all other information concerning
its business, properties and personnel as the Investors may reasonably request.
(b) In addition to the foregoing, the Companies and the Operating
Partnership shall, and shall cause the Subsidiaries to, permit the Investors to
monitor the status of the Year 2000 Plan in the following manner, without
limitation, by: (i) providing semi-monthly updates to the designated
representatives of the Investors on the progress of the Year 2000 Plan
(including the amount of expenditures made on such plan to that date), (ii)
notifying the Investors of whether the Companies or any of the Subsidiaries
intend to deviate in any material respects from the Year 2000 Plan, (iii) if a
deviation from the Year 2000 Plan is contemplated, consulting with designated
representatives of the Investors to determine if such deviation is in the best
interest of the Companies, and (iv) coordinating with the Investors and their
representatives to develop modifications, if any, to the Year 2000 Plan. For
purposes of this Section 6.12(b), the Investors' designated representatives
shall be such persons as the Investors shall identify to the Companies.
(c) No review pursuant to this Section 6.12 shall subject the Investors or
their representatives or agents to any responsibility for the Companies'
compliance or failure to comply with the Year 2000 Plan or affect any
representation or warranty given by the Companies or the Operating Partnerships
hereunder.
Section 6.13 Rights Offering. If and when so determined following the
Closing by the vote of a majority of the Class A Directors and Class C
Directors (each as defined in the New Wyndham Certificate),
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voting together, Wyndham may conduct a single rights offering (the "Rights
Offering") in which the holders of the Wyndham Class A Common Stock and if the
approvals to the Patriot OP Consent Solicitation and the Wyndham OP Consent
Solicitation are received, the Patriot OP Units and the Wyndham OP Units
(collectively, the "Eligible Holders") will be eligible to participate,
provided that the record date for the Rights Offering (the "Record Date") shall
be established and announced in accordance with the applicable provisions of
Rule 10b-17 promulgated under the Exchange Act and the applicable rules of the
NYSE and the Rights Offering may not be consummated any later than 170 days
following the Closing Date. In the Rights Offering, the Eligible Holders will
be offered transferable rights to purchase for cash at par up to $300 million
in Series A Preferred Stock with an issuance date on the date of consummation
of the closing of the Rights Offering; provided, however, that if the Companies
shall have sold the Identified Assets prior to or at the closing of the Rights
Offering for net cash proceeds in excess of the amounts set forth in Section
1.1(c) of the Company Disclosure Letter and shall apply such excess proceeds
(i) to reduce the number of Shares in accordance with Section 1.1(c) or (ii) to
redeem the Shares in accordance with the Series B Certificate of Designation,
then the maximum offering amount of the Rights Offering shall be reduced by the
amount of such excess proceeds. The rights to purchase shall be allocated among
the Eligible Holders pro rata based on the respective numbers of shares of
Wyndham Class A Common Stock held by such Eligible Holders on the Record Date
or that would be received by such Eligible Holder upon redemption of the
Patriot OP Units or Wyndham OP Units held by them on the Record Date (rounded
down in the case of fractional shares of Series A Preferred Stock to the
nearest whole number of shares) and shall not be reallocated in the event that
not all Eligible Holders exercise their right to purchase in full. The Rights
Offering will provide that any exercise thereof is irrevocable. The Companies
will use reasonable efforts to ensure that the Rights Offering will be
conducted in compliance with all applicable securities laws. Unless otherwise
determined by the vote of a majority of the Class A Directors and the Class C
Directors, voting together, the shares of Series A Preferred Stock shall be
listed on the NYSE, the NASDAQ National Market System or other national
securities exchange, subject to satisfying the eligibility requirements
thereof.
Section 6.14 HSR Approval. Wyndham shall cooperate with each Investor in
obtaining as soon as practicable all necessary governmental consents and
approvals, including without limitation, termination or expiration of the
waiting period under the HSR Act.
ARTICLE VII
Covenants of the Investors
Section 7.1 Certain Restrictions.
(a) Each of the Investors, severally but not jointly, covenants with the
Companies that, for a period commencing on the Closing and continuing through
the sixth anniversary of the Closing, such Investors will not, directly or
indirectly, through one or more intermediaries or otherwise, purchase, acquire,
own or hold any shares of Wyndham Common Stock or any securities which are
convertible into or exchangeable or exercisable for Wyndham Common Stock
(excluding any shares that are owned by the Investors as of the date hereof as
set forth on Section 7.1(a) of the Investor Disclosure Letter), unless such
shares or securities were purchased or acquired in a purchase or acquisition
which (i) is made directly from Wyndham in a transaction which is approved in
advance by vote of a majority of the Class A Directors and Class C Directors,
voting together, including without limitation under Section 6.10, or from
another Investor, (ii) is a dividend on the Shares or a conversion of the
Shares, (iii) is made pursuant to the Rights Offering or upon conversion of the
Rights Offering Shares acquired pursuant thereto, (iv) is made by one or more
affiliates of any Investor over whom such Investor does not control investment
or voting decisions and such Investor does not hold over 50% of the outstanding
voting power of such affiliate, or (v) is of non-voting preferred stock of the
Companies; provided, however, that notwithstanding anything to the contrary
contained herein, the foregoing restriction shall not be deemed to be violated
or applicable if the numbers of shares of Wyndham Common Stock or securities
which are convertible into or exchangeable or exercisable for Wyndham Common
Stock beneficially owned directly
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or indirectly through one or more intermediaries or otherwise, in the
aggregate, by the Investors is increased solely as a result of any stock
dividend, stock split, split-up, recapitalization, merger or other change in
the corporate or capital structure of Wyndham or any other action taken solely
by Wyndham. Notwithstanding the foregoing, (x) any Investor, Permitted Assignee
or Permitted Third Party Transferee, or any of their respective affiliates may,
to the extent not prohibited by law, acquire Wyndham's publicly-traded
securities in the ordinary course of their regular market-making activities, if
any, or engage in business as investment advisors or broker-dealers for the
accounts of their customers (such activities, "Ordinary Trading Activities"),
and (y) any individual who is an employee, partner or stockholder of any of the
Investors may purchase shares of Wyndham Common Stock for his or her individual
account (held for investment purposes), provided that at no time shall any such
individual acquire beneficial ownership of in excess of 100,000 shares of
Wyndham Common Stock, including shares of Wyndham Common Stock issuable upon
conversion, exchange or exercise of securities which are convertible into or
exchangeable or exercisable for shares of Wyndham Common Stock (subject to
equitable adjustment in the event of a stock split or reclassification of the
Wyndham Common Stock), exclusive of shares identified in Section 7.1(a) of the
Investor Disclosure Letter or which may otherwise be acquired consistent with
this Section 7.1.
(b) Each of the Investors, severally but not jointly, covenants with the
Companies that such Investor will not (i) make any public announcement (except
as required by law in respect of actions permitted hereby) or proposal or offer
whatsoever (including, but not limited to, any "solicitation" of "proxies" as
such terms are defined or used in Regulation 14A of the Exchange Act) with
respect to, (x) any form of business combination or similar or other
extraordinary transaction involving the Companies or any affiliate thereof,
including, without limitation, a merger, tender or exchange offer or
liquidation of the Companies' assets, or (y) any form of restructuring,
recapitalization or similar transaction with respect to the Companies or any
affiliate thereof or (ii) make any proposal to seek representation on the Board
of Directors or otherwise to seek to control or influence the management, Board
of Directors or policies of Wyndham or any affiliate thereof.
(c) Within five business days following a written request therefor by
Wyndham, each Investor shall notify Wyndham in writing of the number of shares
of each class or series of capital stock of Wyndham beneficially owned by such
Investor and such Investor's Permitted Assignees, as well as in each case the
nature of such beneficial ownership.
Section 7.2 Quorum. Each of the Investors covenants that, for so long as the
Investors beneficially own a sufficient number of shares of the Series B
Preferred Stock and the Wyndham Class B Common Stock to have the right to
designate at least two directors to the Board of Directors of Wyndham, such
Investor will be present in person or represented by proxy with respect to all
securities of Wyndham beneficially owned by such Investor at any duly called
meeting of the stockholders of Wyndham for the purpose of constituting a quorum
for the transaction of business.
Section 7.3 Transfers. The Investors covenant with the Companies that the
Investors will not, individually or in the aggregate, transfer or attempt to
transfer more than 25% of the Shares to one or more Permitted Third Party
Transferees (such percentage to include any Shares previously transferred to
any Permitted Third Party Transferee prior to the Closing Date under Section
1.1); provided, that the Investors shall not be restricted from any transfer or
attempted transfer pursuant to which Shares are converted into Series A
Preferred Stock or any other conversion of Shares.
Section 7.4 HSR Approval. The Investors shall cooperate with the Companies
in obtaining as soon as practicable all necessary governmental consents and
approvals, including without limitation, termination or expiration of the
waiting period under the HSR Act.
Section 7.5 No Voting Agreements. The Investors covenant with the Companies
that, for so long as the Investors beneficially own a sufficient number of
shares of Wyndham Common Stock to have the right to designate any directors to
the Board of Directors of Wyndham, the Investors will not enter into any voting
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agreement relating to the Shares, except with respect to the allocation,
election and removal of directors of the Board of Directors of Wyndham.
Section 7.6 Board of Director Matters. The Investors agree that no
individual Investor will nominate or select, or have the right to nominate or
select, more than five directors to the Board of Directors of Wyndham.
Section 7.7 Compliance with the New Wyndham Certificate and Series B
Certificate of Designation. Each Investor agrees, severally but not jointly, to
comply with the provisions of, and to perform their obligations set forth in
the New Wyndham Certificate and the Series B Certificate of Designation,
including without limitation, their voting obligations set forth therein,
whether or not any such provision is valid.
Section 7.8 Confidentiality. During the period from the date of this
Agreement through and including the Closing Date, each of the Investors
covenants with the Companies that any of the information furnished or otherwise
obtained, directly or indirectly, by such Investor, its directors, officers,
partners, employees, agents or representatives including, without limitation,
attorneys, accountants, partners, experts and consultants (collectively,
"Representatives") and all reports, analysis, compilations, data, studies or
other documents prepared by such Investor or its Representatives containing or
based, in whole or in part, on any such furnished information (collectively,
the "Information") will be kept strictly confidential and will not, without the
prior written consent of the Companies, be disclosed to any other individual,
corporation, partnership, joint venture, trust or association in any manner
whatsoever, in whole or in part and will not be used for any purpose other than
in connection with the Restructuring and the purchase and sale of Shares
described herein; provided that if any Investor determines, based on the advice
of counsel, that it is legally obligated to release the Information, such
Investor may do so after notice to and consultation with the Companies.
ARTICLE VIII
Restrictions on Transferability of Securities
Section 8.1 Restrictive Legend. Each certificate representing (a) the
Shares, (b) shares of Series A Preferred Stock or Wyndham Common Stock issuable
upon conversion of any Shares, and (c) any other securities issued in respect
of the Shares or Wyndham Common Stock issued upon conversion of any Shares upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event (each of the foregoing securities in clauses (a) through (c)
being referred to herein as "Restricted Securities"), shall (unless otherwise
permitted by the provisions of Section 8.2) be stamped or otherwise imprinted
with a legend substantially in the following form (in addition to the legend
required under any applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR EXEMPTION THEREFROM
UNDER SAID ACT OR LAWS. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SHARES AND THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY
OF THE COMPANY. PURSUANT TO SUCH AGREEMENT, CERTAIN TRANSFERS MAY NOT BE
MADE UNLESS AT THE TIME OF SUCH TRANSFER ONE OR MORE DIRECTORS OF THE
COMPANY APPOINTED PURSUANT TO SUCH AGREEMENT SUBMIT THEIR RESIGNATION FROM
THE BOARD OF DIRECTORS.
Wyndham will promptly, upon request, remove any such legend when no longer
required by the terms of this Agreement or by applicable law.
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Section 8.2 Notice of Proposed Transfers. Prior to any proposed transfer of
any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, each Investor shall
give written notice to Wyndham of its intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed
transfer in sufficient detail, and shall be accompanied by either (a) a written
opinion of legal counsel (who shall be reasonably satisfactory to Wyndham)
addressed to Wyndham and reasonably satisfactory to Wyndham to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act or (b) a "no action" letter from the SEC
to the effect that the transfer of such securities without registration will
not result in a recommendation by the staff of the SEC that action be taken
with respect thereto, whereupon, in each case, such Investor shall be entitled
to transfer such Restricted Securities in accordance with the terms of the
notice delivered by such Investor to Wyndham. Unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
each certificate to be issued to evidence the Restricted Securities transferred
as herein provided shall bear the appropriate restrictive legend set forth in
Section 8.1 except that such certificate shall not bear such restrictive legend
if, (i) in the opinion of counsel for such Investor, such legend is not
required in order to establish compliance with any provisions of the Securities
Act, (ii) a period of at least one year has elapsed since the later of the date
the Restricted Securities were acquired from Wyndham or from an affiliate of
Wyndham, and such Investor represents to Wyndham that it is not an affiliate of
Wyndham and has not been an affiliate during the preceding three months and
shall not become an affiliate of Wyndham without resubmitting the Restricted
Securities for reimposition of the legend, or (iii) the Restricted Securities
have been sold pursuant to Rule 144(k) under the Securities Act and the
certificate is accompanied by a representation by the Investor that it is not
an affiliate of Wyndham, has not been an affiliate during the three-month
period prior to the sale and has held the Restricted Securities for more than
two years.
ARTICLE IX
Termination
Section 9.1 Termination. Notwithstanding anything contained herein to the
contrary, this Agreement may be terminated at any time prior to the Closing
Date:
(a) by the mutual written consent of the Investors and the Companies;
(b) by the Investors or the Companies if the Closing has not occurred on
or before July 31, 1999 and this Agreement has not previously been
terminated; provided, that the right to terminate the Agreement under this
Section 9.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Closing to occur on or before such date; or
(c) by the Investors or the Companies if, at the Stockholders Meeting,
the Stockholder Approval is not obtained.
In the event that this Agreement shall be terminated pursuant to this
Article IX, all further obligations of the parties under this Agreement, other
than the obligations set forth in Article X and Sections 6.3, 6.7(c) and
Article XI, shall be terminated without further liability of any party to any
other party, provided that nothing herein shall relieve any party from
liability for its willful breach of this Agreement.
ARTICLE X
Indemnification
Section 10.1 Survival of Representations and Warranties. All representations
and warranties of the Companies, the Operating Partnerships and the Investors
contained herein, including the Company Disclosure Letter, or any certificate
or instrument delivered in connection herewith at or prior to the Closing shall
survive
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the Closing (even if the damaged party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) until, through
and including the 90th day following the filing by Wyndham of a Form 10-K
containing the audited consolidated financial statements of Wyndham for the
fiscal year ending December 31, 1999 (the "Cut-off Date"); provided, however,
that (a) the representations and warranties set forth in Sections 3.1, 3.4, 4.3
and 4.4 shall survive indefinitely, and (b) the representations and warranties
set forth in Section 3.21 shall survive until 90 days following the expiration
of the applicable statute of limitations (giving effect to any extensions
thereof). The parties' respective covenants and agreements set forth herein
shall survive indefinitely unless otherwise set forth therein or herein (except
for those set forth in Sections 6.1, 6.5, 6.6, 6.7, 6.8, 6.9 and 6.14, each of
which will survive until the Cut-off Date). The Closing shall not be deemed in
any way to constitute a waiver by any party of any powers, rights or remedies
it may have with respect to any obligations of the other parties hereunder,
including without limitation with respect to any misrepresentation or breach of
warranty known to such party at the time of the Closing. No claim shall be made
with respect to any representation, warranty, covenant or agreement after it
ceases to survive except that in the event that any member of the Investor
Indemnified Group (as defined below) (i) receives notice of or identifies any
matter which provides a reasonable basis for a claim to indemnification
hereunder within the applicable period provided in this Section 10.1, and (ii)
provides notice to the Companies of the receipt of such notice or of the matter
so identified, and such claim shall not have been finally resolved before the
expiration of the applicable period referred to in this Section 10.1, any
representation, warranty, covenant or agreement that is the basis for such
claim shall continue to survive with respect to such claim and shall remain a
basis for indemnity as to such claim until such claim is finally resolved.
Section 10.2 Indemnification.
(a) For purposes of this Agreement, "Losses" shall mean all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities,
diminution in value, costs and expenses (net of insurance reimbursement
actually received by the Companies after taking into account any related
deductibles and premium increases and net of any tax benefit (such as
additional deductions due to increased liability for interest) from the payment
or from the related underlying liability with respect to which the payment is
made), including without limitation interest, penalties and attorneys' fees and
expenses, asserted against, resulting to, or imposed upon or incurred by the
Companies or the Investor Indemnified Group, or any member thereof, directly or
indirectly, by reason of, relative to, or resulting from any inaccuracy of any
representation or warranty (without taking into account any qualification as to
materiality in such representations or warranties) or any breach or violation
of any covenant or agreement of the Companies, the Operating Partnerships or
any Subsidiary contained in the Transaction Documents or any certificate or
other document delivered by the Companies or the Operating Partnerships in
connection with the Closing, including, without limitation, any claims relating
to the Companies, the Operating Partnerships, the Subsidiaries or any
properties (former or current) owned, leased or managed by any of the
foregoing. Notwithstanding the foregoing, Losses relating to one or more
inaccuracies of any representation or warranty (but not with respect to any
breach of any covenant or agreement) which would give rise individually to a
Loss of less than $50,000 shall be deemed not to be a Loss for which
indemnification is required under this Section 10.2, except to the extent it is
a Covered Loss (each such Loss a "De Minimis Exclusion").
Without limiting the foregoing, Losses shall include, without limitation,
(i) amounts incurred by the Companies or the Operating Partnerships as compared
to the Companies' or the Operating Partnerships' business, properties,
prospects, operations, financial condition or results of operation as
represented and warranted pursuant to Article III, (ii) amounts expended by the
Companies to attain Year 2000 Compliance in excess of the amounts provided for
in the Year 2000 Plan, (iii) payments made or required to be made (other than
(A) commitment fees payable to the Investors or to the parties to the Bank
Facility, (B) indebtedness to be repaid or refinanced in connection with the
transactions contemplated hereby and (C) professional fees incurred in
connection with the transactions contemplated hereby) to third parties as a
result of the consummation of the transactions contemplated hereby, including
without limitation payments made to third parties in order to obtain the
consent of any party to the transactions contemplated hereby or amendments or
terminations of existing
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agreements as contemplated by this Agreement and payments required to be made
to third parties as a result of the failure to obtain the consent of any party
as a result of the consummation of the transactions contemplated by the
Transaction Documents or the amendment or termination of any existing
agreement, whether or not the Investors were aware of any such consent,
amendment or termination, (iv) if the number of shares of Wyndham Common Stock
outstanding after effecting the Restructuring Plan exceeds the Outstanding
Paired Share Amount (but before giving effect to the issuance of the Shares and
the Rights Offering Shares), the fair market value of the shares of Wyndham
Common Stock constituting such excess, (v) payments made to the holders of
Series B Preferred Stock of Patriot in redemption of their shares in excess of
the stated amount of such shares, (vi) payments made in connection with the
defense, settlement or disposition of any suit, action, claim or proceeding
commenced by a current or former stockholder of the Companies or current or
former limited partner of the Operating Partnerships arising out of or related
to (A) this Agreement or the transactions contemplated hereby, whether arising
before or after the Closing, and (B) any action or failure to act by the
Companies or the Subsidiaries at or prior to the Closing (including without
limitation in connection with any registration rights, redemption rights or
similar agreement), whether asserted before or after the Closing (the amounts
set forth in clauses (iii), (iv), (v) and (vi) being referred to as "Covered
Losses"), and (vii) if the Management Agreement, dated as of May 10, 1995, as
amended, with respect to the Wyndham Anatole (the "Anatole Management
Contract") shall be terminated prior to May 10, 2004 pursuant to Section
12.2(2)(ii) of the Anatole Management Agreement (a "Covered Anatole
Termination"), $1.25 million per fiscal quarter for each full or partial three
month period (prorated for the number of days elapsed in any partial three
month period) remaining in such period following the Covered Anatole
Termination. The fair market value of the amount of diminutions of the earnings
stream for, or other value of, real estate assets, other property or contracts,
and the amount of increased expenditures, including without limitation for Year
2000 Compliance, reflagging costs and property improvement plans or programs
required from third parties, will be taken into account in determining Losses.
(b) (i) The Companies and the Operating Partnerships hereby agree, jointly
and severally, to indemnify, defend and hold harmless the Investors and their
respective directors, officers, employees, affiliates and associates (the
"Investor Indemnified Group") from and against any and all Losses; provided,
however, that (i) any indemnification in respect of breaches of representations
and warranties shall be operative and effective only to the extent the amount
of all Losses, in the aggregate, relating thereto, exceed $20 million (the
"First Basket") and (ii) any indemnification in respect of Covered Losses shall
be operative and effective only to the extent that such Covered Losses, in the
aggregate, exceed $25 million (the "Second Basket"); provided, further, that
(i) indemnification in respect of Losses relating to a Covered Anatole
Termination will not be subject to the First Basket or the Second Basket and
(ii) indemnification in respect of Losses relating to breaches of covenants and
agreements will not be subject to the First Basket or the Second Basket or
subject to the Cap (as defined below). In the event that Losses in excess of
the Second Basket have been incurred, the Companies and the Operating
Partnerships may, at their election, choose to allocate the unused portion of
the First Basket to increase the Second Basket by an amount not to exceed the
unused amount of the First Basket. Required indemnification payments by the
Companies to the Investors under this Section 10.2(b)(i) with respect to Losses
described in Section 10.2(a) shall not exceed $150 million (the "Cap") (other
than with respect to payments expressly excluded from the Cap). The application
of all indemnification payments under this Section 10.2 toward the Cap (other
than with respect to payments that are expressly excluded from the Cap, which
shall not be so applied), shall equal the product of (i) the amount of Loss
with respect to each such indemnification payment and (ii) a fraction, (A) the
numerator of which is another fraction, (x) the numerator of which is the
difference between (I) 1,000,000,000 and (II) the product of (X) the number of
shares of Series B Preferred Stock redeemed in the Rights Offering (which in no
event shall be greater than 3,000,000) and (Y) the Stated Amount (as defined in
the Series B Certificate of Designation), and (y) the denominator of which
shall be 8.59, and (B) the denominator of which is 283,440,377. Notwithstanding
the foregoing, no further indemnification payments under this Section 10.2
shall be due or payable at such time as the cumulative amount of such
indemnification payments paid and applied toward the Cap pursuant to the
foregoing formula equals the lesser of (i) $150 million and (ii) $155.7 million
times a fraction, (A) the numerator of which is the difference between (x)
10,000,000 and (y) the number of shares of Series A Preferred Stock outstanding
immediately
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following the closing of the Rights Offering (which in no event shall be
greater than 3,000,000), and the (B) denominator of which shall be 10,000,000.
(ii) The Companies and the Operating Partnerships hereby agree, jointly and
severally, to indemnify, defend and hold harmless the Investor Indemnified
Group from and against any and all Losses specifically defined for purposes of
this Section 10.2(b)(ii) relating to (A) the entry by the Companies or any
Subsidiary into a closing agreement with, or the issuance of a ruling by, the
IRS related to the hotel listed in Section 3.21(l) of the Company Disclosure
Letter in connection with Patriot's organization, operation or qualification as
a REIT for the year ended December 31, 1998, if such Losses exceed $2 million;
and/or (B) other than failures that are effectively cured by the closing
agreement referred to in clause (A) above, any failure of Patriot to be duly
organized, operated and qualified as a REIT for the taxable year ended December
31, 1998 if such failure is related to or results from the hotel or the
operations of the hotel listed in Section 3.21(l) of the Company Disclosure
Letter. For purposes of this Section 10.2(b)(ii), Losses shall include without
limitation payment of taxes and related penalties and interest, shall not be
reduced for any De Minimus Exclusion and shall not require any inaccuracy of
any representation or warranty or any breach or violation of any covenant or
agreement. The indemnification provided under this Section 10.2(b)(ii) shall be
determined without regard to the First Basket or the Second Basket and will not
be subject to the Cap.
(c) The Companies' obligations to make payments pursuant to this Section
10.2 shall be satisfied as an adjustment to the conversion price of the Shares
as provided in Section 8(b)(iii) of the Series B Certificate of Designation;
provided, that any payments in respect of a Covered Anatole Termination shall
be satisfied in cash and may not be satisfied through a conversion price
adjustment.
(d) To the extent that the conversion price of the Shares is to be adjusted
pursuant to this Section 10.2, such adjustment shall be made in accordance with
the Series B Certificate of Designation.
(e) In the event that any counterparties to the Forward Equity Contracts
sell shares released as collateral under the Forward Equity Contracts after
December 31, 1998 (the "Forward Equity Contract Shares") with net proceeds to
the Companies of less than $8.75 per share, Losses shall be deemed to include
the difference between $8.75 and the weighted average price at which Forward
Equity Contract Shares were credited, multiplied by the number of shares so
released. The Losses set forth in this Section 10.2(e) shall not be subject to
the First Basket or the Second Basket or subject to the Cap.
(f) The rights and remedies of the Investors with respect to the
representations and warranties of the Companies and the Operating Partnerships,
including without limitation the matters referred to in this Section 10.2, are
limited to their rights under this Article X, and the Investors shall have no
independent or other rights or remedies with respect thereto, including without
limitation the right of rescission.
Section 10.3 Terms of Indemnification. The obligations and liabilities of
the Companies and the Operating Partnerships with respect to Claims by third
parties will be subject to the following terms and conditions:
(a) the Investors will give the Companies prompt notice of any Claims
asserted against, resulting to, imposed upon or incurred by the Investors,
directly or indirectly, and the Companies will undertake the defense
thereof by representatives of their own choosing which are reasonably
satisfactory to the Investors; provided, that the failure of the Investors
to give notice as provided in this Section 10.3 shall not relieve the
Companies and the Operating Partnerships of their obligations under this
Article X, except to the extent that such failure has materially and
adversely affected the rights of the Companies;
(b) if within a reasonable time after notice of any Claim, the Companies
fail to defend, the Investors will have the right to undertake the defense,
compromise or settlement of such Claims on behalf of and for the account
and at the risk of the Companies, subject to the right of the Companies to
assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof;
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(c) if there is a reasonable probability that a Claim may materially and
adversely affect an Investor other than as a result of money damages or
other money payments, such Investor will have the right at its own expense
to defend (provided that the indemnifying party shall continue to control
the defense and the indemnified party shall have the right to participate
in such defense), or co-defend, such Claim;
(d) with respect to any Claim to which any Investor is specifically
named, the Companies on one hand and any Investor on the other will not,
without the prior written consent of the other, settle or compromise any
Claim or consent to entry of any judgment relating to any such Claim;
(e) with respect to any Claim asserted against an Investor, such
Investor will have the right to employ one counsel of its choice in each
applicable jurisdiction (if more than one jurisdiction is involved) to
represent such Investor if, in such Investor's counsel's reasonable
judgment, a conflict of interest between such Investor and the indemnifying
party exists in respect of such Claim, and in that event the fees and
expenses of such separate counsel, with respect to such Claim, shall be
paid by such indemnifying party; and
(f) the Companies will provide the Investors reasonable access to all
records and documents of the Companies relating to any Claim.
ARTICLE XI
Miscellaneous
Section 11.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING
EFFECT TO CONFLICTS OF LAW PRINCIPLES THEREOF).
Section 11.2 Jurisdiction; Forum; Service of Process; Waiver of Jury
Trial. With respect to any suit, action or proceeding ("Proceeding") arising
out of or relating to this Agreement each of the Companies, the Operating
Partnerships and the Investors (including without limitation their Permitted
Assignees and Permitted Third Party Transferees) hereby irrevocably:
(a) submits to the exclusive jurisdiction of the United States District
Court for the Southern District of New York, the United States District
Court for the District of Delaware, or any state court located in the State
of Delaware, County of Newcastle (the "Selected Courts") and waives any
objection to venue being laid in the Selected Courts whether based on the
grounds of forum non conveniens or otherwise;
(b) consents to service of process in any Proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, or by
recognized international express carrier or delivery service, to the
Companies, the Operating Partnerships or the Investors at their respective
addresses referred to in Section 11.6 hereof; provided, however, that
nothing herein shall affect the right of any party hereto to serve process
in any other manner permitted by law; and
(c) waives, to the fullest extent permitted by law, any right it may
have to a trial by jury in any Proceeding.
Section 11.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors by operation of law and permitted assigns of the parties hereto. No
assignment of this Agreement may be made by any party at any time, whether or
not by operation of law, without the other parties' prior written consent,
except that each Investor may assign any of its rights hereunder to one or more
of its Permitted Assignees or Permitted Third Party Transferees or to the other
Investors or any of their Permitted Assignees or Permitted Third Party
Transferees without the Companies' consent provided that such other Investor or
Permitted Assignee or Permitted Third Party Transferees expressly agrees in
writing with the Companies to assume all of the assigning Investor's
obligations hereunder; provided, that any transfer of Shares permitted
hereunder, other than to a Permitted Assignee or Permitted Third Party
Transferee of an Investor or to the other Investors, shall not entitle the
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transferee to the rights of the transferring Investor under this Agreement
other than the registration rights pursuant to the Registration Rights
Agreement.
Section 11.4 Effectiveness. On or prior to February 22, 1999, the Companies
will provide to the Investors a complete and accurate copy of the definitive
Company Disclosure Letter and the Investors will provide to the Companies a
complete and accurate copy of the definitive Investor Disclosure Letter. For
purposes of this Section 11.4, the "Review Deadline" shall mean (i) 11:59 p.m.,
Eastern Standard Time, on February 27, 1999 if the definitive Company
Disclosure Letter is delivered to counsel to the Investors prior to 9:00 a.m.,
Eastern Standard Time, on February 22, 1999 and (ii) 12:00 p.m., Eastern
Standard Time, on February 28, 1999 if the definitive Company Disclosure Letter
is delivered to counsel to the Investors after 9:00 a.m. but prior to 5:00
p.m., Eastern Standard Time, on February 22, 1999. This Agreement, the
Registration Rights Agreement and the Equity Commitment Letter shall become
effective and binding on the Investors and the Companies only if at or prior to
the Review Deadline (a) the Investors notify the Companies in writing that the
definitive Company Disclosure Letter is acceptable to them, (b) the Investors
notify the Companies in writing that the Investors have entered into separate
transaction support agreements with each of Karim Alibhai, Harlan Crow, Milton
Fine, Rolf Ruhfus and Sherwood Weiser evidencing the support of such
individuals as stockholders of the Companies and/or limited partners of the
Operating Partnerships for the transactions contemplated by this Agreement and
(c) the Investors shall have received reimbursement for $2.5 million of their
expenses to date in compliance with Section 6.3(b). The first date on which the
requirements of each of clauses (a), (b) and (c) of the previous sentence are
met shall be the "Effective Date"; provided, that, at their election, upon
written notice to the Companies at or prior to the Review Deadline, the
Investors may deem the Effective Date to occur if only the requirements of
clause (a), or clauses (a) and (b), or clauses (a) and (c) are met within such
period. The intent of this Section 11.4 is that the Effective Date shall not
occur unless the Investors and the Companies have agreed on a definitive
Company Disclosure Letter, and, in all such events, any such agreement must
have occurred (if at all) at or prior to the Review Deadline. Notwithstanding
the foregoing, the provisions of paragraph 2 of the Letter of Intent, dated as
of December 15, 1998 and amended through the date of this Agreement (the
"Letter of Intent"), among the Companies and the Investors shall continue in
full force and effect until (i) 11:59 p.m., Eastern Standard Time, on February
28, 1999 or (ii) if earlier, the Effective Date. Unless and until the Effective
Date shall have occurred, the provisions of paragraph 3 of the Letter of Intent
shall survive and continue in full force and effect. If the Effective Date
shall not occur, the provisions of paragraph 3 of the Letter of Intent shall
survive and continue in full force and effect.
Section 11.5 Entire Agreement; Amendment. Other than as provided in Section
11.4, this Agreement and the other Transaction Documents constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof, and except as provided in Section 11.4, the Letter of Intent
shall not survive the execution of this Agreement. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Companies and by Investors who have made commitments to purchase at least two-
thirds of the Shares. Notwithstanding the foregoing, any amendment, waiver or
other modification to this Agreement that would adversely affect any Investor
may be effected only with the approval of all of the Investors.
Section 11.6 Notices, Etc. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, telex,
telecopier, or any courier guaranteeing overnight delivery (i) if to the
Investor, at the most current address given by the Investor to the Companies by
means of a notice given in accordance with the provisions of this Section 11.5,
which address initially is, with respect to the Investor as of the date hereof,
the address set forth next to Investor's name on the signature pages hereof,
with a copy to Randall H. Doud, Esq., telecopier number (212) 735-2000, and
with respect to each Investor who becomes such after the date hereof, the
address of such Investor in the stock records of the Companies, and (ii) if to
the Companies or the Operating Partnerships, at 1950 Stemmons Freeway, Suite
6001, Dallas, Texas 75207, telecopier number (214) 863-1527, Attention: General
Counsel, with a copy to Gilbert G. Menna, P.C., telecopier number (617) 523-
1231. All such notices and communications shall be deemed to have been duly
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<PAGE>
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is confirmed, if telecopied; and on the
next business day, if timely delivered to a courier guaranteeing overnight
delivery.
Section 11.7 Certain Definitions. As used herein, the following terms shall
have the meanings set forth below:
(a) "knowledge of the Companies" shall mean the knowledge of any
director or executive officer of the Companies and those individuals
identified on Section 11.7(a) of the Company Disclosure Letter, after due
inquiry;
(b) "beneficial ownership" shall have the meaning as such term is used
in Rule 13d-3 promulgated under the Exchange Act; and
(c) unless otherwise specified herein, references throughout this
Agreement to the "consent" of the Investors shall mean the consent of the
Investors who have made commitments to purchase at least two-thirds of the
Shares.
Section 11.8 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to the
Companies, the Operating Partnerships or the Investors upon any breach or
default of any party under this Agreement, shall impair any such right, power
or remedy of the Companies, the Operating Partnerships or the Investors nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of the
Companies, the Operating Partnerships or the Investors of any breach or default
under this Agreement, or any waiver on the part of any such party of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to the
Companies, the Operating Partnerships or the Investors shall be cumulative and
not alternative.
Section 11.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by only one of the parties hereto,
each of which shall be enforceable against the party actually executing such
counterpart, and all of which together shall constitute one instrument.
Section 11.10 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provisions; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
Section 11.11 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The terms "affiliate" and
"associate" shall have the meanings ascribed to them in Rule 12b-2 promulgated
under the Exchange Act.
Section 11.12 No Public Announcement. None of the Companies, the Operating
Partnerships, the Subsidiaries or the Investors shall make any press release,
public announcement or filing with any Governmental Entity concerning the
transactions contemplated by the Transaction Documents, except as and to the
extent that any such party shall be obligated to make any such disclosure by
this Agreement, by law or by the NYSE and then only after consultation with the
other regarding the basis of such obligation and the content of such press
release, public announcement or filing or as the parties shall mutually agree.
The parties agree that the initial press release to be issued with respect to
the transactions contemplated by the Transaction Documents shall be in the form
heretofore agreed to by the parties.
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<PAGE>
Section 11.13 Further Actions; Reasonable Efforts.
(a) Upon the terms and subject to the conditions hereof, each of the parties
agrees to use its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by the Transaction Documents, including without
limitation (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from governmental or regulatory entities and the making
of all necessary registrations and filings and the taking of all steps as may
be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging any of the Transaction Documents or the consummation of the
transactions contemplated thereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
or any Restraint vacated or reversed, and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, the Transaction
Documents; provided that, in connection with the foregoing, the Companies and
the Subsidiaries shall reimburse the Investors for any costs and expenses
incurred by them in connection with the foregoing.
(b) In connection with and without limiting the foregoing, the parties shall
use reasonable efforts (i) to take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Transaction Documents or any of the other transactions contemplated hereby
or thereby and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Transaction Documents or any other
transaction contemplated thereby, to take all action necessary to ensure that
the transactions contemplated by the Transaction Documents may be consummated
as promptly as practicable on the terms contemplated thereby and otherwise to
minimize the effect of such statute or regulation on the transactions
contemplated by the Transaction Documents.
Section 11.14 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions and other equitable remedies to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any of the Selected Courts, this being in addition to any other
remedy to which they are entitled at law or in equity. Any requirements for the
securing or posting of any bond with respect to such remedy are hereby waived
by each of the parties hereto.
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<PAGE>
In Witness Whereof, each of the undersigned has caused the foregoing
Agreement to be executed under seal by one of its duly authorized officers as
of the date first above written.
PATRIOT AMERICAN HOSPITALITY, INC.
/s/ Paul A. Nussbaum
By: _______________________________________
Name: Paul A. Nussbaum
Title: Chairman and Chief Executive
Officer
Address: 1950 Stemmons Freeway Suite
6001 Dallas, Texas 75207
WYNDHAM INTERNATIONAL, INC.
/s/ James D. Carreker
By: _______________________________________
Name: James D. Carreker
Title: Chairman and Chief Executive
Officer
Address: 1950 Stemmons Freeway Suite
6001 Dallas, Texas 75207
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP,
L.P.
By:PAH GP, Inc., its General Partner
/s/ Paul A. Nussbaum
By: _______________________________________
Name: Paul A. Nussbaum
Title: Chairman and Chief Executive
Officer
Address: 1950 Stemmons Freeway Suite
6001 Dallas, Texas 75207
WYNDHAM INTERNATIONAL OPERATING
PARTNERSHIP, L.P.
By:Wyndham International, Inc., its
General Partner
/s/ James D. Carreker
By: _______________________________________
Name: James D. Carreker
Title: Chairman and Chief Executive
Officer
Address: 1950 Stemmons Freeway Suite
6001 Dallas, Texas 75207
<PAGE>
INVESTORS:
APOLLO REAL ESTATE INVESTMENT FUND III,
L.P.
By:Apollo Real Estate Advisors III, L.P.,
its General Partner
By:Apollo Real Estate Capital Advisors
III, Inc., its General Partner
/s/ Ricardo Koenigsberger
By: _______________________________________
Name: Ricardo Koenigsberger
Title: Vice President
APOLLO INVESTMENT FUND IV, L.P.
By: Apollo Advisors, IV, L.P., its General
Partner
By: Apollo Capital Management IV, Inc.,
its General Partner
/s/ Marc Rowan
By: _______________________________________
Name: Marc Rowan
Title: Vice President, Apollo Capital
Mgmt., Inc
Address: 1301 Avenue of the Americas
38th Floor New York, New York
10019 Number of Shares to Be
Purchased: 4,750,000 Investor
Percentage: 47.5
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC
/s/ Scott Sperling
By: _______________________________________
Name: Scott Sperling
Title: Managing Director
Address: 75 State Street Suite 2600
Boston, Massachusetts 02109
Number of Shares to Be
Purchased: 3,243,632 Investor
Percentage: 32.43632
<PAGE>
THOMAS H. LEE FOREIGN FUND IV, L.P.
By:THL Equity Advisors IV, LLC
/s/ Scott Sperling
By: _______________________________________
Name: Scott Sperling
Title: Managing Director
Address: 75 State Street Suite 2600
Boston, Massachusetts 02109
Number of Shares to Be
Purchased: 111,799 Investor
Percentage: 1.11799
THOMAS H. LEE CHARITABLE INVESTMENT L.P.
By:THL Equity Advisors IV, LLC
/s/ Scott Sperling
By: _______________________________________
Name: Scott Sperling
Title: Managing Director
Address: 75 State Street Suite 2600
Boston, Massachusetts 02109
Number of Shares to Be
Purchased: 19,275 Investor
Percentage: 0.19275
THL-CCI LIMITED PARTNERSHIP
By: THL Equity Advisors IV, LLC
/s/ Scott Sperling
By: _______________________________________
Name: Scott Sperling
Title: Managing Director
Address: 75 State Street Suite 2600
Boston, Massachusetts 02109
Number of Shares to Be Purchased:
125,293 Investor Percentage:
1.25293
<PAGE>
BEACON CAPITAL PARTNERS, L.P.
By: Beacon Capital Partners, Inc., its
General Partner
/s/ John C. Halsted
By: _______________________________________
Name: John C. Halsted
Title: Senior Vice President
Address: 1 Federal Street 26th Floor
Boston, Massachusetts 02110
Number of Shares to Purchased: 1,500,000
Investor Percentage: 15
STRATEGIC REAL ESTATE INVESTMENTS I,
L.L.C.
/s/ Kenneth T. Rosen
By: _______________________________________
Name: Kenneth T. Rosen
Title: Manager
Address: 1995 University Avenue Suite
550 Berkeley, California 94704
Number of Shares to Be Purchased:
250,000 Investor Percentage: 2.5
<PAGE>
ANNEX B
RESTRUCTURING PLAN
Set forth below are the various transactions that will be implemented as
part of the Restructuring Plan; provided, that the Restructuring Plan may be
amended by agreement of the Companies and the Investors, each party agreeing to
be reasonable in considering any proposed amendment pursuant to which each of
the tax and other objectives of the Restructuring Plan are fully met and the
costs to the Companies of obtaining any necessary consents are not increased.
Completion of the investment in the Shares and all of the other steps below
will be cross-conditioned and occur simultaneously. Capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Securities Purchase Agreement to which this Restructuring Plan is attached.
1. Wyndham forms a new wholly owned Delaware subsidiary the sole purpose of
which is to complete the Merger ("Acquisition Sub").
2. Wyndham extends an offer (the "Wyndham OP Offer") to the holders of
Wyndham OP Common Units and Wyndham OP Preferred Units as of the Record
Date to exchange the newly issued, registered shares of Wyndham Common
Stock for each Wyndham OP Unit. The Wyndham OP Offer will provide that
it can be accepted by a limited partner whether or not the limited
partner also accepts the Patriot OP Offer described below. The Wyndham
OP Offer will be subject to there being no more than 1.7 million Wyndham
OP Units outstanding and held by persons other than Wyndham following
the Wyndham OP Offer (unless waived by the Investors).
3. Wyndham extends an offer (the "Wyndham Preferred Stock Offer") to the
holders of the Wyndham Series A Preferred Stock and the Wyndham Series B
Preferred Stock as of the Record Date to exchange newly issued,
registered shares of Wyndham Class A Common Stock for each share of
Wyndham Preferred Stock. The Wyndham Preferred Stock Offer will not be
subject to any minimum exchange amount.
4. In the event that any holder of the Wyndham Preferred Stock fails to
accept the Wyndham Preferred Stock Offer, Wyndham immediately calls the
remaining shares of Wyndham Preferred Stock for redemption and in
connection therewith delivers newly issued, registered shares of Wyndham
Common Stock for each share of Wyndham Preferred Stock.
5. Wyndham extends an offer (the "Patriot OP Offer" and, together with the
Wyndham OP Offer and the Wyndham Preferred Stock Offer, the "Exchange
Offers") to the holders of the Patriot OP Common Units and Patriot OP
Preferred Units as of the Record Date to exchange newly issued,
registered shares of Wyndham Common Stock for each Patriot OP Unit. The
Patriot OP Offer will provide that it can be accepted by a limited
partner whether or not the limited partner also accepts the Wyndham OP
Offer. The Patriot OP Offer will be subject to there being no more than
1.7 million Patriot OP Units outstanding and held by persons other than
PAH LP, Inc. or PAH GP, Inc. following the Patriot OP Offer (unless
waived by the Investors).
6. In the event of the effectiveness of the amendments contemplated in the
Patriot OP Consent Solicitation, Patriot OP makes a non-pro rata
distribution (the "Patriot OP Distribution") of the voting stock of PAH
Interest Holdings, Inc., PAH WMC Holdings, Inc. and PAH IP Holdings,
Inc., PAH Westmont CI Holdings, Inc., PAH Xerxes Holdings, Inc., PAH
Columbus Holdings, Inc., PAH Franchise Holdings, Inc. and PAH Pittsburgh
CI Holdings, Inc. (the "D Subsidiary Stock") held by Patriot OP to PAH
LP, Inc. ("PAH LP"), through which Patriot holds its limited partnership
interest in Patriot OP, and there is no adjustment to any limited
partnership interests in Patriot OP by reason of the Patriot OP
Distribution. In the event that the amendments contemplated in the
Patriot OP Consent Solicitation do not become effective and any limited
partners fail to accept the Patriot OP Offer, Patriot OP makes a pro
rata distribution of the D Subsidiary Stock to its limited partners,
including without limitation in connection with a partial redemption of
such partner's partnership interests in Patriot OP. Pursuant to mergers
of the D Subsidiaries with newly formed subsidiaries of
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<PAGE>
Wyndham in which the D Subsidiaries are the surviving entities, the
stockholders of the D Subsidiaries receive newly issued, registered
shares of Wyndham Common Stock for their shares of stock of the D
Subsidiaries.
7. In connection with the Patriot OP Offer, Patriot seeks the consent (the
"Patriot OP Consent Solicitation") of the holders of more than 50% of
the Patriot OP Common Units and holders of more than 50% of the Patriot
OP Preferred Units (in each case excluding those owned directly or
indirectly by Patriot) to amend and restate the Existing Patriot OP
Partnership Agreement in such a manner as to include the following
provisions, presented as a unified proposal (the "Patriot OP Consent
Package"): (i) limit the right of the limited partners to receive
distributions to the equivalent amount and timing of dividends on shares
of Wyndham Common Stock and permit non-pro rata distributions of assets
(including, in the case of the Patriot OP Consent Solicitation, the
Patriot OP Distribution) to one or more partners without adjusting
limited partnership percentages; (ii) modify the conversion factor
provision to permit Patriot to make an equitable adjustment to the
conversion factor to the extent that holders of Patriot OP Units receive
distributions in excess of those received by the holders of the Wyndham
Common Stock on the Share Amount of shares; and (iii) eliminate the
restrictions on the ability of Patriot to merge with another entity. In
connection with the Wyndham OP Offer, Wyndham seeks the consent (the
"Wyndham OP Consent Solicitation") of the holders of more than 50% of
the Wyndham OP Common Units and holders of more than 50% of the Wyndham
OP Preferred Units (in each case excluding those owned directly or
indirectly by Wyndham) to amend and restate the Existing Wyndham OP
Partnership Agreement in such a manner as to include parallel revisions
to those set forth in the Patriot OP Consent Package (the "Wyndham OP
Consent Package"). Each of Patriot and Wyndham also amends its
Partnership Agreement without the need for limited partner approval in
the following respects, whether or not the necessary consents to the
Patriot OP Consent Package or the Wyndham OP Consent Package,
respectively, are received: (i) modify the conversion factor to specify
that each of the Patriot OP Units and the Wyndham OP Units will be
convertible into an adjusted amount of Wyndham Common Stock following
completion of the Restructuring which amount is so specified in the
amendment; (ii) eliminate any other provisions that are REIT or paired
share specific; (iii) eliminate the restrictions on transfers and
redemptions by holders of Patriot OP Units to the extent permissible
while retaining the ability of the holders of Patriot OP Units to
continue tax deferral; (iv) add a provision granting to the holders of
Patriot OP Units the right to participate in any rights offering made
available to the holders of shares of Wyndham Common Stock (including
the Rights Offering); (v) eliminate the requirement that Patriot must
contribute all proceeds of equity issuances to Patriot OP; (vi)
eliminate the restrictions on issuances of OP Units to Patriot; and
(vii) eliminate the requirement that administrative expenses relating to
Patriot assets outside Patriot OP not be reimbursable by Patriot OP. The
form of the Patriot OP Restatement that will be effective if the Patriot
OP Consent Package is approved is set forth in Exhibit E-1 to the
Securities Purchase Agreement. The form of the Patriot OP Restatement
that will be effective if the Patriot OP Consent Package is not approved
is set forth in Exhibit E-2 to the Securities Purchase Agreement. The
form of the Wyndham OP Restatement that will be effective if the Wyndham
OP Consent Package is approved is set forth in Exhibit E-3 to the
Securities Purchase Agreement. The form of the Wyndham OP Restatement
that will be effective if the Wyndham OP Consent Package is not approved
is set forth in Exhibit E-4 to the Securities Purchase Agreement. The
foregoing amendments will be binding on the holders of the Patriot OP
Units and the Wyndham OP Units not exchanged in the Wyndham OP Offer.
8. Upon receipt of the Stockholder Approval and the necessary filings with
the Secretary of State of Delaware, the following become effective: (a)
the merger of Acquisition Sub with and into Patriot (the "Merger"), with
Patriot as the survivor and each existing share of Patriot Common Stock
and Patriot Preferred Stock being exchanged for newly issued, registered
shares of Wyndham Common Stock; (b) the Pairing Termination; (c) the
Wyndham Charter Amendment, including without limitation the Reverse
Stock Split; and (d) the designation of the Series A Preferred Stock and
the Series B Preferred Stock. No fractional shares will be issued in the
Reverse Stock Split. Any
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<PAGE>
fractional shares will be aggregated and sold, and the proceeds thereof
will be distributed pro rata to the stockholders entitled thereto. The
Patriot Rights Plan will expire immediately prior to the Merger.
9. If requested by the Investors in connection with the Stockholder
Approval, the Companies will appoint a proxy agent or dealer-manager
mutually agreed to among the Investors and the Companies.
10. The Wyndham Rights Plan is adopted. Wyndham Rights attach to each share
of Wyndham Common Stock and Wyndham Preferred Stock outstanding at the
close of business on the date of the Wyndham Rights Plan.
11. The Investors purchase their respective Shares.
12. Wyndham takes all actions necessary to ensure that: (a) the size of its
Board of Directors is increased to 19 directors, consisting of (i)
eight directors selected by the Companies, composed of Messrs. Karim
Alibhai, Leonard Boxer, James Carreker, Harlan Crow (or at Harlan
Crow's election prior to the Closing, Susan Groenteman), Milton Fine,
Paul Nussbaum, Rolf Ruhfus and Sherwood Weiser, or others designated by
the Companies, to serve as the Class A Directors, (ii) three directors,
one or more of whom may be current directors, to be mutually selected
by the Companies and the Investors who shall be "independent directors"
(within the meaning of the New Wyndham Certificate), to serve as the
Class C Directors, and (C) eight directors selected by the Investors,
composed of Messrs. William Mack, Marc Rowan, Lee Neibart, Thomas H.
Lee, Scott Schoen, Scott Sperling, Alan Leventhal and Kenneth Rosen, or
others designated by the Investors, to serve as the Class B Directors;
and (b) current directors of the Boards of Directors of Patriot and
Wyndham not continuing as directors will resign. The division of the
Class A, Class B and Class C directors within each of Class I, Class II
and Class III will be established by agreement of all of the directors
prior to the 30th calendar day following the date of the Securities
Purchase Agreement.
13. Wyndham arranges on terms and conditions reasonably acceptable to the
Investors for a Directors and Officers Insurance Policy that provides
for (a) coverage for post-Closing acts and omissions in an amount
reasonably acceptable to the Investors and (b) the maximum amount of
coverage for pre- Closing acts or omissions for a period of three years
following the Closing that can be purchased at an annual cost of 150%
of the existing annual cost.
14. Immediately upon receipt of the proceeds from the sale of Shares on the
Closing Date, the Companies use such proceeds first, to effect a final
settlement of all of their obligations under each of (a) the Purchase
Price Adjustment Mechanism Agreement, dated as of April 6, 1998, among
the Companies and PaineWebber Financial Products, Inc. ("PWFP"), as
amended, and the Purchase Agreement, dated as of April 6, 1998, among
the Companies, PWFP and PaineWebber Incorporated ("PWI"), as amended,
(b) the Purchase Price Adjustment Mechanism, dated as of December 31,
1997, among the Companies and UBS AG, London Branch, as successor to
Union Bank of Switzerland, London Branch, acting through its agent,
Warburg Dillon Read LLC (collectively, "UBS"), as amended, and the
Purchase Agreement, dated as of December 31, 1997 among the Companies
and UBS, as successor to UBS Limited and Union Bank of Switzerland,
London Branch, as amended, and (c) the Purchase Price Adjustment
Mechanism Agreement, dated as of February 26, 1998, among the Companies
and NationsBanc Mortgage Capital Corporation, as successor to NMS
Services, Inc. ("Nations"), as amended, and the Purchase Agreement,
dated as of February 26, 1998, among the Companies and Nations, as
successor to NMS Securities, Inc., as amended. Anything else in this
Agreement to the contrary notwithstanding, the parties hereto agree
that the obligations in this paragraph are for the express benefit of
PWI, PWFP, UBS and Nations, each as third party beneficiaries, and
acknowledge that PWI, PWFP, UBS and Nations are forebearing from taking
certain actions and otherwise acting in reliance upon the obligations
set forth in this paragraph.
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15. The net proceeds of the Investment, taken together with the proceeds of
the Bank Facility, the IRLs and any alternative financing approved by
the Investors are used (a) first, as specified in paragraph 14, (b)
second, to repay specified indebtedness, and (c) third, the payment of
fees and reimbursement of expenses pursuant to Section 6.3 of the
Securities Purchase Agreement and pursuant to the Commitment Letter and
(d) fourth, to fund general corporate activities.
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<PAGE>
ANNEX C
FORM OF RESTATED
CERTIFICATE OF INCORPORATION
OF
WYNDHAM INTERNATIONAL, INC.
Wyndham International, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Wyndham International, Inc. The date of
the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was January 27, 1983 (the
"Original Certificate of Incorporation"). The name under which the
Corporation filed the Original Certificate of Incorporation was Bay
Meadows Operating Company. An Amended and Restated Certificate of
Incorporation (the "Second Certificate") was filed with the Secretary of
State of the State of Delaware on July 1, 1997, pursuant to which, among
other things, the name of the Corporation was changed to Patriot
American Hospitality Operating Company. An Amended and Restated
Certificate of Incorporation (the "Third Certificate") was filed with
the Secretary of State of the State of Delaware on January 5, 1998,
pursuant to which, among other things, the name of the Corporation was
changed to Wyndham International, Inc.
2. This Restated Certificate of Incorporation (the "Certificate") amends,
restates and integrates the provisions of the Third Certificate, was
duly adopted by the Board of Directors of the Corporation in accordance
with the provisions of Sections 242 and 245 of the Delaware General
Corporation Law, as amended from time to time (the "DGCL"), and was duly
adopted by the stockholders of the Corporation in accordance with the
applicable provisions of Sections 242 and 245 of the DGCL.
3. Upon the filing of this Restated Certificate of Incorporation, each
share of Common Stock, par value $0.01 per share, of the Corporation
shall be reclassified and without any further action by the Corporation
or any stockholder shall become one share of Class A Common Stock, par
value $0.01 per share, of the Corporation (the "Class A Common Stock").
4. The text of the Third Certificate is hereby amended and restated in its
entirety to provide as herein set forth in full.
I.
Name
The name of the corporation is Wyndham International, Inc.
II.
Purposes
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
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<PAGE>
IV.
Capital Stock
The Corporation shall have the authority to issue 750,000,000 shares of
Class A Common Stock, 750,000,000 shares of Class B common stock, par value
$.0l per share (the "Class B Common Stock"), and 150,000,000 shares of
preferred stock, par value $.0l per share (the "Preferred Stock"). The Class A
Common Stock and Class B Common Stock are herein referred to collectively as
the "Common Stock." Except as otherwise provided herein, all shares of Class A
Common Stock and Class B Common Stock will be identical and will entitle the
holders thereof to the same rights and privileges. The rights, preferences,
voting powers and the qualifications, limitations and restrictions of the
authorized stock shall be as follows:
A. Common Stock.
1. Voting Rights. Except as provided in Article V below, (i) each share of
Common Stock shall be entitled to one vote on all matters submitted to a vote
at any meeting of stockholders and (ii) the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation (or, if any holders of shares of Preferred
Stock are entitled to vote together with the holders of Common Stock on any
matter, as a single class with such holders of Preferred Stock on such matter).
2. Dividend Rights. Subject to the rights of holders of Preferred Stock and
subject to any other provisions of this Certificate or any amendment hereto,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors from time to time. The holders of the Class A
Common Stock and the Class B Common Stock will be entitled to receive, to the
extent permitted by law, and to share equally and ratably, share for share,
such dividends as may declared from time to time by the Board of Directors,
whether payable in cash, property or securities of the Corporation; provided,
however, that if the dividends that are declared are payable in shares of Class
A Common Stock or Class B Common Stock, such dividends will be declared at the
same rate on each class of stock, and the dividends payable to holders of Class
A Common Stock will be paid in Class A Common Stock and the dividends payable
to holders of Class B Common Stock will be paid in Class B Common Stock.
3. Liquidation Rights. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or other winding up of the
Corporation, after distribution in full of preferential amounts, if any, to be
distributed to the holders of shares of Preferred Stock or any other class or
series of stock having a preference as to liquidating distributions over the
Class A Common Stock and the Class B Common Stock, the holders of the Class A
Common Stock and the Class B Common Stock shall be entitled to share equally
and ratably, share for share, in all of the remaining assets of the
Corporation, of whatever kind available for distribution to stockholders. A
consolidation or merger of the Corporation with or into any other corporation
or corporations shall not be deemed to be a liquidation, dissolution or
winding-up of the Corporation as those terms are used in this Section.
4. Action Without a Meeting. Except as provided in the Certificate of
Designation governing the Series B Preferred Stock and except for actions of
the Series B Preferred Stock and the Class B Common Stock voting together in
connection with the election or removal of directors pursuant to Article V
below, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and the ability of the stockholders to consent
in writing is hereby specifically denied.
5. Voluntary Conversion into Class A Common Stock. From and after the Voting
Restriction Termination Date, each share of Class B Common Stock shall be
convertible, at the option of the holder thereof, into one fully paid and non-
assessable share of Class A Common Stock. In addition, as to any particular
Investor, all but not less than all shares of Class B Common Stock beneficially
owned by such Investor shall be convertible, at the option of such Investor,
into the same number of fully paid and non-assessable shares of Class A Common
Stock, provided that at the time of conversion such Investor shall not
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beneficially own any shares of Series B Preferred Stock, shall not have any
agreement or understanding with the other Investors as to the voting of their
shares of Preferred Stock or Common Stock, and shall so notify the Corporation
in writing. The holder of any shares of Class B Common Stock may exercise its
right to convert such shares into shares of Class A Common Stock by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose, a
certificate or certificates representing the shares of Class B Common Stock to
be converted duly endorsed to the Corporation in blank accompanied by a written
notice stating that such holder elects to convert all or, if permitted by
Section IV(A)(5), a specified whole number of such shares in accordance with
the provisions of this Section IV(A)(5). The Corporation will pay any and all
documentary, stamp or similar issue or transfer tax and any other taxes that
may be payable in respect of any issue or delivery of shares of Class A Common
Stock on conversion of Class B Preferred Stock pursuant hereto. As promptly as
practicable, and in any event within three Business Days after the surrender of
such certificate or certificates and the receipt of such notice relating
thereto and, if applicable, payment of all transfer taxes (or the demonstration
to the satisfaction of the Corporation that such taxes are inapplicable), the
Corporation shall deliver or cause to be delivered (i) certificates registered
in the name of such holder representing the number of validly issued, fully
paid and nonassessable full shares of Class A Common Stock to which the holder
of shares of Class B Common Stock so converted shall be entitled and (ii) if
less than the full number of shares of Class B Common Stock evidenced by the
surrendered certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
Such conversion shall be deemed to have been made at the close of business on
the date of receipt of such notice and of such surrender of the certificate or
certificates representing the shares of Class B Common Stock to be converted so
that the rights of the holder thereof as to the shares being converted shall
cease except for the right to receive shares of Class A Common Stock, and the
person entitled to receive the shares of Class A Common Stock shall be treated
for all purposes as having become the record holder of such shares of Class A
Common Stock at such time.
6. Automatic Conversion of Class B Common Stock. Each share of Class B
Common Stock shall automatically be converted into one fully paid and non-
assessable share of Class A Common Stock upon the sale or other transfer, by
operation of law or otherwise, of such share of Class B Common Stock to any
individual or entity other than an Investor (as defined in Article V below).
Any conversion pursuant to this Section IV(A)(6) shall be deemed to have been
effected at the time the transfer occurred (the "Conversion Time"). At the
Conversion Time, the certificate or certificates that represented immediately
prior thereto the shares of Class B Common Stock which were so converted (the
"Converted Class B Common Stock") shall, automatically and without further
action, represent the same number of shares of Class A Common Stock. Holders of
Converted Class B Common Stock shall deliver their certificates, duly endorsed
in blank or accompanied by proper instruments of transfer, to the principal
office of the Corporation or the office of any transfer agent for shares of the
Class B Common Stock, together with a written notice setting out the name or
names and denominations in which the certificate or certificates representing
such shares are to be issued and including instructions for delivery thereof.
Upon such delivery, the Corporation or its transfer agent shall promptly issue
and deliver a certificate or certificates representing the number of shares of
Class A Common Stock to which such holder of shares of Class B Common Stock is
entitled by reason of such conversion, and shall cause such shares of Class A
Common Stock to be registered in the name of such holder. The person entitled
to receive shares of Class A Common Stock issuable upon conversion shall be
treated for all purposes as the record holder of such shares of Class B Common
Stock at and as of the Conversion Time, and the rights of such person as a
holder shares of Class B Common Stock that have been converted shall cease and
terminate at and as of the Conversion Time. In the event of any proposed
transfer to an entity other than an Investor, the transferring Investor shall
notify the Corporation of the date of the proposed transfer at least three
Business Days prior thereto, the number of shares of Class B Common Stock to be
so transferred and the identity of the transferee.
7. Automatic Termination of Separate Classes of Common Stock. At such time
as there shall be no remaining outstanding shares of Series B Preferred Stock
or Class B Common Stock, the Class B Common
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Stock shall no longer be an authorized class of Common Stock and the Class A
Common Stock shall be redenominated as the "Common Stock."
B. Preferred Stock.
The Preferred Stock may be issued from time to time in one or more series,
with such distinctive designations, rights and preferences as shall be stated
and expressed herein or in the resolution or resolutions providing for the
issue of shares of a particular series, and in such resolution or resolutions
providing for the issue of shares of such series, the Board of Directors, or
any duly authorized committee thereof, is expressly authorized to fix or
establish the basis for determining:
1. The annual or other periodic dividend rate for such series, the dividend
payment dates, the date from which dividends on all shares of such
series issued shall be cumulative, and the extent of participation
rights, if any;
2. The redemption price or prices, if any, for such series and other terms
and conditions on which such series may be retired and redeemed;
3. The obligation, if any, of the Corporation to purchase and retire or
redeem shares of such series as a sinking fund or otherwise, and the
terms and conditions of any such redemption;
4. The designation and maximum number of shares of such series issuable;
5. The right to vote, if any, with holders of shares of any other class or
series, either generally or as a condition to specified corporate
action;
6. The amount payable upon shares in the event of involuntary liquidation;
7. The amount payable upon shares in the event of voluntary liquidation;
8. The rights, if any, of the holders of shares of such series to convert
such shares into other classes of stock of the Corporation, or to
exchange such shares for other securities or assets, and the terms and
conditions of any such conversion or exchange;
9. The preemptive or preferential right to purchase or subscribe to any
shares of any class or series of capital stock of the Corporation; and
10. Such other rights as may be specified by the Board of Directors and not
prohibited by law.
C. Preemptive Rights.
Other than as specifically authorized in the certificate of designation
establishing the terms of a series of Preferred Stock or in an agreement
approved by the Board of Directors, holders of shares of any class or series of
capital stock shall not be entitled to any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital stock
of the Corporation, whether now or hereafter authorized, (ii) any warrants,
rights or options to purchase any such capital stock or (iii) any obligations
convertible into any such capital stock or into warrants, rights or options to
purchase any such capital stock.
D. Ambiguity.
In the case of an ambiguity in the application of the provisions of this
Article IV, the Board of Directors shall have the power to determine the
application of the provisions of this Article IV with respect to any situation
based on the facts known to it.
E. Severability.
Each provision of this Article IV shall be severable and an adverse
determination as to any such provision shall in no way affect the validity of
any other provision.
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V.
Directors
A. Defined Terms.
The following defined terms shall have the meaning specified below:
1. "Class A Director Nominating Committee" shall mean a committee of the
Board of Directors which consists of each of the Class C Directors then
in office and the same number (but not less than one) of Class A
Directors then in office (who shall be selected by a majority vote of
the Class A Directors then in office) for the purpose of nominating the
Corporation's nominees as Class A Directors.
2. "Class A Directors" shall mean those persons elected as the initial
Class A Directors pursuant to the Purchase Agreement and such other
persons elected as Class A Directors to the Board of Directors pursuant
to Section V(E) or Section V(H). The Corporation's nominees to be
elected as Class A Directors at any meeting of the Corporation's
stockholders shall be selected by the Class A Director Nominating
Committee.
3. "Class B Directors" shall mean those persons elected as the initial
Class B Directors as contemplated by the Purchase Agreement and such
other persons as are elected as Class B Directors pursuant to Section
V(E) or Section V(H). The Corporation's nominees to be elected as Class
B Directors at any meeting of the Corporation's stockholders shall be
selected by a nomination committee composed solely of the Class B
Directors then in office.
4. "Class C Directors" shall mean those persons elected as the initial
Class C Directors as contemplated by the Purchase Agreement and such
other persons as are elected to the Board of Directors as Class C
Directors pursuant to Section V(E) or Section V(H), which directors
shall not be employed by any of the Class A Directors or the Class B
Directors or be employed by the employers or affiliates of any of the
Class A Directors or the Class B Directors, or have any economic
relationship requiring disclosure under the Exchange Act with any of the
Class A Directors or the Class B Directors or the employers or
affiliates of any of the Class A Directors or the Class B Directors. The
Corporation's nominees to be elected as Class C Directors at any meeting
of the Corporation's stockholders shall be selected by a nomination
committee composed solely of the Class C Directors then in office.
5. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
6. "Investors" shall mean, collectively, Apollo Real Estate Investment Fund
III, L.P., Apollo Investment Fund IV, L.P., Thomas H. Lee Equity Fund
IV, L.P., Thomas H. Lee Foreign Fund IV, L.P., Thomas H. Lee Charitable
Investment L.P., THL-CCI Limited Partnership, Beacon Private Equity,
Inc., Beacon Capital Partners, L.P. and Strategic Real Estate
Investments I, L.L.C., together with each of their Permitted Assignees
and Permitted Third Party Transferees (as each such term is defined in
the Purchase Agreement), and all of their respective successors by
operation of law.
7. "Purchase Agreement" shall mean the Securities Purchase Agreement, dated
as of February 18, 1999, which provides, among other things, for the
issuance of the Series B Preferred Stock.
8. "Voting Restriction Termination Date" shall mean the date that is the
earlier to occur of such time as (a) the Investors shall beneficially
own (as defined in Section 13(d) of the Exchange Act and the rules
thereunder) no shares of Series B Preferred Stock and less than 20% of
the then outstanding Common Stock or (b) any of the Series B Preferred
Stock shall have been called for redemption pursuant to the second
sentence of Section 5(a) of the Certificate of Designation governing the
Series B Preferred Stock, provided that at such time the Investors do
not have any agreement or understanding among them as to the mandatory
voting of their shares of Preferred Stock or Common Stock other than
with respect to the election and removal of directors or the selection
or allocation of the Class B Directors.
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B. General Powers.
Except as otherwise expressly provided in this Certificate, the property,
affairs and business of the Corporation shall be managed under the direction of
the Board of Directors and, except as otherwise expressly provided by law, the
By-Laws or this Certificate, all of the powers of the Corporation shall be
vested in such Board.
C. Number of Directors.
The number of directors of the Corporation shall be fixed initially at 19
and shall be subject to reduction as provided in Section V(C), shall be subject
to increase as provided in the terms of any Preferred Stock issued by the
Corporation and shall be subject to adjustment as otherwise may be determined
by unanimous approval of the Board of Directors then in office.
D. Reduction in Number of Class B Directors.
Notwithstanding the foregoing, if: at any time (i) the Investors
beneficially own shares of Common Stock (including shares of Common Stock
issuable upon conversion of securities convertible, exchangeable or exercisable
for shares of Common Stock) representing less than 50% and at least 43.33% of
the shares of Common Stock issuable upon conversion of securities originally
issued to the Investors, the number of Class B Directors will be reduced to
seven Class B Directors; (ii) the Investors beneficially own shares of Common
Stock (including shares of Common Stock issuable upon conversion of securities
convertible, exchangeable or exercisable for shares of Common Stock)
representing less than 43.33% and at least 36.66% of Common Stock issuable upon
conversion of securities originally issued to the Investors, the number of
Class B Directors will be reduced to six Class B Directors; (iii) the Investors
beneficially own shares of Common Stock (including shares of Common Stock
issuable upon conversion of securities convertible, exchangeable or exercisable
for shares of Common Stock) representing less than 36.66% and at least 30.00%
of the Common Stock issuable upon conversion of the securities originally
issued to the Investors, the number of Class B Directors will be reduced to
five Class B Directors; (iv) the Investors beneficially own shares of Common
Stock (including shares of Common Stock issuable upon conversion of securities
convertible, exchangeable or exercisable for shares of Common Stock)
representing less than 30.00% and at least 23.33% of the Common Stock issuable
upon conversion of the securities originally issued to the Investors, the
number of Class B Directors will be reduced to four Class B Directors; (v) the
Investors beneficially own shares of Common Stock (including shares of Common
Stock issuable upon conversion of securities convertible, exchangeable or
exercisable for shares of Common Stock) representing less than 23.33% and at
least 16.66% of the Common Stock issuable upon conversion of the securities
originally issued to the Investors, the number of Class B Directors will be
reduced to three Class B Directors; (vi) the Investors beneficially own shares
of Common Stock (including shares of Common Stock issuable upon conversion of
securities convertible, exchangeable or exercisable for shares of Common Stock)
representing less than 16.66% and at least 10.00% of the Common Stock issuable
upon conversion of the securities originally issued to the Investors, the
number of Class B Directors will be reduced to two Class B Directors; and (vii)
the Investors beneficially own shares of Common Stock (including shares of
Common Stock issuable upon conversion of securities convertible, exchangeable
or exercisable for shares of Common Stock) representing less than 10.00% of the
Common Stock issuable upon conversion of the securities originally issued to
the Investors, the number of Class B Directors will be reduced to zero Class B
Directors. Any reduction in the number of Class B Directors will reduce the
number of total directors by the same amount. A director need not be a
stockholder of the Corporation. Within ten business days after a transfer of
shares of Common Stock (or securities convertible, exchangeable or exercisable
for Common Stock) of the Corporation by any of the Investors to a person other
than another Investor, the transferring Investor will provide written notice of
such transfer to the Corporation, which notice shall state the identity of the
transferee, the date of the transfer, the number of shares transferred and the
nature of any relationship between the transferring Investor and the
transferee; provided, that in the event of such a transfer that would cause the
number of Class B Directors to be reduced in accordance with the foregoing
schedule, neither such transfer nor subsequent such transfers shall become
effective unless and until such time as the number of Class B Directors then in
office shall be reduced in accordance with the foregoing schedule, whether by
resignation or otherwise.
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E. Election of Directors
1. Class A Directors. Prior to each annual meeting of stockholders, the
Corporation's nominees for Class A Directors shall be nominated by the Class A
Director Nominating Committee. The Class A Directors shall be elected (a) at
all times prior to the Voting Restriction Termination Date, by the holders of a
plurality of the votes represented by the shares of Class A Common Stock
present in person or represented by proxy at such meeting and entitled to vote
on the election of Class A Directors and (b) at all times from and after the
Voting Restriction Termination Date, by the holders of a plurality of the votes
represented by the shares of the Class A Common Stock, the Class B Common Stock
and the Series B Preferred Stock, voting together as a single class, present in
person or represented by proxy at such meeting and entitled to vote on the
election of Class A Directors. Until the Classified Board Sunset Date, each
Class A Director so elected shall at the time of such election be designated as
a Class A-I Director, a Class A-II Director or a Class A-III Director and shall
hold office for a term expiring at the annual meeting of stockholders
determined as set forth in Section V(E)(4),
2. Class B Directors. Prior to each annual meeting of stockholders, the
Corporation's nominees for Class B Directors shall be nominated by a majority
of the Class B Directors then in office. The Class B Directors shall be elected
by the vote of holders of a plurality of the votes represented by the shares of
Series B Preferred Stock and Class B Common Stock, voting together as a single
class, present in person or by proxy at such meeting and entitled to vote on
the election of Class B Directors. Until the Classified Board Sunset Date, each
Class B Director so elected shall at the time of such election be designated as
a Class B-I Director, a Class B-II Director or a Class B-III Director and shall
hold office for a term expiring at the annual meeting of stockholders
determined as set forth in Section V(E)(4),
3. Class C Directors. Prior to each annual meeting of stockholders, the
Corporation's nominees for the Class C Directors shall be nominated by vote of
a majority of the Class C Directors then in office. The Class C Directors shall
be elected by the vote of holders of a plurality of the votes represented by
the shares of Class A Common Stock, Class B Common Stock and Series B Preferred
Stock, voting together as a single class, present in person or represented by
proxy at such meeting and entitled to vote on the election of Class C
Directors; provided that until the Voting Restriction Termination Date, (i) in
the event that the only persons nominated for election as a Class C Director
are those nominated for election by the Corporation, if there shall be more
votes against any person's election than in favor of such person's election,
then such person shall not be elected to the Board of Directors and the
position on the Board of Directors for which such person was nominated shall
remain vacant, and (ii) in the event that there are persons nominated for
election as a Class C Director in addition to those nominated for election by
the Corporation, then all shares of the Series B Preferred Stock and of the
Class B Common Stock, and all shares of Class A Common Stock held by Class A
Directors or their affiliates voted at the meeting, shall be voted in
proportion to the votes cast for such persons by other holders of the Class A
Common Stock. Until the Classified Board Sunset Date, each Class C Director so
elected shall at the time of such election be designated as a Class C-I
Director, a Class C-II Director or a Class C-III Director and shall hold office
for a term expiring at the annual meeting of stockholders determined as set
forth in Section V(E)(4).
4. Classification by Term of Office. The Class A Directors shall be divided
into three classes, designated Class A-I, Class A-II and Class A-III, with
three Class A-I Directors, two Class A-II Directors and three Class A-III
Directors. The Class B Directors shall be divided into three classes,
designated Class B-I, Class B-II and Class B-III, with three Class B-1
Directors, two Class B-II Directors and three Class B-III Directors. The
Class C Directors shall be divided into three classes, designated Class C-I,
Class C-II and Class C-III, with one Class C-1 Director, one Class C-II
Director and one Class C-III Director. The term of the initial Class A-I,
Class B-I and Class C-I Directors shall terminate on the date of the annual
meeting of stockholders of the Corporation in 2000, the term of the initial
Class A-II, Class B-II and Class C-II Directors shall terminate on the date of
the annual meeting of stockholders of the Corporation in 2001 and the term of
the initial Class A-III, Class B-III and Class C-III Directors shall terminate
on the date of the annual meeting of stockholders of the Corporation in 2002.
At the annual meeting of stockholders of the Corporation in 2000, successors to
the Class A-I, Class B-I and Class C-I Directors whose terms expire at that
annual meeting shall be elected for a three year term. At the annual meeting of
stockholders of the Corporation in 2001, successors to the Class A-II,
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Class B-II and Class C-II Directors whose terms expire at that annual meeting
shall be elected for a two year term. At each annual meeting of stockholders of
the Corporation beginning in 2002, successors to the directors whose terms
expire at that annual meeting shall be elected for a one year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting of stockholders
for the year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
F. Directors Elected by Holders of Preferred Stock.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV, the holders of any one or more series of Preferred Stock shall have
the right, voting separately as a series or together with holders of other such
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate and any
certificates of designation applicable thereto, and, other than the Class B
Directors, such directors so elected shall not be divided into classes pursuant
to Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's successor shall have
been duly elected and qualified, or until such director's right to hold such
office terminates pursuant to said provisions, whichever occurs earlier,
subject to such director's earlier death, disqualification, resignation or
removal. Except as otherwise provided by the Board of Directors in the
resolution or resolutions establishing such series, whenever the holders of any
series of Preferred Stock having such right to elect additional directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of such stock,
or elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Corporation
shall be reduced accordingly.
G. Removal of Directors; Qualification.
Subject to the rights, if any, of any class or series of stock to elect
directors and to remove any director whom the holders of any such stock have
the right to elect, any director (including persons elected by directors to
fill vacancies in the Board of Directors) may be removed from office only by
the affirmative vote of the holders of at least a majority of the votes
represented by the shares then entitled to vote in the election of such
director (with the Series B Preferred Stock and Class B Common Stock subject to
the same limitations on voting as in the case of an election of directors). At
least 30 days prior to any meeting of stockholders at which it is proposed that
any director be removed from office, written notice of such proposed removal
shall be sent to the director whose removal will be considered at the meeting.
H. Vacancies.
Subject to the rights, if any, of the holders of any class or series of
stock to elect directors and to fill vacancies in the Board of Directors
relating thereto, any and all vacancies in the Board of Directors, however
occurring, including, without limitation, by reason of an increase in the size
of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled (i) in the case of the Class A
Directors, either (A) by the nomination by the Class A Director Nominating
Committee and election by the same stockholder vote as is required for the
election of Class A Directors or (B) by the vote of a majority of all
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of the remaining Class A Directors then in office, (ii) in the case of the
Class B Directors, either (A) by the nomination by a majority of the remaining
Class B Directors and election by the same stockholder vote as is required for
the election of Class B Directors or (B) by the vote of a majority of all of
the remaining Class B Directors then in office, and (iii) in the case of the
Class C Directors, either (A) by the nomination by a majority of the remaining
Class C Directors and selection by the same stockholder action as is required
for the election of Class C Directors or (B) by the unanimous vote of all the
Class C directors then in office. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
I. Power of Directors.
Any decision pursuant to the Shareholder Rights Agreement, dated as of
[ ], 1999 between the Corporation and American Stock Transfer and Trust
Company, a New York corporation, or any successor agreement thereto, made by a
majority of a specified group or groups of directors which group or groups do
not include all of the directors of the Corporation shall be valid
notwithstanding the provisions of Section 141 of the DGCL.
VI.
Limitation Of Liability
No director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director or as such a member, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors or the person or persons exercising or performing any of the powers
or duties otherwise conferred or imposed upon directors of the Corporation,
then the liability of the director of the Corporation or the person or persons
exercising or performing any of the powers or duties otherwise conferred or
imposed upon directors of the Corporation shall be eliminated or limited to the
fullest extent permitted by the DGCL, as so amended.
Any amendment or repeal of this Article VI by either (i) the stockholders of
the Corporation or (ii) an amendment to the DGCL shall not adversely affect any
right or protection existing at the time of such amendment or repeal with
respect to any acts or omissions occurring before such amendment or repeal of a
person serving as a director at the time of such amendment or repeal.
VII.
Indemnification
A. General Right to Indemnification.
The Corporation shall indemnify its directors and officers to the fullest
extent authorized or permitted by law, as now or hereafter in effect, and such
right to indemnification shall continue as to a person who has
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ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
provided, however, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or
consented to by the Board of Directors. The right to indemnification conferred
by this Article VII shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any proceeding in
advance of its final disposition. The Corporation may, to the extent authorized
from time to time by the Board of Directors, provide rights to indemnification
and to the advancement of expenses to employees and agents of the Corporation
similar to those conferred in this Article VII to directors and officers of the
Corporation. The rights to indemnification and to the advance of expenses
conferred in this Article VII shall not be exclusive of any other right which
any person may have or hereafter acquire under this Certificate of
Incorporation, the Bylaws of the Corporation, any statute, agreement, vote of
stockholders or disinterested directors or otherwise.
B. Amendment or Repeal.
So long as the Investors as holders of Series B Preferred Stock or Class B
Common Stock are entitled to have at least two Class B Directors on the Board
of Directors, this Article VII may only be amended or repealed with the
affirmative vote of a majority of the Class B Directors. Further, any amendment
or repeal of this Article VII by the stockholders of the Corporation shall not
adversely affect any rights to indemnification and to the advancement of
expenses of a director or officer of the Corporation existing at the time of
such amendment or repeal with respect to any acts or omissions occurring prior
to such amendment or repeal.
VIII.
Amendment of Bylaws
A. Amendment By the Board of Directors.
Except as otherwise provided by law or this Certificate, the Bylaws of the
Corporation may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
B. Amendment By the Stockholders.
The Bylaws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of the majority of the shares present in
person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together as a single class.
IX.
Amendment of Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation in the manner
now or hereafter prescribed in this Restated Certificate of Incorporation, the
Corporation's Bylaws or as otherwise provided by law, and all rights herein
conferred upon stockholders are granted subject to such reservation.
I, [Name], [Title of Officer] of the Corporation, for the purpose of
amending and restating the Corporation's Certificate of Incorporation pursuant
to the General Corporation Law of the State of Delaware, do make this
certificate, hereby declaring and certifying that this is my act and deed on
behalf of the Corporation this [ ] day of [ ], 1999.
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ANNEX D
FORM OF
CERTIFICATE OF DESIGNATION
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
WYNDHAM INTERNATIONAL, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Wyndham International, Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Restated Certificate
of Incorporation, as amended (the "Restated Certificate of Incorporation"), and
in accordance with the provisions of Section 151 of the General Corporation Law
of the State of Delaware, its Board of Directors (the "Board of Directors") has
adopted the following resolution creating a series of its Preferred Stock, par
value $.01 per share, designated as Series B Convertible Preferred Stock:
RESOLVED, that a series of authorized Preferred Stock, par value $.01 per
share, of the Corporation be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
Section 1. Designation and Amount; Rank.
(a) Designation and Amount. The shares of such series shall be designated as
the "Series B Convertible Preferred Stock" (the "Series B Preferred Stock") and
the number of shares constituting such series shall be 31,840,000 shares of
Series B Preferred Stock. Section 11 contains the definitions of certain
defined terms used herein.
(b) Rank. The Series B Preferred Stock shall, with respect to dividend
distributions and distributions upon liquidation, winding-up and dissolution of
the Corporation, rank (i) senior (to the extent set forth herein) to all Junior
Stock; (ii) on a parity with Parity Stock; provided that any such Parity Stock
other than the Series A Preferred Stock that was not approved by the holders in
accordance with Section 3(b) shall be deemed to be Junior Stock and not Parity
Stock; and (iii) junior to all Senior Stock; provided, that any such Senior
Stock that was not approved by the holders in accordance with Section 3(b)
shall be deemed to be Junior Stock and not Senior Stock.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series B Preferred Stock shall be entitled to
receive on each Dividend Payment Date in respect of the Dividend Period ending
on such Dividend Payment Date (but without including such Dividend Payment
Date) (i) commencing on the first Dividend Payment Date and continuing through
the sixth anniversary of the Issuance Date, (A) cumulative dividends payable in
cash on each such Dividend Payment Date equal to the then applicable Cash
Percentage of the Stated Amount of each share of the then outstanding Series B
Preferred Stock, and (B) cumulative dividends payable in additional shares of
Series B Preferred Stock on each such Dividend Payment Date equal to the then
applicable PIK Percentage of the Stated Amount of each share of the then
outstanding Series B Preferred Stock, (ii) commencing with the first Dividend
Period occurring after the sixth anniversary of the Issuance Date and
continuing through the tenth anniversary of the Issuance Date, or earlier
redemption or conversion of the Series B Preferred Stock, (A) cumulative
dividends payable entirely in cash on each such Dividend Payment Date at a rate
per annum equal
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to 9.75% of the Stated Amount of each share of the then outstanding Series B
Preferred Stock or (B) upon the vote of a majority of the Class A Directors and
Class C Directors with respect to each dividend, cumulative dividends payable
entirely in additional shares of Series B Preferred Stock on each such Dividend
Payment Date at a rate per annum equal to 9.75% of each share of the then
outstanding Series B Preferred Stock, provided that (x) with respect to any
such dividend that is to be paid in cash, the dividend payable on the Series A
Preferred Stock on the corresponding Dividend Payment Date shall be paid in
cash and (y) with respect to any such dividend that is to be paid in additional
shares of Series B Preferred Stock, the dividend payable on the Series A
Preferred Stock on the corresponding Dividend Payment Date shall be paid in
additional shares of Series A Preferred Stock, and (iii) commencing with the
first Dividend Period occurring after the tenth anniversary of the Issuance
Date, cumulative dividends payable entirely in cash on each such Dividend
Payment Date at a rate per annum equal to 9.75% of the Stated Amount of each
share of the then outstanding Series B Preferred Stock. If cash dividends on
the Series B Preferred Stock are in arrears and unpaid for a period of 60 days
or more, then an additional amount of dividends shall accrue at a rate per
annum equal to 2.00% of the Stated Amount of each share of the then outstanding
Series B Preferred Stock (the "Default Rate") from the last Dividend Payment
Date on which cash dividends were to be paid in full until such time as all
cash dividends in arrears have been paid in full, such additional dividends to
be cumulative and payable in shares of Series B Preferred Stock (including
fractional shares) at the Stated Amount. Any reference herein to "cumulative
dividends" or "accrued dividends" or similar phrases means that such dividends
are fully cumulative and accumulate and accrue on a daily basis (computed on
the basis of a 360-day year of twelve 30-day months) and compound quarterly on
the Dividend Payment Dates at the rate indicated above (the "Dividend Rate")
and in the manner set forth herein, whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. All dividends payable in
additional shares of Series B Preferred Stock shall be paid through the
issuance of additional shares of Series B Preferred Stock (including fractional
shares) at the Stated Amount.
(b) In case the Corporation shall at any time or from time to time declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin off) on the Common Stock, other than
any dividend or distribution of shares of Common Stock covered by Section
8(b)(i), the Rights Offering or any issuance of rights pursuant to the Rights
Plan, as it may be amended from time to time, or any successor shareholder
rights agreement of the Corporation, then, and in each such case (a "Triggering
Distribution"), the holders of shares of Series B Preferred Stock shall be
entitled to receive from the Corporation, with respect to each share of Series
B Preferred Stock held, in addition to the dividends payable under Section
2(a), the same dividend or distribution received by a holder of the number of
shares of Common Stock into which such share of Series B Preferred Stock is
convertible on the record date for such dividend or distribution, after giving
effect to the contemporaneous issuance of any additional shares of Series B
Preferred Stock as described in Section 2(a) above with respect to Accrued
Dividends provided, however, that with respect to a fraction (i) the numerator
of which shall be the Cash Percentage and (ii) the denominator of which shall
be 2.4375%, multiplied by the Stated Amount of each share of the Series B
Preferred Stock then outstanding, the Corporation may pay any portion of such
dividend or distribution in additional shares of Series B Preferred Stock
valued at the Stated Amount thereof. Any such dividend or distribution shall be
declared, ordered, paid or made on the Series B Preferred Stock at the same
time such dividend or distribution is declared, ordered, paid or made on the
Common Stock and shall be in addition to any dividends payable under Section
2(a).
(c) No full dividends shall be declared by the Board of Directors or paid or
set apart for payment by the Corporation on any Parity Stock for any period
unless the Accrued Dividends have been or contemporaneously are declared and
paid in full, or declared and, if payable in cash, a sum in cash Set Apart for
Payment, on the Series B Preferred Stock for all Dividend Periods terminating
on or prior to the date of payment of such full dividends on such Parity Stock.
If any dividends are not so paid, all dividends declared upon shares of the
Series B Preferred Stock and any other Parity Stock shall be declared pro rata
so that the amount of dividends declared per share on the Series B Preferred
Stock and such Parity Stock shall in all cases bear to each other
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the same ratio that the Accrued Dividends per share on the Series B Preferred
Stock and the accrued dividends on such Parity Stock bear to each other.
(i) So long as any share of the Series B Preferred Stock is outstanding,
the Corporation shall not declare, pay or set apart for payment any
dividend on any of the Junior Stock (other than dividends in Junior Stock
to the holders of Junior Stock), or make any payment on account of, or set
apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any of the Junior Stock or any
warrants, rights, calls or options exercisable for or convertible into any
of the Junior Stock whether in cash, obligations or shares of the
Corporation or other property (other than in exchange for Junior Stock),
and shall not permit any corporation or other entity directly or indirectly
controlled by the Corporation to purchase or redeem any of the Junior Stock
or any such warrants, rights, calls or options (other than in exchange for
Junior Stock) unless the Accrued Dividends on the Series B Preferred Stock
for all Dividend Periods ended on or prior to the date of such payment in
respect of Junior Stock have been or contemporaneously are paid in full.
(ii) So long as any share of the Series B Preferred Stock is
outstanding, the Corporation shall not (except with respect to dividends as
permitted by Section 2(c)(i)) make any payment on account of, or set apart
for payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any of the Parity Stock or any warrants,
rights, calls or options exercisable for or convertible into any of the
Parity Stock, and shall not permit any corporation or other entity directly
or indirectly controlled by the Corporation to purchase or redeem any of
the Parity Stock or any such warrants, rights, calls or options unless the
Accrued Dividends on the Series B Preferred Stock for all Dividend Periods
ended on or prior to the date of such payment in respect of Parity Stock
have been or contemporaneously are paid in full.
Section 3. Voting Rights.
In addition to any voting rights provided elsewhere herein, and any voting
rights provided by law, and subject to the provisions of the Restated
Certificate of Incorporation of the Corporation, the holders of shares of
Series B Preferred Stock shall have the following voting rights:
(a) For so long as the Series B Preferred Stock is outstanding, each share
of Series B Preferred Stock shall entitle the holder thereof to vote on all
matters voted on by holders of the capital stock of the Corporation into which
such share of Series B Preferred Stock is convertible, voting together as a
single class with the other shares entitled to vote, at all meetings of the
stockholders of the Corporation. With respect to any such vote, each share of
Series B Preferred Stock shall entitle the holder thereof to cast the number of
votes equal to the number of votes which could be cast in such vote by a holder
of the shares of capital stock of the Corporation into which such share of
Series B Preferred Stock is convertible on the record date for such vote or, if
no such record date is established, on the date any written consent of
stockholders is solicited. Notwithstanding anything to the contrary contained
herein, any action required or permitted to be taken by the holders of Series B
Preferred Stock at any meeting of the holders of Series B Preferred Stock may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
Requisite Holders (as defined in Section 3(b)).
(b) So long as any shares of Series B Preferred Stock shall be outstanding
and unless the consent or approval of a greater number of shares shall then be
required by law, without first obtaining the consent or approval of the
Requisite Holders, voting as a single class, given in person or by proxy at a
meeting at which the holders of such shares shall be entitled to vote
separately as a class, or by written consent, the Corporation shall not: (i)
authorize, create or issue any class or series, or any shares of any class or
series, of Senior Stock; (ii) authorize, create or issue any class or series,
or any shares of any class or series, of Parity Stock (other than the issuance
of the Series A Preferred Stock pursuant to the Rights Offering); (iii)
reclassify any shares of stock of the Corporation into shares of Senior Stock
or Parity Stock; (iv) authorize any security exchangeable for, convertible
into, or evidencing the right to purchase any shares of Senior Stock or Parity
Stock; (v) alter or change the rights, preferences or privileges of the Series
B Preferred Stock or the Series A Preferred Stock or the rights of the Class B
Common Stock; (vi) alter or change the rights of the Class A Common Stock in a
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manner adverse to the holders of the Series B Preferred Stock; (vii) increase
or decrease the authorized number of shares of Series B Preferred Stock or
Series A Preferred Stock or issue shares of Series B Preferred Stock or Series
A Preferred Stock other than to holders of Series B Preferred Stock or Series A
Preferred Stock, respectively, pursuant to its terms or pursuant to the Rights
Offering; (viii) amend, modify or waive any provision of the Restated
Certificate of Incorporation or the By-laws of the Corporation affecting (A)
the composition of, or other matters relating to, the Board of Directors, (B)
the voting rights of the stockholders of the Corporation, or (C)
indemnification of directors or officers; (ix) amend, modify or waive any
provision of the Shareholder Rights Agreement of the Corporation, dated as of
the Closing Date (as defined in the Purchase Agreement) (the "Rights Plan"), or
enter into any other similar agreement; or (x) enter into or authorize any
transaction constituting a Change of Control. For purposes hereof, the
"Requisite Holders" means the holders of at least two-thirds of the shares of
Series B Preferred Stock outstanding on the record date for such vote or, if no
such record date is established, on the date any written consent of
stockholders is solicited.
(c) If (i) cash dividends on the Series B Preferred Stock are in arrears and
unpaid for six quarterly Dividend Periods, whether or not consecutive and such
failure thereafter continues (the period during which such failure shall
continue being referred to herein as a "Voting Period"), and (ii) the holders
of Series B Preferred Stock no longer have the right to elect any directors
under Sections V(D) and V(E) of the Restated Certificate of Incorporation, then
the number of directors constituting the Board of Directors shall be increased
by the number, if any, necessary to permit the holders of the Series A
Preferred Stock and Series B Preferred Stock, voting as a single class, to
elect a minimum of two directors upon such default. If the holders of Series A
Preferred Stock and Series B Preferred Stock are entitled to elect directors
pursuant to the preceding sentence, as soon as practicable after the
commencement of the Voting Period, the Corporation shall call a special meeting
of the holders of Series A Preferred Stock and Series B Preferred Stock by
mailing a notice of such special meeting to such holders, such meeting to be
held not more than 30 days after the date of mailing of such notice. If the
Corporation fails to send a notice, the meeting may be called by any such
holder on like notice. The record date for determining the holders entitled to
notice of and to vote at such special meeting shall be the close of business on
the fifth business day preceding the day on which such notice is mailed. At any
such special meeting and at each meeting of holders of shares of Series A
Preferred Stock and Series B Preferred Stock held during a Voting Period at
which directors are to be elected (or with respect to any action by written
consent in lieu of a meeting of stockholders), such holders, voting as a single
class on a one-vote-per-share basis (to the exclusion of the holders of all
other securities and classes of capital stock of the Corporation), shall be
entitled to elect such directors. The terms of office of all persons who are
directors of the Corporation at the time of a special meeting of the holders of
Series A Preferred Stock and Series B Preferred Stock to elect directors shall
continue, notwithstanding the election at such meeting of the additional
directors that such holders are entitled to elect, and the persons so elected,
together with the remaining incumbent directors, shall constitute the duly
elected directors of the Corporation. The Voting Period shall terminate at such
time as all cumulative cash dividends in respect of all previously completed
full Dividend Periods that are in arrears on the Series A Preferred Stock and
the Series B Preferred Stock have been paid in full in cash or until non-
cumulative cash dividends in respect of all previously completed full Dividend
Periods that are in arrears on the Series A Preferred Stock and Series B
Preferred Stock have been paid regularly for at least one year. Simultaneously
with the termination of a Voting Period the terms of office of the directors
elected by the holders of the Series A Preferred Stock and Series B Preferred
Stock pursuant to this Section 3(c) and Section 3(b) of the Series A
Certificate of Designation shall terminate, the remaining directors shall
constitute the directors of the Corporation and the voting rights of such
holders to elect additional directors pursuant to this Section 3(c) and Section
3(b) of the Series A Certificate of Designation shall cease.
Section 4. Certain Restrictions.
(a) Whenever the Corporation shall have not redeemed the shares of Series B
Preferred Stock on the date such redemption is required by Section 5 (a
"Redemption Default"), thereafter and until all redemption payments shall have
been made or all necessary funds shall have been Set Apart for Payment, if and
so long as any shares of Series B Preferred Stock remain outstanding, the
Corporation shall not, nor shall it permit any of its Subsidiaries other than
wholly-owned Subsidiaries to: (A) declare or pay dividends, or make any other
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distributions, on any shares of Junior Stock other than dividends or
distributions payable in Junior Stock; (B) declare or pay dividends, or make
any other distributions, on any shares of Parity Stock, except dividends paid
ratably on the Series B Preferred Stock and all Parity Stock on which dividends
are payable or in arrears, in proportion to the total amounts to which the
holders of all such shares are then entitled; (C) redeem or purchase or
otherwise acquire for consideration (other than Junior Stock) any shares of
Junior Stock or Parity Stock (other than, with respect to Parity Stock, ratably
with the Series B Preferred Stock); or (D) purchase or otherwise acquire for
consideration any shares of Series B Preferred Stock, other than purchases
ratably among all holders of the Series B Preferred Stock.
(b) The Corporation shall not permit any Subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of capital stock of
the Corporation unless the Corporation could, pursuant to Section 4(a),
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Redemption.
(a) Except as provided in this Section 5(a), the Corporation shall have no
right to redeem any shares of Series B Preferred Stock. At any time after the
sixth anniversary of the Issuance Date, the Corporation shall have the right,
at its sole option and election, to redeem all, or part, of the outstanding
shares of Series B Preferred Stock by paying therefor in cash 101% of the
Stated Amount thereof plus all Accrued Dividends thereon to the date of
redemption; provided that in the event of any partial redemption, at least
1,000,000 shares of Series B Preferred Stock shall remain outstanding after
giving effect to such partial redemption and the Series B Preferred Stock must
be redeemed pro rata based on the holders' respective holdings of Series B
Preferred Stock. For a period of 170 days following the Issuance Date, the
Corporation shall also have the option to redeem no more than 3,000,000 shares
of Series B Preferred Stock at 102% of the outstanding Stated Amount plus
Accrued Dividends thereon to the date of redemption (which shall be no later
than 170 days following the Issuance Date). This redemption shall be effected
by the action of the Board of Directors of the Corporation, except that it may
be effected, solely by action of a majority of the Class A Directors and Class
C Directors, substantially from (i) the proceeds of the Rights Offering and
(ii) if the Identified Assets (as defined in the Purchase Agreement) are sold
after the Issuance Date but prior to the closing of the Rights Offering and the
net proceeds therefrom are in excess of the amounts set forth in Section 1.1(c)
of the Company Disclosure Letter (as defined in the Purchase Agreement), such
excess proceeds, with the number of shares of Series B Preferred Stock so
redeemed not to exceed the sum of (i) the number of shares of Series A
Preferred Stock issued pursuant to the Rights Offering and (ii) the number of
shares equal to the excess proceeds from the sale of the Identified Assets
divided by the Stated Amount. The holders shall be permitted to convert their
Series B Preferred Stock at any time prior to the redemption date, but may not
convert more than 7,000,000 shares of Series B Preferred Stock prior to 170
days following the Issuance Date. Notwithstanding the provisions of this
Section 5(a), the Corporation shall have no right to redeem the shares of
Series B Preferred Stock pursuant to this Section 5(a) until the Corporation
shall have reserved from its authorized and unissued Class B Common Stock such
number of shares of Class B Common Stock as shall be sufficient to effect the
conversion of all then outstanding shares of Series B Preferred Stock into
Class B Common Stock.
(b) In the event there occurs a Change in Control, the Corporation shall
offer to purchase from each holder all of the Series B Preferred Stock held by
such holder for an amount in cash equal to the greatest of (i) the Liquidation
Preference of the shares of Series B Preferred Stock held by the holder,
(ii) in case of any Change in Control in which the shares of Series B Preferred
Stock are not converted into (or entitled to receive) any cash, securities or
property, the amount of the cash that such holder of the Series B Preferred
Stock would have received had it converted its Series B Preferred Stock
(including for such purposes any shares of Series B Preferred Stock issuable in
respect of Accrued Dividends) into shares of Common Stock immediately prior to
such Change in Control and received in respect of all such shares cash at the
same effective value per share of Common Stock as is being paid by or on behalf
of the acquiror of shares or assets in such transaction, plus Accrued Dividends
payable in cash to the extent not otherwise reflected pursuant to the
parenthetical phrase of this clause (ii), and (iii) in all other cases, the
Fair Market Value (as defined below) of the cash, securities and other property
that such holder of the Series B Preferred Stock would have received
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had it converted its Series B Preferred Stock (including for such purposes any
shares of Series B Preferred Stock issuable in respect of Accrued Dividends)
into shares of Common Stock immediately prior to such Change in Control, plus
Accrued Dividends payable in cash to the extent not otherwise reflected
pursuant to the parenthetical phrase of this clause (iii) (the greatest of (i),
(ii) and (iii) above being referred to as the "Change in Control Redemption
Price"), in each case by delivery of a notice of such offer (a "Change in
Control Redemption Offer") within five Business Days following the Change in
Control. In the event of a Change in Control, each holder of Series B Preferred
Stock shall have the right (but not the obligation) to require the Corporation
to purchase any or all of the Series B Preferred Stock held by such holder for
an amount in cash equal to the Change in Control Redemption Price. Each holder
of Series B Preferred Stock shall also be permitted, until the fifth Business
Day following a Change in Control, to convert all, and not less than all, of
the shares of Series B Preferred Stock held by such holder (including shares of
Series B Preferred Stock issuable to such holder as Accrued Dividends that have
accelerated or will accelerate as a result of a Change in Control) pursuant to
Section 8 below; provided that any shares of Common Stock issuable upon
conversion of any Series B Preferred Stock converted pursuant to this sentence
after a Change in Control has occurred shall be entitled to receive the same
amount of cash, securities and other property in connection with such Change in
Control as the Common Stock outstanding prior to the Change in Control. In the
event a holder of Series B Preferred Stock does not elect to have all of its
shares of Series B Preferred Stock either (i) redeemed by the Corporation
pursuant to Section 5 or (ii) converted pursuant to Section 8 below, in each
case in connection with a specific Change in Control event, then no dividends
shall be deemed to have been accelerated in connection with such Change in
Control. In the event that any holder does not elect to convert or redeem such
holder's shares of Series B Preferred Stock pursuant to the foregoing sentence,
such holder shall retain any rights it has to convert or redeem its shares of
Series B Preferred Stock in connection with any subsequent Change in Control.
"Fair Market Value" with respect to any securities shall be the Current Market
Price thereof as of the close of business on the date of measurement. The Fair
Market Value of any asset other than cash and securities shall be determined
jointly by the Corporation and the Requisite Holders. In the event any dispute
between the Corporation and the Requisite Holders as to the Fair Market Value
or Current Market Price (which dispute remains unresolved for 10 Business
Days), such dispute shall be submitted for final determination to a mutually
acceptable investment banking firm of national reputation familiar with the
valuation of companies in the hospitality and lodging industry ("Investment
Banking Firm"). In the event that the Corporation and the Requisite Holders
cannot agree on a mutually acceptable Investment Banking Firm within 10
Business Days, the Corporation, on the one hand, and the Requisite Holders, on
the other hand, shall each select one Investment Banking Firm, and shall cause
such firms to promptly select a third firm within five Business Days. The three
firms so selected shall, by majority vote, render their final determination as
promptly as practicable and in any event within 20 Business Days, which
determination shall be final and binding on the Corporation and the holders.
The fees and expenses of any such determination shall be borne by the
Corporation.
(c) Notice of any redemption of shares of Series B Preferred Stock pursuant
to Section 5(a) shall be mailed at least 30 Business Days (or, in the case of a
redemption pursuant to the third sentence of Section 5(a), at least five
Business Days) prior to the date fixed for redemption to each holder of shares
of Series B Preferred Stock to be redeemed, at such holder's address as it
appears on the transfer books of the Corporation. No redemption of shares of
Series B Preferred Stock pursuant to Section 5(a) shall take place unless such
notice shall have been mailed in accordance with this Section 5(c)(i). In order
to facilitate the redemption of shares of Series B Preferred Stock other than
pursuant to the third sentence of Section 5(a), the Board of Directors may fix
a record date for the determination of shares of Series B Preferred Stock to be
redeemed, not more than sixty days nor less than thirty days prior to the date
fixed for such redemption.
(i) Within five Business Days following an event giving a holder of
shares of Series B Preferred Stock the right, pursuant to Section 5(b), to
require the Corporation to redeem all of such shares, the Corporation shall
give notice by mail to each holder of Series B Preferred Stock, at such
holder's address as it appears on the transfer books of the Corporation, of
such event, which notice shall set forth each holder's right to require the
Corporation to redeem all, but not less than all, shares of Series B
Preferred Stock held by it which are eligible for redemption pursuant to
the terms of Section 5(b), the redemption
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date (which date shall be no more than 30 Business Days following the date
of such mailed notice), and the procedures to be followed by such holder in
exercising its right to cause such redemption. In the event a record holder
of shares of Series B Preferred Stock shall elect to require the
Corporation to redeem all such shares of Series B Preferred Stock pursuant
to Section 5(b), such holder shall deliver within 20 Business Days of the
mailing to it of the Corporation's notice described in this Section
5(c)(ii), a written notice to the Corporation so stating, specifying the
number of shares to be redeemed pursuant to Section 5(b). The Corporation
shall, in accordance with the terms hereof, redeem the number of shares so
specified on the date fixed for redemption. Failure of the Corporation to
give any notice required by this Section 5(c)(ii), or the formal
insufficiency of any such notice, shall not prejudice the rights of any
holders of shares of Series B Preferred Stock to cause the Corporation to
redeem all such shares held by them. Notwithstanding the foregoing, the
Board of Directors of the Corporation may modify any offer pursuant to this
Section 5(c)(ii) to the extent necessary to comply with the Exchange Act
and the rules and regulations thereunder.
(ii) The Corporation shall publish the fact that it is redeeming, or
offering to redeem, shares of Series B Preferred Stock through a nationally
prominent newswire service on or before the date of mailing any notice of
redemption or right of redemption. At any time after a notice of redemption
shall have been mailed and before such date of redemption the Corporation
may deposit for the benefit of the holders of the Series B Preferred Stock
called for redemption the funds necessary for such redemption with a bank
or trust company doing business in the Borough of Manhattan, the City of
New York, and having a capital and surplus of at least $1,000,000,000. Any
interest allowed on moneys so deposited shall be paid to the Corporation.
Upon the deposit of such funds or, if no such deposit is made, upon the
date fixed for redemption (unless the Corporation shall default in making
payment of the appropriate redemption amount), whether or not certificates
for shares so called for redemption have been surrendered for cancellation,
the shares of Series B Preferred Stock to be redeemed shall be deemed to be
no longer outstanding and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with
respect thereto, except for the rights to receive the amount payable upon
redemption, but without interest, and, up to the close of business on the
date immediately preceding the date fixed for such redemption, the right to
convert such shares pursuant to Section 8 hereof. Such deposit in trust
shall be irrevocable except that any funds deposited by the Corporation
which shall not be required for the redemption for which they were
deposited because of the exercise of conversion rights shall be returned to
the Corporation forthwith, and any funds deposited by the Corporation which
are unclaimed at the end of one year from the date fixed for such
redemption shall be paid over to the Corporation upon its request, and upon
such repayment the holders of the shares of Series B Preferred Stock so
called for redemption shall look only to the Corporation for payment of the
appropriate amount. Any such unclaimed amounts paid over to the Corporation
shall, for a period of six years from the date fixed for such redemption,
be set apart and held by the corporation in trust for the benefit of the
holders of such shares of Series B Preferred Stock, but no such holder
shall be entitled to interest thereon. At the expiration of such six-year
period, all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the
Corporation free of any claim of such holders.
(d) Notwithstanding anything to the contrary herein, the Corporation shall
not effect a redemption pursuant to Section 5(a) hereof unless simultaneously
therewith the Corporation redeems shares of Series A Preferred Stock pro rata
with the Series B Preferred Stock based on the respective numbers of
outstanding shares as of the date on which the notice of redemption is given.
(e) If the Corporation shall fail to comply with any of the provisions of
this Section 5 (other than the timely giving of a notice pursuant to Section
5(c)(i)), then in any such event, the Dividend Rate shall be increased by an
amount equal to the Default Rate during the period in which such failure shall
be continuing.
Section 6. Reacquired Shares.
Any shares of Series B Preferred Stock converted, redeemed, purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof, and,
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if necessary to provide for the lawful redemption or purchase of such shares,
the capital represented by such shares shall be reduced in accordance with the
General Corporation Law of the State of Delaware. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock,
par value $.01 per share, of the Corporation and may be reissued as part of
another series of Preferred Stock, par value $.01 per share, of the Corporation
subject to the conditions or restrictions on authorizing, creating or issuing
any class or series, or any shares of any class or series, set forth in
paragraph (b) of Section 3.
Section 7. Liquidation, Dissolution or Winding Up.
If the Cororation shall adopt a plan of liquidation or of dissolution, or
commence a voluntary case under the Federal bankruptcy laws or any other
applicable state or Federal bankruptcy, insolvency or similar law, or consent
to the entry of an order for relief in any involuntary case under any such law
or to the appointment of a receiver, liquidator, assignee, custodian, trustee
or sequestrator (or similar official) of the Corporation or of any substantial
part of its property, or make an assignment for the benefit of its creditors,
or admit in writing its inability to pay its debts generally as they become
due, or if a decree or order for relief in respect of the Corporation shall be
entered by a court having jurisdiction in the premises in an involuntary case
under the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and any such decree or order shall be
unstayed and in effect for a period of 90 consecutive days and on account of
such event the Corporation shall liquidate, dissolve or wind up, or upon any
other liquidation, dissolution or winding up of the Corporation (a
"Liquidation"), the holders shall be entitled to receive the greatest of
(i) the Liquidation Preference of the shares of Series B Preferred Stock held
by the holder, and (ii) the Fair Market Value (as defined below) of the cash,
securities and other property that such holder of the Series B Preferred Stock
would have received had they converted their Series B Preferred Stock
(including for such purposes any shares of Series B Preferred Stock issuable in
respect of Accrued Dividends) into shares of Common Stock immediately prior to
such Liquidation, plus Accrued Dividends payable in cash to the extent not
otherwise reflected pursuant to the parenthetical phrase of this clause (ii)
(including for such purposes any shares of Series B Preferred Stock issuable in
respect of Accrued Dividends through the date of the Liquidation), before any
distribution shall be made or any assets distributed in respect of Junior Stock
to the holders of any Junior Stock including, without limitation, Common Stock
of the Corporation. If upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the amounts payable with respect
to the Series B Preferred Stock and all other Parity Stock are not paid in
full, the holders of the Series B Preferred Stock and the Parity Stock will
share equally and ratably in any distribution of assets of the Corporation
first in proportion to the full liquidation preference to which each is
entitled until such preferences are paid in full, and then in proportion to
their respective amounts of accumulated but unpaid dividends. After payment of
the full amount of the greatest of the amounts set forth in clause (i) or (ii)
above to which they are entitled, the holders of shares of Series B Preferred
Stock will not be entitled to any further participation in any distribution of
assets of the Corporation. For the purposes of this Section 7, the voluntary
sale, conveyance, exchange or transfer of all or substantially all of the
property or assets of the Corporation or the consolidation or merger of the
Corporation with or into one or more other corporations shall not be deemed to
be a liquidation, winding-up or dissolution of the Corporation.
Section 8. Conversion into Common Stock.
Each share of Series B Preferred Stock, including any shares of Series B
Preferred Stock issued as Accrued Dividends (including Accrued Dividends that
have been accelerated in connection with a Change in Control and assuming any
shares of Common Stock into which such shares are converted will be treated in
all respects as shares of Common Stock outstanding prior to the Change in
Control), may, at the option of the holder thereof, be converted into shares of
Common Stock at any time, whether or not the Corporation has given notice of
redemption under Section 5, on the terms and conditions set forth in this
Section 8. Any such conversion shall be into shares of Class B Common Stock for
so long as Class B Common Stock shall remain a separate class of the
Corporation's Common Stock.
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(a) Subject to the provisions for adjustment hereinafter set forth, each
share of Series B Preferred Stock shall be convertible in the manner
hereinafter set forth into a number of fully paid and nonassessable shares of
Common Stock equal to the product obtained by multiplying the Applicable
Conversion Rate (as defined below) by the number of shares of Series B
Preferred Stock being converted. The "Applicable Conversion Rate" means the
quotient obtained by dividing the Conversion Value on the date of conversion by
the Conversion Price as adjusted pursuant to Section 8(b) on the date of
conversion.
(b) The Conversion Price shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall at any time or from time to time after
the original issuance of the Series B Preferred Stock declare a dividend,
or make a distribution, on the outstanding shares of Common Stock, in
either case, in shares of Common Stock, or effect a subdivision,
combination, consolidation or reclassification of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common Stock,
then, and in each such case, the Conversion Price in effect immediately
prior to such event or the record date therefor, whichever is earlier,
shall be adjusted by multiplying such Conversion Price by a fraction, the
numerator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event and the denominator of which is
the number of shares of Common Stock outstanding immediately after such
event. An adjustment made pursuant to this Section 8(b)(i) shall become
effective (x) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of
holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification,
consolidation or combination, at the close of business on the day upon
which such corporate action becomes effective.
(ii) In case the Corporation shall issue (other than upon the exercise
of options, rights or convertible securities) shares of Common Stock (or
options, rights, warrants or other securities convertible into or
exchangeable for shares of Common Stock) at a price per share (or having an
exercise or conversion price per share) less than the Current Market Price
as of the Business Day immediately preceding the Measurement Date, other
than (v) issuances in a private placement of securities, other than to an
affiliate of the Corporation, at a price for the securities sold in such
private placement (and the underlying common stock, as applicable) of not
less than 95% of the Current Market Price thereof, (w) in a transaction to
which Section 2(a), 2(b) or 8(b)(i) applies, (x) pursuant to options or
other securities under any employee or director benefit plan or program of
the Corporation approved by the Board of Directors of the Corporation or
shares of Common Stock issued upon the exercise thereof, (y) pursuant to
the conversion of the Series B Preferred Stock, the Series A Preferred
Stock or the Class B Common Stock or (z) pursuant to the issuance of the
Series A Preferred Stock in connection with the Rights Offering or as
dividends on the Series A Preferred Stock or the Series B Preferred Stock
(the issuances under clauses (v), (w), (x), (y) and (z) being referred to
as "Excluded Issuances"), then, and in each such case, the Conversion Price
in effect immediately prior to the Measurement Date shall be reduced so as
to be equal to an amount determined by multiplying such Conversion Price by
a fraction of which the numerator shall be the number of shares of Common
Stock of all classes outstanding at the close of business on the
Measurement Date plus the number of shares of Common Stock (or the number
of shares of Common Stock issuable upon the conversion, exchange or
exercise of such options, rights, warrants or other securities convertible
into or exchangeable for shares of Common Stock) which the aggregate
consideration receivable by the Corporation in connection with such
issuance would purchase at such Current Market Price and the denominator
shall be the number of shares of Common Stock of all classes outstanding at
the close of business on the Measurement Date plus the number of shares of
Common Stock (or the number of shares of Common Stock issuable upon the
conversion, exchange or exercise of such options, rights, warrants or other
securities convertible into or exchangeable for shares of Common Stock) so
issued. For purposes of this Section 8(b)(ii), the aggregate consideration
receivable by the Corporation in connection with the issuance of shares of
Common Stock or of options, rights, warrants or other convertible
securities shall be deemed to be equal to the sum of the gross offering
price (before deduction of customary underwriting discounts or commissions
and expenses payable to third parties) of
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all such securities plus the minimum aggregate amount, if any, payable upon
conversion or exercise of any such options, rights, warrants or other
convertible securities into shares of Common Stock, less any original issue
discount, premiums and other similar incentives which have the effect of
reducing the effective price per share. For purposes of this Section
8(b)(ii), such adjustment shall become effective immediately prior to the
opening of business on the Business Day immediately following the
Measurement Date.
(iii) (A) The initial Conversion Price shall first be reduced by an
amount equal to $0.16 to adjust for the issuance of shares of Common Stock
pursuant to the Corporation's payment of a dividend in respect of the
fourth quarter of 1998.
(B) To the extent that there are Losses attributable to the Forward
Equity Shares pursuant to Section 10.2(e) of the Purchase Agreement,
then the Conversion Price (after giving effect to all previous
adjustments) shall be reduced by the amount of any such Loss divided by
167,025,942.
(C) To the extent that the Companies' indemnification obligations
pursuant to Section 10.2(b) of the Purchase Agreement are to be
satisfied in the form of a conversion price adjustment and not in cash,
then the Conversion Price (after giving effect to all previous
adjustments) shall be reduced by the amount of any such Loss divided by
167,025,942.
(D) Any adjustment to the Conversion Price pursuant to this Section
8(b)(iii) shall be effective as of the Issuance Date; provided, that in
the event that an additional adjustment is determined following an
adjustment of the Conversion Price pursuant to this Section 8(b)(iii),
the total amount of the adjustment shall be recalculated and the
Conversion Price shall be readjusted on the basis of such recalculated
adjustment.
(iv) In addition to the adjustments in Sections 8(b)(i)-(iii) above, the
Corporation will be permitted to make such reductions in the Conversion
Price as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the holders of the shares of Common Stock.
(v) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 0.1% of the
Conversion Price; provided, that any adjustments which by reason of this
Section 8(b)(v) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 8 shall be made to the nearest cent or to the nearest one-
hundredth of a share, as the case may be.
(c) In case of any capital reorganization or reclassification of outstanding
shares of Common Stock (other than a reclassification covered by Section
8(b)(i)), or in case of any consolidation or merger of the Corporation with or
into another Person, or in case of any sale or conveyance to another Person of
the property of the Corporation as an entirety or substantially as an entirety
(each of the foregoing being referred to as a "Transaction"), each share of
Series B Preferred Stock then outstanding shall thereafter be convertible into,
in lieu of the Common Stock issuable upon such conversion prior to the
consummation of such Transaction, the kind and amount of shares of stock and
other securities and property (including cash) receivable upon the consummation
of such transaction by a holder of that number of shares of Common Stock into
which one share of Series B Preferred Stock was convertible immediately prior
to such Transaction (including, on a pro rata basis, the cash, securities or
property received by holders of Common Stock in any tender or exchange offer
that is a step in such Transaction). In any such case, if necessary,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions set forth in this Section 8
with respect to rights and interests thereafter of the holders of shares of
Series B Preferred Stock to the end that the provisions set forth herein for
the protection of the conversion rights of the Series B Preferred Stock shall
thereafter be applicable, as nearly as reasonably may be, to any such other
shares of stock and other securities and property deliverable upon conversion
of the shares of Series B Preferred Stock remaining outstanding (with such
adjustments in the conversion price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine in good faith to be appropriate). In case securities
or property other than Common Stock shall be issuable or deliverable upon
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conversion as aforesaid, then all references in this Section 8 shall be deemed
to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, (i)
the Surviving Person (as defined in Section 11) thereof, if other than the
Corporation, shall assume, by written instrument mailed to each record holder
of shares of Series B Preferred Stock, at such holder's address as it appears
on the transfer books of the Corporation, the obligation to deliver to such
holder such cash, property and securities to which, in accordance with the
foregoing provisions, such holder is entitled. Nothing contained in this
Section 8(c) shall limit the rights of holders of the Series B Preferred Stock
to convert the Series B Preferred Stock in connection with the Transaction or
to exercise their rights to require the redemption of the Series B Preferred
Stock under Section 5(b).
(d) The holder of any shares of Series B Preferred Stock may exercise its
right to convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such other
office or agency maintained by the Corporation for that purpose, a certificate
or certificates representing the shares of Series B Preferred Stock to be
converted duly endorsed to the Corporation in blank accompanied by a written
notice stating that such holder elects to convert all or a specified whole
number of such shares in accordance with the provisions of this Section 8. The
Corporation will pay any and all documentary, stamp or similar issue or
transfer tax and any other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of Series B Preferred Stock
pursuant hereto. As promptly as practicable, and in any event within three
Business Days after the surrender of such certificate or certificates and the
receipt of such notice relating thereto and, if applicable, payment of all
transfer taxes (or the demonstration to the satisfaction of the Corporation
that such taxes are inapplicable), the Corporation shall deliver or cause to be
delivered (i) certificates registered in the name of such holder representing
the number of validly issued, fully paid and nonassessable full shares of
Common Stock to which the holder of shares of Series B Preferred Stock so
converted shall be entitled and (ii) if less than the full number of shares of
Series B Preferred Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversion shall be
deemed to have been made at the close of business on the date of receipt of
such notice and of such surrender of the certificate or certificates
representing the shares of Series B Preferred Stock to be converted so that the
rights of the holder thereof as to the shares being converted shall cease
except for the right to receive shares of Common Stock, and the person entitled
to receive the shares of Common Stock shall be treated for all purposes as
having become the record holder of such shares of Common Stock at such time.
(e) Shares of Series B Preferred Stock may be converted at any time and, if
subject to mandatory redemption, up to the close of business on the last
Business Day immediately preceding the date fixed for such mandatory redemption
of such shares.
(f) In connection with the conversion of any shares of Series B Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied
by the Current Market Price per share of Common Stock on the day on which such
shares of Series B Preferred Stock are deemed to have been converted.
(g) In case at any time or from time to time the Corporation shall pay any
dividend or make any other distribution to the holders of its Common Stock, or
shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or any other right, other than pursuant
to the Rights Offering or the Rights Plan, or there shall be any capital
reorganization or reclassification of the Common Stock of the Corporation or
consolidation or merger of the Corporation with or into another corporation, or
any sale or conveyance to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, then, in any one or more of said cases the Corporation shall give
at least 20 days' prior written
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notice (the time of mailing of such notice shall be deemed to be the time of
giving thereof) to the registered holders of the Series B Preferred Stock at
the addresses of each as shown on the books of the Corporation of the date on
which (i) the books of the corporation shall close or a record shall be taken
for such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the case may be,
provided that in the case of any Transaction to which Section 8(c) applies the
Corporation shall give at least 30 days' prior written notice as aforesaid.
Such notice shall also specify the date, if known, as of which the holders of
the Common Stock and of the Series B Preferred Stock of record shall
participate in said dividend, distribution or subscription rights or shall be
entitled to exchange their Common Stock or Series B Preferred Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, or participate in
such dissolution, liquidation or winding up, as the case may be.
Section 9. Conversion into Series A Preferred Stock.
(a) Each share of Series B Preferred Stock may, at the option of the holder
thereof, be converted into shares of Series A Preferred Stock at any time,
whether or not the Corporation has given notice of redemption under Section 5,
on the terms and conditions set forth in this Section 9. Each share of Series B
Preferred Stock shall be convertible into an equal number of fully paid and
nonassessable shares of Series A Preferred Stock. The procedures for converting
into Series A Preferred Stock shall be the same as those as are set forth in
Section 8(d).
(b) Subject to Section 9(c), in the event of any transfer of any share of
Series B Preferred Stock to any Person other than to one of the Investors, such
share of Series B Preferred Stock shall automatically, without any further
action, convert into one share of Series A Preferred Stock. In the event of any
transfer to a Person other than an Investor, the transferring Investor shall
promptly notify the Corporation of the date of the transfer, the number of
shares of Series B Preferred Stock so transferred and the identity of the
transferor.
(c) Notwithstanding anything to the contrary in Section 9(b), a holder of
shares of Series B Preferred Stock may pledge all or a portion of such holder's
shares of Series B Preferred Stock pursuant to a bona fide pledge of such
shares of Series B Preferred Stock as collateral security for any indebtedness
or other obligation of any Person due to the pledgee or its nominee; provided,
however, that upon any foreclosure, realization or similar action by the
pledgee, each share of Series B Preferred Stock that is so pledged shall
automatically convert into one share of Series A Preferred Stock unless all
right, title and interest in such Pledged Stock shall be transferred
concurrently by the pledgee or its nominee or the purchaser in such foreclosure
to an Investor.
(d) Any conversion pursuant to Section 9(b) shall be deemed to have been
effected at the time the transfer occurred (the "Conversion Time"). At the
Conversion Time, the certificate or certificates that represented immediately
prior thereto the shares of Series B Preferred Stock which were so converted
(the "Converted Series B Preferred Stock") shall, automatically and without
further action, represent the same number of shares of Series A Preferred
Stock. Holders of Converted Series B Preferred Stock shall deliver their
certificates, duly endorsed in blank or accompanied by proper instruments of
transfer, to the principal office of the Corporation or the office of any
transfer agent for shares of the Series B Preferred Stock, together with a
written notice setting out the name or names and denominations in which the
certificate or certificates representing such shares are to be issued and
including instructions for delivery thereof. Upon such delivery, the
Corporation or its transfer agent shall promptly issue and deliver a
certificate or certificates representing the number of shares of Series A
Preferred Stock to which such holder of shares of Series B Preferred Stock is
entitled by reason of such conversion, and shall cause such shares of Series A
Preferred Stock to be registered in the name of such holder. The person
entitled to receive shares of Series A Preferred Stock issuable upon conversion
shall be treated for all purposes as the record holder of such shares of Series
B Preferred Stock at and as of the Conversion Time, and the rights of such
person as a holder shares of Series B Preferred Stock that have been converted
shall cease and terminate at and as of the Conversion Time.
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Section 10. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible (or the number of votes to which each
share of Series B Preferred Stock is entitled) is adjusted as provided in
Section 8, the Corporation shall promptly mail to the holders of record of the
outstanding shares of Series B Preferred Stock at their respective addresses as
the same shall appear in the Corporation's stock records a notice stating that
the number of shares of Common Stock into which the shares of Series B
Preferred Stock are convertible has been adjusted and setting forth the new
number of shares of Common Stock (or describing the new stock, securities, cash
or other property) into which each share of Series B Preferred Stock is
convertible, as a result of such adjustment, a brief statement of the facts
requiring such adjustment and the computation thereof, and when such adjustment
became effective.
Section 11. Definitions.
For the purposes of the Certificate of Designation of Series B Convertible
Preferred Stock which embodies this resolution:
"Accrued Dividends" to a particular date (the "Applicable Date") means (i)
all dividends accrued but not paid on the Series B Preferred Stock pursuant to
Section 2(a), whether or not earned or declared, accrued to the Applicable
Date, plus (ii) all dividends or distributions payable pursuant to Section 2(b)
for which the Triggering Distribution was declared, ordered, paid or made on or
prior to the Applicable Date; provided that if a Change of Control or
Liquidation occurs at any time on or prior to the sixth anniversary of the
Issuance Date, Accrued Dividends payable on the date of the Change of Control
or Liquidation shall be deemed to include all dividends on the entire amount of
the Series B Preferred Stock outstanding on the date of the Change of Control
or Liquidation which have not been previously paid but which otherwise would
accrue through and including the sixth anniversary of the Issuance Date
(assuming that all dividends were paid solely in additional shares of Series B
Preferred Stock rather than cash), which dividends shall be deemed to have been
accelerated, recalculated and paid on their respective Dividend Payment Dates,
in each case payable solely in additional shares of Series B Preferred Stock;
provided, however, that with respect to any holder of Series B Preferred Stock,
no such dividends shall be deemed to have been accelerated, recalculated or
paid in connection with a Change in Control in the event such holder has not
elected, in connection with such Change in Control, to have all of its shares
of Series B Preferred Stock either (i) redeemed by the Corporation pursuant to
Section 5 or (ii) converted pursuant to Section 8.
"affiliate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Securities and Exchange Commission under the Exchange Act.
"associate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Securities and Exchange Commission under the Exchange Act.
"Business Day" means any day other than a Saturday, Sunday, or a day on
which commercial banks in the City of New York are authorized or obligated by
law or executive order to close.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing person.
"Cash Percentage" means, as to any date, the amount calculated on the basis
of the following formula (expressed as a percentage), with the dividend payment
period ("DPP") referring to the number of Dividend Payment Dates that have
occurred prior to such date: 73,125/(7,000,000 times 1.024375 raised to the
power of DPP (i.e., 1.024375DPP), plus 3,000,000).
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"Change in Control" means 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 Corporation, 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 Corporation 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") 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 Corporation'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 Corporation 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 Corporation, 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 Corporation (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 Corporation entitled to vote generally
in the election of directors; or
(c) the approval by the stockholders of the Corporation 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 Corporation
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 Corporation 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 Corporation in one transaction or series of related
transactions;
provided, that the occurrence of any event identified in subparagraphs (a)
through (d) above that would otherwise be treated as a Change in Control
shall not constitute a Change in Control hereunder if a majority of the
Class B Directors, by vote duly taken, shall so determine.
"Class A Common Stock" means the Class A Common Stock, par value $0.01 per
share, of the Corporation.
"Class A Directors" has the meaning set forth in the Restated Certificate of
Incorporation.
"Class B Common Stock" means the Class B Common Stock, par value $0.01 per
share, of the Corporation.
"Class B Directors" has the meaning set forth in the Restated Certificate of
Incorporation.
"Class C Directors" has the meaning set forth in the Restated Certificate of
Incorporation.
D-14
<PAGE>
"Closing Price" per share of Common Stock on any date shall be the last sale
price, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported on the Nasdaq National
Market or in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or American Stock Exchange, as the case may be, or, if the Common
Stock is listed or admitted to trading on the New York Stock Exchange or
American Stock Exchange, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the last quoted sale price or, if
not so quoted, the average of the high bid and low asked prices in the over-
the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use, or, if on any such date the Common Stock is not quoted by any such
organization, the average of the Closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors and reasonably acceptable to the Requisite Holders.
"Common Stock" means the Class A Common Stock and the Class B Common Stock
or, if there shall no longer be separate classes, the common stock, par value
$0.01 per share, of the Corporation.
"Conversion Price" shall initially be equal to $8.75, subject to adjustment
as provided in Section 8(b).
"Conversion Value" per share of Series B Preferred Stock shall be an amount
equal to the Stated Amount plus all Accrued Dividends thereon to the date of
conversion or redemption, as the case may be.
"Current Market Price" per share of Common Stock on any date shall be the
average of the Closing Prices of a share of Common Stock for the five
consecutive Trading Days selected by the Corporation commencing not less than
10 Trading Days nor more than 20 Trading Days before the date in question. If
on any such Trading Day the Common Stock is not quoted by any organization
referred to in the definition of Closing Price, the Current Market Price of the
Common Stock on such day shall be determined by agreement between the
Corporation and the Requisite Holders, provided that if such agreement is not
reached within 10 business days, such Current Market Price shall be determined
as set forth in Section 5(b).
"Dividend Payment Date" means the following dates: (i) the date that is
three months after the Issuance Date; (ii) the date that is six months after
the Issuance Date; (iii) the date that is nine months after the Issuance Date;
(iv) the date that is the first anniversary of the Issuance Date; and the
anniversaries of the foregoing dates.
"Dividend Period" means the period from the Issuance Date to the first
Dividend Payment Date (but without including such Dividend Payment Date) and,
thereafter, each Dividend Payment Date to the following Dividend Payment Date
(but without including such later Dividend Payment Date).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Group" means a "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) that includes one or more of the Investors;
provided, that the voting securities of the Corporation "beneficially owned"
(as such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
Investors represents a majority of the voting securities "beneficially owned"
(as such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
group.
"Investors" means Apollo Real Estate Investment Fund III, L.P., Apollo
Investment Fund IV, L.P., Thomas H. Lee Equity Fund IV, L.P., Thomas H. Lee
Foreign Fund IV, L.P., Thomas H. Lee Charitable Investment L.P., THL-CCI
Limited Partnership, Beacon Private Equity, Inc., Beacon Capital Partners, L.P.
and Strategic Real Estate Investments I, L.L.C., together with each of their
Permitted Assignees and Permitted Third Party Transferees (as each such term is
defined in the Purchase Agreement), and all of their respective successors by
operation of law.
D-15
<PAGE>
"Issuance Date" means the original date of issuance of Series B Preferred
Stock to the Investors.
"Junior Stock" means all classes of Common Stock of the Corporation and each
other class of Capital Stock of the Corporation or series of Preferred Stock of
the Corporation currently existing or hereafter created the terms of which do
not expressly provide that it ranks senior to, or on a parity with, the Series
B Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution of the Corporation.
"Liquidation Preference" means, in the event of a liquidation or winding up
of the Corporation, an amount per share of Series B Preferred Stock equal to
the greater of (i) the amount the holders of the Series B Preferred Stock would
have received had they converted their Series B Preferred Stock (including for
such purposes any shares of Series B Preferred Stock issuable in respect of
Accrued Dividends through the date of liquidation) into Common Stock
immediately prior to such liquidation or winding up and (ii) the Stated Amount
of their Series B Preferred Stock plus any Accrued Dividends.
"Measurement Date" means, for purposes of Section 8(b)(ii), (i) in the case
of an offering of rights, warrants or options to all or substantially all of
the holders of the Common Stock or any other issuance contemplated by such
Section where a record date is fixed for the determination of stockholders
entitled to participate in such issuance, such record date and (ii) in all
other cases, the Business Day immediately preceding the date of issuance of
shares of Common Stock (or options, rights, warrants or other securities
convertible into or exchangeable for shares of Common Stock) contemplated by
such Section.
"Parity Stock" means any class of Capital Stock of the Corporation or series
of preferred stock of the Corporation hereafter created the terms of which
expressly provide that such class or series will rank on a parity with the
Series B Preferred Stock as to dividend distributions, redemptions (other than
redemptions in connection with the Rights Offering) and distributions upon
liquidation, winding-up and dissolution, including the Series A Preferred
Stock.
"Person" means an individual, partnership, corporation, limited liability
company or partnership, unincorporated organization, trust or joint venture, or
a governmental agency or political subdivision thereof, or other entity of any
kind.
"PIK Percentage" means, as to any date, the amount determined by subtracting
the Cash Percentage with respect to such date from 2.4375%.
"Preferred Stock" means the preferred stock, par value $0.01 per share, of
the Corporation.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
February 18, 1999, by and among the Corporation, Patriot, Wyndham International
Operating Partnership, L.P. and Patriot American Hospitality Partnership, L.P.
and each of the Investors party thereto.
"Rights Offering" has the meaning set forth in the Purchase Agreement.
"Senior Stock" means each other class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation hereafter created that has been
approved by the holders in accordance with Section 3(b) hereof and the terms of
which expressly provide that such class or series will rank senior to the
Series B Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution of the Corporation.
"Series A Certificate of Designation" means the Certificate of Designation
of the Series A Preferred Sock filed with the Secretary of State of the State
of Delaware on the Issuance Date, as it may be amended from time to time.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock of
the Corporation, the terms of which are set forth in the Series A Certificate
of Designation.
D-16
<PAGE>
"Set Apart for Payment" means the Corporation shall have irrevocably
deposited with a bank or trust company doing business in the Borough of
Manhattan, the City of New York, and having a capital and surplus of at least
$1,000,000,000 in trust for the exclusive benefit of the holders of shares of
Series B Preferred Stock, funds sufficient to satisfy the Corporation's payment
obligation.
"Stated Amount" means $100 per share.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
"Surviving Person" means the continuing or surviving Person of a merger,
consolidation or other corporate combination, the Person receiving a transfer
of all or a substantial part of the properties and assets of the Corporation,
or the Person consolidating with or merging into the Corporation in a merger,
consolidation or other corporate combination in which the Corporation is the
continuing or surviving Person, but in connection with which the Series B
Preferred Stock or Common Stock of the Corporation is exchanged, converted or
reinstated into the securities of any other Person or cash or any other
property; provided, however, if such Surviving Person is a direct or indirect
Subsidiary of a Person, the parent entity also shall be deemed to be a
Surviving Person.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading is
open for the transaction of business or, if the Common Stock is not quoted,
listed or admitted to trading on any national securities exchange (including
the Nasdaq Stock Market), any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Trading Price" per share of Common Stock on any date shall be the last
sales price for the Common Stock reported on the Nasdaq Stock Market (or if the
Common Stock is not then quoted thereon, then for the principal national
securities exchange on which the Common Stock is listed or admitted to trading)
or, if the Common Stock is not quoted on the Nasdaq Stock Market and is not
listed or admitted to trading on any national securities exchange, in the over-
the-counter market, as reported by NASDAQ or such other system then in use, or,
if on any such date the Common Stock is not quoted by any such organization, as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Corporation and reasonably acceptable
to the Requisite Holders.
[Remainder of Page Intentionally Left Blank]
D-17
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series B Convertible Preferred Stock to be duly executed by its
President and attested to by its Secretary and has caused its corporate seal to
be affixed hereto, this day of , 1999.
Wyndham International, Inc.
By: _________________________________
President
ATTEST:
By: _______________________________
Secretary
D-18
<PAGE>
ANNEX E
MORGAN STANLEY DEAN WITTER
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
February 27, 1999
Members of the Boards of Directors
Patriot American Hospitality, Inc.
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6000
Dallas, TX 75207
Members of the Boards:
We understand that Patriot American Hospitality, Inc. ("Patriot"), Wyndham
International, Inc. ("Wyndham" and, together with Patriot, the "Companies") and
Apollo Real Estate Investment Fund III, L.P., Apollo Investment Fund IV, L.P.
Thomas H. Lee Equity Fund IV, L.P., Thomas H. Lee Foreign Fund IV, L.P., Thomas
H. Lee Charitable Investment L.P., THL-CCI Limited Partnership, Beacon Private
Equity, Inc. and Strategic Real Estate Investments I, L.L.C. (together, the
"Investors") executed and delivered a Securities Purchase Agreement, dated as
of February 18, 1999 (such agreement, together with all schedules, exhibits and
annexes thereto, the "Purchase Agreement"), which provides, among other things,
that (the following, collectively, the "Transactions"):
(i) the Companies, Patriot American Hospitality Partnership, L.P. ("Patriot
OP") and Wyndham International Operating Partnership L.P. ("Wyndham
OP") will be restructured, and upon the completion of that
restructuring, Wyndham will continue as a public company and Patriot
will become a wholly owned subsidiary of Wyndham;
(ii) the pairing and cooperation agreements between Wyndham and Patriot,
and effective as of January 1, 1999, Patriot's status as a real estate
investment trust will be terminated;
(iii) Wyndham will make an offer (the "Wyndham OP Offer") to holders of
common units and preferred units of Wyndham OP (collectively, the
"Wyndham OP Units") to exchange each Wyndham OP Unit for a number of
shares, to be determined by the parties, of newly issued Wyndham
common stock, par value $0.01 per share, (the "Wyndham Common Stock",
which term shall also refer collectively to Wyndham Class A Common
Stock and the Wyndham Class B Common Stock (as each term is defined
below), which shares of Wyndham Common Stock are currently paired and
trade on the New York Stock Exchange as a single unit (such unit, the
"Paired Common Stock") with shares of common stock of Patriot, par
value $0.01 per share ("Patriot Common Stock"));
(iv) Wyndham will make an offer (the "Wyndham Preferred Stock Offer") to
holders of preferred stock, par value $0.01 per share (the "Wyndham
Preferred Stock") to exchange each share of Wyndham Preferred Stock
for a number of shares of newly issued Wyndham Common Stock to be
determined by the parties;
(v) Patriot will make an offer (the "Patriot OP Offer"; and together with
the Wyndham OP Offer and the Wyndham Preferred Stock Offer, the
"Exchange Offers") to holders of common units and preferred units of
Patriot OP (collectively, the "Patriot OP Units") to exchange each
Patriot OP Unit for a number of shares of newly issued Wyndham Common
Stock to be determined by the parties;
(vi) Patriot will seek the consent (the "Patriot OP Consent Solicitation")
of the holders of more than 50% of the Patriot OP Units to amend the
existing Patriot OP Partnership Agreement as set forth in Exhibit E-1
to the Securities Purchase Agreement;
(vii) Wyndham will seek the consent (the "Wyndham OP Consent Solicitation")
of the holders of more than 50% of the Wyndham OP Units to amend the
existing Wyndham OP Partnership Agreement as set forth in Exhibit E-3
to the Securities Purchase Agreement;
E-1
<PAGE>
(viii) in the event of the effectiveness of the Patriot OP Consent
Solicitation, Patriot OP will make a non-pro rata distribution (the
"Patriot OP Distribution") of the voting stock of certain
corporations held by Patriot OP to PAH LP, Inc., through which
Patriot holds its limited partnership interest in Patriot OP, and
there will be no adjustment to any limited partnership interests in
Patriot OP by reason of the Patriot OP Distribution;
(ix) Wyndham will form a wholly owned subsidiary ("Acquisition Sub") and,
upon receipt of the requisite approval of holders of a majority of the
shares of Patriot Common Stock, Acquisition Sub will merge (the
"Merger") into Patriot, and each outstanding share of Patriot Common
Stock and each outstanding share of preferred stock of Patriot, par
value $0.01 per share (the "Patriot Preferred Stock"), will be
exchanged for a number of shares of newly issued Wyndham Common Stock
to be determined by the parties;
(x) Wyndham will make a reverse stock split (the "Reverse Stock Split")
with the effect that one share of Paired Common Stock immediately prior
to the Merger will become one share of Wyndham Common Stock immediately
following the Merger and the Reverse Stock Split;
(xi) following the consummation of the Investment (as defined below),
Wyndham may make a rights offering, in which holders of Wyndham Common
Stock, Patriot Preferred Stock, Wyndham Preferred Stock, and, if the
Patriot OP Consent Solicitation and the Wyndham OP Consent
Solicitation are successful, Wyndham OP Units and Patriot OP Units
will be offered the right to purchase up to $300 million in aggregate
liquidation preference of Series A Convertible Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock"), of Wyndham at
par, which shares of Series A Preferred Stock will be convertible into
shares of Class A Common Stock of Wyndham, par value $0.01 per share
(the "Wyndham Class A Common Stock");
(xii) subject to adjustment pursuant to Section 1.1 of the Purchase
Agreement, the Investors will purchase (the "Investment") 10 million
shares of Series B Convertible Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"), of Wyndham for an aggregate
purchase price of $1 billion, which shares of Series B Preferred
Stock will be convertible into shares of Class B Common Stock of
Wyndham, par value $0.01 per share (the "Wyndham Class B Common
Stock"); and
(xiii) the net proceeds of the Investment, taken together with the proceeds
of any alternative financing approved by the Investors will be used
to: (a) retire amounts due under various agreements under which the
Companies are obligated to issue or deliver as collateral any of
their equity securities; (b) repay indebtedness; (c) repay fees and
reimbursements incurred in connection with the Transactions; and (d)
fund general corporate activities.
The terms and conditions of the Transactions are more fully set forth in the
Purchase Agreement.
You have asked for our opinion as to whether the Investment is fair from a
financial point of view to the holders of Wyndham Common Stock and Patriot
Common Stock. For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Companies;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Companies prepared by the managements of
the Companies;
(iii) analyzed certain financial forecasts prepared by the managements of
the Companies;
(iv) discussed with senior executives of the Companies the past and current
operations and financial condition and the prospects of the Companies;
(v) reviewed certain alternatives to the Transactions, including an
alternative transaction proposed by Hilton Hotels Corporation;
(vi) reviewed the reported prices and trading activity for the Paired
Common Stock;
(vii) compared the financial performance of the Companies and the prices
and trading activity of the Paired Common Stock with that of certain
other comparable publicly-traded companies and their securities;
E-2
<PAGE>
(viii)reviewed the financial terms, to the extent publicly available, of
transactions we deemed relevant;
(ix) participated in discussions and negotiations among representatives of
the Companies and the Investors and their financial and legal
advisors;
(x) discussed with the managements and legal advisors of the Companies the
implications of the Companies' transformation from a real estate
investment trust to a Subchapter C Corporation under the Internal
Revenue Code of 1986, as amended (the "Code");
(xi) reviewed the Purchase Agreement and certain related documents;
(xii) reviewed the term of the outstanding debt obligations and forward
equity commitments of the Companies; and
(xiii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Companies. We have not made any independent valuation or appraisal of the
assets or liabilities of the Companies, nor have we been furnished with any
such appraisals. We have assumed that the Transactions set forth in the
Purchase Agreement will be consummated in accordance with the terms set forth
therein. We have assumed that the Transactions will result in Wyndham being
classified as a Subchapter C Corporation under the Code. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Independent Members of the Boards
of Directors of the Companies and the Companies in connection with the
Transactions and will receive a fee for our services. In the past, Morgan
Stanley & Co. Incorporated and its affiliates have provided financial advisory
and financing services for Patriot, Wyndham and their affiliates and members of
the Investors and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Members of
the Boards of Directors of the Companies and may not be used for any other
purpose without our prior written consent. In addition, this opinion does not
in any manner address the price at which the Paired Common Stock or the Wyndham
Common Stock will trade at any time. In addition, Morgan Stanley expresses no
opinion or recommendation as to how the holders of Patriot Common Stock or
Wyndham Common Stock should vote at the stockholder's meetings in connection
with the Transactions.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Investment is fair from a financial point of view to the
holders of Wyndham Common Stock and Patriot Common Stock.
Very truly yours,
Morgan Stanley & Co. Incorporated
/s/ Mahmoud Mamdani
By: _________________________________
Name: Mahmoud Mamdani
Title: Managing Director
E-3
<PAGE>
ANNEX F
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
WYNDHAM INTERNATIONAL, INC.
and
WYNDHAM INTERNATIONAL ACQUISITION SUBSIDIARY INC.
and
PATRIOT AMERICAN HOSPITALITY, INC.
Dated as of March 26, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
<TABLE>
<S> <C>
THE MERGER............................................................. F-1
1.1 The Merger....................................................... F-1
1.2 The Closing...................................................... F-1
1.3 Effective Time................................................... F-2
</TABLE>
ARTICLE 2
<TABLE>
<S> <C>
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION.......................................... F-2
2.1 Charter.......................................................... F-2
2.2 Bylaws........................................................... F-2
</TABLE>
ARTICLE 3
<TABLE>
<S> <C>
DIRECTORS OF THE SURVIVING CORPORATION................................. F-2
3.1 Directors of Surviving Corporation............................... F-2
</TABLE>
ARTICLE 4
<TABLE>
<S> <C>
EXCHANGE OF STOCK...................................................... F-2
4.1 Wyndham Common Stock............................................. F-2
4.2 Outstanding Common Stock of Acquisition Sub...................... F-2
4.3 Conversion of Patriot Stock...................................... F-3
4.4 Exchange of Certificates Representing Patriot Common Stock and
Patriot Preferred Stock........................................... F-4
4.5 Return of Exchange Fund.......................................... F-6
4.6 Lost or Stolen Certificates...................................... F-6
</TABLE>
ARTICLE 5
<TABLE>
<S> <C>
REPRESENTATIONS AND WARRANTIES OF PATRIOT.............................. F-6
5.1 Existence; Good Standing; Authority.............................. F-6
5.2 Authorization, Validity and Effect of Agreements................. F-7
5.3 Consents and Approvals: No Violations............................ F-7
5.4 Termination of Ownership Limitation.............................. F-7
</TABLE>
ARTICLE 6
<TABLE>
<S> <C>
REPRESENTATIONS AND WARRANTIES
OF WYNDHAM AND ACQUISITION SUB........................................ F-7
6.1 Existence; Good Standing; Authority; Compliance With Law......... F-8
6.2 Authorization, Validity and Effect of Agreements................. F-8
6.3 Consents and Approvals: No Violations............................ F-8
6.4 Issuance of Wyndham Common Stock................................. F-9
</TABLE>
ARTICLE 7
<TABLE>
<S> <C>
COVENANTS............................................................. F-9
7.1 Meetings of Patriot and Wyndham Stockholders.................... F-9
7.2 Filings: Other.................................................. F-9
7.3 Proxy Statement; Registration Statement......................... F-9
7.4 Listing Application............................................. F-10
7.5 Further Action.................................................. F-10
7.6 Affiliates of Patriot........................................... F-10
7.7 Expenses........................................................ F-11
7.8 Indemnification................................................. F-11
</TABLE>
F-(i)
<PAGE>
ARTICLE 8
<TABLE>
<S> <C>
CONDITIONS.......................................................... F-11
8.1 Conditions to Each Party's Obligation to Effect the Merger.... F-11
8.2 Conditions to Obligations of Patriot to Effect the Merger..... F-12
8.3 Conditions to Obligation of Wyndham and Acquisition Sub to
Effect the Merger.................................................. F-12
</TABLE>
ARTICLE 9
<TABLE>
<S> <C>
TERMINATION; AMENDMENT; WAIVER........................................ F-13
9.1 Termination..................................................... F-13
9.2 Effect of Termination........................................... F-14
9.3 Extension; Waiver............................................... F-14
</TABLE>
ARTICLE 10
<TABLE>
<S> <C>
GENERAL PROVISIONS ................................................... F-14
10.1 Nonsurvival of Representations, Warranties and Agreements....... F-14
10.2 Notices......................................................... F-14
10.3 Assignment; Binding Effect; Benefit............................. F-14
10.4 Entire Agreement................................................ F-15
10.5 Amendment....................................................... F-15
10.6 Governing Law................................................... F-15
10.7 Counterparts.................................................... F-15
10.8 Headings........................................................ F-15
10.9 Interpretation.................................................. F-15
10.10 Waivers......................................................... F-15
10.11 Exclusive Jurisdiction.......................................... F-15
10.12 Severability.................................................... F-15
10.13 Enforcement of Agreement........................................ F-15
10.14 Certain Definitions............................................. F-16
</TABLE>
F-(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made and entered
into as of March 26, 1999, by and among Wyndham International, Inc., a Delaware
corporation ("Wyndham"), Wyndham International Acquisition Subsidiary Inc., a
Delaware corporation and a wholly owned subsidiary of Wyndham ("Acquisition
Sub"), and Patriot American Hospitality, Inc., a Delaware corporation
("Patriot").
RECITALS
WHEREAS, the boards of directors of Wyndham, Acquisition Sub and Patriot have
each determined that it is advisable and in the best interests of their
respective stockholders to have approved and consummated the business
combination transaction provided for herein in which Acquisition Sub would
merge with and into Patriot and Patriot would become a wholly-owned subsidiary
of Wyndham (the "Merger");
WHEREAS, the boards of directors of Wyndham, Acquisition Sub and Patriot,
respectively, have determined that the Merger is in the best interests of their
respective companies and shareholders and accordingly have agreed to effect the
transactions provided for herein upon the terms and subject to the conditions
set forth herein;
WHEREAS, the boards of directors of Wyndham and Patriot, respectively, have
determined that Wyndham and Patriot should each effectuate a one-for-twenty
reverse stock split (the "Reverse Stock Splits") of their respective common
stock; and
WHEREAS, Wyndham, Acquisition Sub and Patriot desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as hereinafter defined), Acquisition Sub shall be merged with
and into Patriot in accordance with this Agreement, and the separate corporate
existence of Acquisition Sub shall thereupon cease. Patriot shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). The Merger shall have the effects specified in
Section 259 of the Delaware General Corporation Law (the "DGCL").
1.2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date
specified by the parties that is prior to or the same as the day of the closing
of the sale by Wyndham of shares of preferred stock (the "Investment
Transaction") pursuant to that Securities Purchase Agreement dated February 18,
1999, by and among Patriot, Wyndham, Patriot American Hospitality, L.P.,
Wyndham International Operating Partnership, L.P. and the investors party
thereto (the "Investment Agreement"), subject to the satisfaction or waiver of
the conditions set forth in Article 8 herein, unless another time or date is
agreed to by the parties hereto. Unless the parties shall otherwise agree, the
parties shall use their reasonable best efforts to cause the Closing to occur
as soon as possible after the meetings of the stockholders held pursuant to
Section 7.1. The Closing will be held at the offices of Goodwin, Procter &
Hoar, 599 Lexington Avenue, New York, NY, unless another place is agreed to by
the parties hereto. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
<PAGE>
1.3 Effective Time. If all of the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, then, on or
after the Closing Date but prior to the closing of the Investment Transaction,
the parties hereto shall cause a Certificate of Merger satisfying the
requirements of the DGCL (the "Certificate of Merger") to be properly executed,
verified and delivered for filing in accordance with the DGCL. The Merger shall
become effective at or immediately prior to such closing or at such other time
which the parties hereto shall have agreed upon and designated in such filing
in accordance with applicable law as the effective time of the Merger (the
"Effective Time"). The date on which the Effective Time occurs is hereinafter
referred to as the "Effective Date".
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1 Charter. The Amended and Restated Certificate of Incorporation of Patriot
in effect immediately prior to the Effective Time (the "Patriot Certificate")
shall be the certificate of incorporation of the Surviving Corporation, until
duly amended in accordance with applicable law (the "Surviving Corporation
Certificate").
2.2 Bylaws. The bylaws of Patriot in effect immediately prior to the
Effective Time (the "Patriot Bylaws") shall be the bylaws of the Surviving
Corporation, until duly amended in accordance with applicable law (the
"Surviving Corporation Bylaws").
ARTICLE 3
DIRECTORS OF THE SURVIVING CORPORATION
3.1 Directors of Surviving Corporation. The directors of Patriot immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time until their successors shall have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation Certificate
and the Surviving Corporation Bylaws.
ARTICLE 4
EXCHANGE OF STOCK
4.1 Wyndham Common Stock. At or about the Effective Time, the Amended and
Restated Certificate of Incorporation of Wyndham (the "Wyndham Certificate")
shall be further amended and restated (the "Wyndham Charter Amendment") so
that, among other things, each share of Wyndham common stock, par value $0.01
per share (the "Wyndham Common Stock"), issued and outstanding immediately
prior to the effectiveness of the Wyndham Charter Amendment will be
automatically converted into and become one share of Wyndham Class A common
stock, par value $0.01 per share ("Wyndham Class A Common Stock"). If the
Wyndham Charter Amendment becomes effective before the Effective Time, then all
references in this Agreement to "Wyndham Common Stock" shall be deemed to refer
after the Effective Time to "Wyndham Class A Common Stock".
4.2 Outstanding Common Stock of Acquisition Sub. At or prior to the Effective
Time, each share of common stock of Acquisition Sub outstanding immediately
prior to the Effective Time shall be converted into and become one share of the
common stock of the Surviving Corporation.
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4.3 Conversion of Patriot Stock.
(a) At the Effective Time, each share of Patriot common stock, par value
$0.01 per share (the "Patriot Common Stock"), issued and outstanding
immediately prior to the Effective Time (other than those shares of Patriot
Common Stock to be canceled pursuant to Section 4.3(e)) shall, by virtue of the
Merger and without any action on the part of Patriot or Wyndham or the holders
of any of the securities of any of such corporations, be converted into
nineteen (19) shares of Wyndham Common Stock (the "Exchange Ratio"). At the
Effective Time, each fractional share of Patriot Common Stock issued and
outstanding immediately prior to the Effective Time (other than those
fractional shares of Patriot Common Stock to be canceled pursuant to Section
4.3(e)) shall, by virtue of the Merger and without any action on the part of
Patriot or Wyndham or the holders of any of the securities of any of such
corporations, be converted into the number of shares of Wyndham Common Stock
determined by multiplying such fraction by nineteen (19). References hereafter
in this Article 4 to shares of Patriot Common Stock shall be deemed to include
fractional shares of Patriot Common Stock.
(b) At the Effective Time, each share of Patriot Series A Convertible
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"),
issued and outstanding immediately prior to the Effective Time (other than
those shares of Series A Preferred Stock to be canceled pursuant to Section
4.3(e) and other than Dissenting Shares (as hereinafter defined in Section
4.3(g)) shall, by virtue of the Merger and without any action on the part of
Patriot or Wyndham or the holders of any of the securities of either such
corporation, be converted into the right to receive one (1) share of Wyndham
Common Stock.
(c) At the Effective Time, each share of Patriot Series B Cumulative
Perpetual Preferred Stock, par value $0.01 per share (the "Series B Preferred
Stock" and, collectively with the Series A Preferred Stock, the "Patriot
Preferred Stock"), issued and outstanding immediately prior to the Effective
Time (other than those shares of Series B Preferred Stock to be canceled
pursuant to Section 4.3(e) and other than Dissenting Shares shall by virtue of
the Merger and without any action on the part of Patriot or Wyndham or the
holders of any of the securities of either such corporation, be converted into
the right to receive, without interest thereon, $25.00 in cash, plus all
accrued and unpaid dividends thereon to the Effective Date (the "Series B Cash
Consideration"). The term "Merger Consideration" shall mean the shares of
Wyndham Common Stock to be issued to the holders of Patriot Common Stock and to
the holders of Series A Preferred Stock, as well as the Series B Cash
Consideration to be paid to the holders of Series B Preferred Stock, in the
Merger.
(d) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Patriot Common Stock and Patriot Preferred Stock
shall cease to be outstanding, shall be canceled and retired and shall cease to
exist and each holder of a certificate (a ACertificate, and collectively, the
"Certificates") representing any shares of Patriot Common Stock or Patriot
Preferred Stock (other than those shares of Patriot Common Stock or Patriot
Preferred Stock to be canceled pursuant to Section 4.3(e) and other than
Dissenting Shares) shall thereafter cease to have any rights with respect to
such shares of Patriot Common Stock and Patriot Preferred Stock, except the
right to receive, without interest, the Merger Consideration in accordance with
Sections 4.3(a), 4.3(b) and 4.3(c) and dividends payable in accordance with
Section 4.4(c) with respect to shares of Patriot Common Stock and Series A
Preferred Stock, upon the surrender of such Certificate.
(e) Each share, if any, of Patriot Common Stock or Patriot Preferred Stock
issued and held in Patriot's treasury or owned by Wyndham or Acquisition Sub
immediately prior to the Effective Time, by virtue of the Merger and without
any action on the part of Patriot or Wyndham or the holders of any of the
securities of either such corporation, shall cease to be outstanding, shall be
canceled and retired and shall cease to exist and no payment of any
consideration shall be made with respect thereto.
(f) At the Effective Time, Patriot's obligations with respect to each stock
option to buy paired shares consisting of Patriot Common Stock and Wyndham
Common Stock (collectively, the "Existing Options") outstanding immediately
prior to the Effective Time shall be assumed by Wyndham (the "Assumed
Options"). The Assumed Options shall continue to have, and be subject to, the
same terms and conditions as
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set forth in the Existing Options and Patriot's and Wyndham's applicable stock
option plans (as in effect immediately prior to the Effective Time) pursuant to
which the Existing Options were issued, provided that (i) all references to
Patriot shall be deemed to be references to Wyndham and all references to
paired shares shall
be deemed to be references to Wyndham Common Stock, (ii) each Assumed Option
shall be exercisable for that number of shares of Wyndham Common Stock equal to
the number of paired shares covered by the Existing Option immediately prior to
the Reverse Stock Splits becoming effective and (iii) the exercise price per
share under each Assumed Option shall be equal to the exercise price per paired
share of Patriot Common Stock and Wyndham Common Stock under the Existing
Option immediately prior to the Reverse Stock Splits becoming effective.
Wyndham shall (A) reserve for issuance the number of shares of Wyndham Common
Stock that will become issuable upon the exercise of such Assumed Options
pursuant to this Section 4.3(f) and (B) promptly after the Effective Time,
issue to each holder of an outstanding Existing Patriot Option a document
evidencing the assumption by Wyndham of Patriot's obligations with respect
thereto under this Section 4.3(f).
(g) Notwithstanding any provision of this Agreement to the contrary, shares
of Patriot Preferred Stock that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such shares of Patriot Preferred Stock in
accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares")
shall not be converted into or exchangeable for the right to receive any
portion of the Merger Consideration. Such stockholders shall instead be
entitled to receive payment of the appraised value of such Dissenting Shares
held by them in accordance with the provisions of such Section 262, except that
all Dissenting Shares held by stockholders of Series A Preferred Stock who have
failed to perfect or who effectively shall have withdrawn or lost their rights
to appraisal of such Dissenting Shares under Section 262 shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive, without interest, the shares of
Wyndham Common Stock as set forth in Section 4.3(b) and any dividends payable
in accordance with Section 4.4(c) upon the surrender of the Certificate
representing said shares of Series A Preferred Stock, and except that all
Dissenting Shares held by stockholders of Series B Preferred Stock who have
failed to perfect or who effectively shall have withdrawn or lost their rights
to appraisal of such Dissenting Shares under Section 262 shall thereupon be
deemed to have converted into and to have become exchangeable for, as of the
Effective Time, the right to receive, without interest, the Series B Cash
Consideration in accordance with Section 4.3(c).
Patriot shall give Wyndham (i) notice of any demands for appraisal received
by Patriot, withdrawals of such demands and any other instruments served
pursuant to Section 262 of the DGCL and received by Patriot and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the DGCL. Patriot shall not, except with the prior written
consent of Wyndham, make any payment with respect to demands for appraisal or
offer to settle any such demands.
4.4 Exchange of Certificates Representing Patriot Common Stock and Patriot
Preferred Stock.
(a) As of the Effective Time, (i) Wyndham shall deposit, or shall cause to
be deposited, with an exchange agent selected by Wyndham on or prior to the
Effective Time (the "Exchange Agent"), for the benefit of the holders of shares
of Patriot Common Stock and Patriot Preferred Stock, for exchange in accordance
with this Article 4, a certificate or certificates representing the shares of
Wyndham Common Stock to be issued to the holders of Patriot Common Stock and
Series A Preferred Stock pursuant to Sections 4.3(a) and 4.3(b), and the cash
to be paid to the holders of Series B Preferred Stock pursuant to Section
4.3(c), in exchange for outstanding shares of Patriot Common Stock and Patriot
Preferred Stock (such certificates for shares of Wyndham Common Stock to be
issued to the holders of Patriot Common Stock and Series A Preferred Stock and
the cash to be paid to the holders of Series B Preferred Stock shall
hereinafter be referred to as the "Exchange Fund").
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<PAGE>
(b) Promptly after the Effective Time, the parties hereto shall cause the
Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Wyndham may reasonably specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates evidencing shares of Wyndham Common Stock with
respect to the holders of Patriot Common Stock and Series A Preferred Stock,
and the cash to be paid with respect to the holders of Series B Preferred
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent
and delivery of such letter of transmittal, duly executed and completed in
accordance with the instructions thereto to the Exchange Agent, the holder of
(a) a Certificate representing shares of Patriot Common Stock or Series A
Preferred Stock shall be entitled to receive in exchange therefor a certificate
representing the number of shares of Wyndham Common Stock to which such holder
shall be entitled (including the number, if any, of shares of Wyndham Common
Stock represented by the Certificate), and a check for the amount of any
dividends or distributions, pursuant to Section 4.4(c), if any, after giving
effect to any required withholding tax, and (b) a Certificate representing
shares of Series B Preferred Stock shall be entitled to receive in exchange
therefor payment of the Series B Cash Consideration, and in each such case the
Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued on the dividends or distributions, if any, due and payable to
holders of Certificates of Patriot Common Stock or Series A Preferred Stock
pursuant to this Section 4.4. In the event of a transfer of ownership of
Patriot Common Stock or Series A Preferred Stock which is not registered in the
stock transfer records of Patriot, a certificate representing the proper number
of shares of Wyndham Common Stock, together with a check, to the extent
applicable, for the amount of any dividends or distributions, if any, due and
payable pursuant to Section 4.4(c), may be issued to such a transferee if the
Certificate representing shares of such Patriot Common Stock or Series A
Preferred Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. In the event of a transfer
of ownership of Series B Preferred Stock which is not registered in the stock
transfer records of Patriot, the Series B Cash Consideration may be paid to
such transferee if the Certificate representing shares of such Series B
Preferred Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, dividends or
other distributions on shares of Wyndham Common Stock after the Effective Time
with respect to any shares of Patriot Common Stock or Series A Preferred Stock
represented by a Certificate that has not been surrendered for exchange shall
be paid only as provided herein. Following surrender of any such Certificate,
the holder thereof shall be entitled, subject to the provisions and effect of
applicable abandoned property, escheat or similar laws, to receive for the
shares of Wyndham Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore payable
with respect to such shares of Wyndham Common Stock and not paid, less the
amount of any withholding taxes which may be required thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such shares of Wyndham Common
Stock, less the amount of any withholding taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the
stock transfer books of Patriot of the shares of Patriot Common Stock or
Patriot Preferred Stock which were outstanding immediately prior to the
Effective Time and if, after the Effective Time, Certificates are presented for
transfer, they shall be canceled against delivery of the Merger Consideration
as hereinabove provided.
(e) All Merger Consideration issued or paid, or deemed to be issued or
paid, as the case may be, upon the surrender for exchange of Certificates
representing shares of Patriot Common Stock or Patriot Preferred Stock in
accordance with the terms of this Article 4 or otherwise shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to the
shares of Patriot Common Stock or Patriot Preferred Stock exchanged for the
Merger Consideration theretofore represented by such Certificates.
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<PAGE>
(f) Notwithstanding anything in this Section 4.4 to the contrary, Wyndham
at its option may decide to waive the requirement that the holders of Patriot
Common Stock submit the Certificates therefor to the Exchange Agent, in which
event Wyndham shall not have any obligations under Section 4.4(a), Section
4.4(b) or Section 4.5, and such holders shall not have any obligations under
Section 4.4(b), with respect to shares of Patriot Common Stock or the
Certificates representing any such shares, and the Merger Considerations with
respect thereto shall be deemed to have been issued and paid to such holders at
the Effective Time.
4.5 Return of Exchange Fund. Any portion of the Exchange Fund (including any
cash payable to the holders of Series B Preferred Stock and any shares of
Wyndham Common Stock issuable to the holders of Patriot Common Stock and Series
A Preferred Stock) that remains unclaimed by the former stockholders of Patriot
one year after the Effective Time shall be distributed as follows: any cash for
shares of Series B Preferred Stock and any shares of Wyndham Common Stock for
Patriot Common Stock and Series A Preferred Stock shall be returned to Wyndham
(provided that Wyndham shall issue said shares or pay such cash in accordance
with this Article 4 to former stockholders of Patriot who thereafter surrender
their Certificates), subject to the provisions and effect of applicable
abandoned property, escheat or similar laws. Any former stockholders of Patriot
who have not theretofore complied with this Article 4 shall thereafter look
only to Wyndham for issuance of that portion of their shares of Wyndham Common
Stock or payment of that portion of their cash, as the case may be, as
determined pursuant to this Agreement, without any interest thereon. None of
Wyndham, Patriot, the Exchange Agent or any other person shall be liable to any
former holder of shares of Patriot Common Stock or Patriot Preferred Stock for
any shares of stock or cash properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
4.6 Lost or Stolen Certificates. In the event (i) any Certificate
representing shares of Patriot Common Stock or Series A Preferred Stock shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by Wyndham, the posting by such person of a bond in such
reasonable amount as Wyndham may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent or
Wyndham will issue in exchange for such lost, stolen or destroyed Certificate,
a certificate representing the shares of Wyndham Common Stock to which such
person is entitled under Section 4.4(b) and, if and to the extent applicable,
dividends and distributions payable pursuant to Section 4.4(c) and (ii) any
Certificate representing shares of Series B Preferred Stock shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Wyndham, the posting by such person of a bond in such reasonable
amount as Wyndham may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent or Wyndham will
issue in exchange for such lost, stolen or destroyed Certificate the Series B
Cash Consideration in accordance with Sections 4.3(c) and 4.4(b).
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PATRIOT
Patriot represents and warrants to Wyndham and Acquisition Sub as follows:
5.1 Existence; Good Standing; Authority.
(a) Patriot is a corporation duly incorporated, validly existing and in
good standing under the laws of Delaware. Patriot is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of each jurisdiction in which the character of the properties owned or leased
by it therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so licensed or
qualified would not have a material adverse effect on the business, assets,
prospects, results of operations or financial condition of Patriot and the
Patriot Subsidiaries (as hereinafter defined) taken as a whole (a "Patriot
Material Adverse Effect"). Patriot has all requisite corporate power and
authority to own, operate, lease and encumber its properties and carry on its
business as now conducted.
(b) True, correct and complete copies of the Patriot Certificate and the
Patriot Bylaws and all other organizational documents (and all amendments
thereto) of Patriot have previously been delivered to Wyndham.
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5.2 Authorization, Validity and Effect of Agreements. Patriot has the
requisite power and authority to enter into and perform the transactions
contemplated hereby and to execute and deliver this Agreement. The board of
directors of Patriot has unanimously approved this Agreement, the Merger and
the other transactions contemplated by this Agreement and has resolved to
recommend that the holders of Patriot Common Stock and Series A Preferred Stock
adopt and approve this Agreement at the Patriot stockholders= meeting to be
held in accordance with the provisions of Section 7.1 hereof. The execution by
Patriot of this Agreement and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all requisite corporate action
on the part of Patriot, subject only to the approval of this Agreement by a
majority of the votes entitled to be cast by the holders of the outstanding
Patriot Common Stock and Series A Preferred Stock voting as a single class.
This Agreement constitutes the valid and legally binding obligations of
Patriot, enforceable against Patriot in accordance with its terms.
5.3 Consents and Approvals; No Violations. Except as previously disclosed to
Wyndham, neither the execution, performance and delivery by Patriot of this
Agreement nor the consummation by Patriot of the transactions contemplated by
this Agreement in accordance with its terms, will: (i) violate, conflict with
or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under
the Patriot Certificate, the Patriot Bylaws, or any other organizational
documents of Patriot or any Patriot Subsidiary; (ii) result in a breach or
violation of, a default under, or the triggering of any payment or other
material obligation pursuant to, or accelerate vesting under, any stock option
plan, or option issued by, Patriot or any Patriot Subsidiary, or any grant or
award under any of the foregoing; (iii) violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets
of Patriot or any Patriot Subsidiary under, or result in being declared void,
voidable or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or any
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which Patriot or any Patriot Subsidiary is a party,
or by which Patriot or any Patriot Subsidiary or any of their properties is
bound or affected, except for any of the foregoing matters which, individually
or in the aggregate, would not have a Patriot Material Adverse Effect and would
not prevent or delay the consummation of the transactions contemplated hereby;
or (iv) other than the filings provided for in Article 1 of this Agreement or
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the"
HSR Act"), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Securities Act or applicable state securities and "blue sky" laws
(collectively, the "Regulatory Filings"), require any consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority, except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not have a Patriot Material Adverse
Effect and would not prevent or delay the consummation of the transactions
contemplated hereby.
5.4 Termination of Ownership Limitation. In order to permit Wyndham to
acquire all of the Patriot Common Stock and Patriot Preferred Stock pursuant to
the Merger, Patriot's board of directors has voted, effective immediately prior
to the Effective Time, to provide that the Restriction Termination Date (as
such term is defined in the Patriot Certificate) shall be deemed to have
occurred on the business day prior to the Effective Date.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
OF WYNDHAM AND ACQUISITION SUB
Wyndham and Acquisition Sub represent and warrant to Patriot as follows:
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6.1 Existence; Good Standing; Authority; Compliance With Law.
(a) Wyndham is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. Wyndham is duly licensed
or qualified to do business as a foreign corporation and is in good standing
under the laws of any other state of the United States in which the character
of the properties owned or leased by it therein or in which the transaction of
its business makes such qualification necessary, except where the failure to be
so licensed or qualified could not have a material adverse effect on the
business, assets, prospects, results of operations or financial condition of
Wyndham and the Wyndham Subsidiaries (as hereinafter defined) taken as a whole
(a "Wyndham Material Adverse Effect"). Wyndham has all requisite corporate
power and authority to own, operate, lease and encumber its properties and
carry on its business as now conducted.
(b) True, correct and complete copies of the Wyndham Certificate and bylaws
and the Certificate of Incorporation and bylaws of Acquisition Sub and all
other organizational documents (and all amendments thereto) of Wyndham and
Acquisition Sub have previously been delivered to Patriot.
6.2 Authorization, Validity and Effect of Agreements. Each of Wyndham and
Acquisition Sub has the requisite power and authority to enter into the
transactions contemplated hereby and to execute and deliver this Agreement. The
boards of directors of Wyndham and Acquisition Sub have unanimously approved
this Agreement, the Merger, and the other transactions contemplated by this
Agreement. The execution by Wyndham and Acquisition Sub of this Agreement and
the consummation of the transactions contemplated by this Agreement have been
duly authorized by all requisite corporate action on the part of Wyndham and
Acquisition Sub, respectively. This Agreement constitutes the valid and legally
binding obligations of Wyndham and Acquisition Sub, respectively, enforceable
against Wyndham and Acquisition Sub, respectively, in accordance with its
terms.
6.3 Consents and Approvals; No Violations. Except as previously disclosed to
Patriot, neither the execution, performance and delivery by Wyndham or
Acquisition Sub of this Agreement nor the consummation by Wyndham or
Acquisition Sub of the transactions contemplated by this Agreement in
accordance with its terms, will: (i) violate, conflict with or result in a
breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under the Wyndham
Certificate or the Certificate of Incorporation of Acquisition Sub or the
bylaws of either Wyndham or Acquisition Sub, respectively, or any other
organizational documents of Wyndham or Acquisition Sub or any Wyndham
Subsidiary; (ii) result in a breach or violation of, a default under, the
triggering of any payment or other material obligation pursuant to, or
accelerate vesting under, any stock option plan of, or option issued by,
Wyndham or any Wyndham Subsidiary, or any grant or award under any of the
foregoing; (iii) violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination or in a
right of termination or cancellation of, or accelerate the performance required
by, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Wyndham or any Wyndham
Subsidiary under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which Wyndham or any Wyndham Subsidiary is a party, or by which Wyndham or any
Wyndham Subsidiary or any of their properties is bound or affected, except for
any of the foregoing matters which, individually or in the aggregate, would not
have a Wyndham Material Adverse Effect and would not prevent or delay the
consummation of the transactions contemplated hereby; or (iv) other than the
Regulatory Filings, require any consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, except where the failure to obtain any such consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority would not have a Wyndham Material Adverse Effect and
would not prevent or delay the consummation of the transactions contemplated
hereby.
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6.4 Issuance of Wyndham Common Stock. The shares of Wyndham Common Stock
that are to be issued to the stockholders of Patriot Common Stock and Series A
Preferred Stock pursuant to the Merger have been duly authorized and, when so
issued in accordance with the terms hereof, shall be validly issued and
outstanding, fully paid and non-assessable, with no personal liability
attaching to the ownership thereof.
ARTICLE 7
COVENANTS ARTICLE 7
7.1 Meetings of Patriot and Wyndham Stockholders. Promptly following
execution of this Agreement, each of Patriot and Wyndham will take all action
necessary in accordance with applicable law, their respective certificates of
incorporation and bylaws and the Investment Agreement to convene a meeting of
their respective stockholders as promptly as practicable to consider and vote,
in the case of Patriot, upon the approval of this Agreement and the
consummation of the transactions contemplated hereby and, in the case of
Wyndham, upon the issuance of Wyndham Common Stock as provided for in this
Agreement (the "Share Issuance"). The joint proxy statement/prospectus to be
used by each of Patriot and Wyndham for their respective stockholders' meetings
(the "Proxy Statement") shall contain the recommendation of the boards of
directors of Patriot and Wyndham that their respective stockholders approve, in
the case of Patriot, this Agreement and the consummation of the transactions
contemplated hereby and, in the case of Wyndham, the Share Issuance. Each of
Patriot and Wyndham, subject to and in accordance with applicable law, shall
use its reasonable best efforts to obtain such approval, including without
limitation, by timely mailing the Proxy Statement contained in the Form S-4 (as
hereinafter defined) to their respective stockholders.
7.2 Filings; Other Action. Subject to the terms and conditions herein
provided, Patriot, Wyndham and Acquisition Sub shall: (a) to the extent
required, promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to the Merger; (b) use all
reasonable best efforts to cooperate with one another in (i) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Time from, governmental or regulatory authorities of the
United States, the several states, the Commonwealth of Puerto Rico and foreign
jurisdictions and any third parties in connection with the execution and
delivery of this Agreement and consummation of the transactions contemplated by
this Agreement and (ii) timely making all such filings and timely seeking all
such consents, approvals, permits or authorizations; (c) use all reasonable
best efforts to obtain in writing any consents required from third parties to
effectuate the Merger and the transactions contemplated hereby, in form and
substance reasonably satisfactory to each of Wyndham, Acquisition Sub and
Patriot; and (d) use all reasonable best efforts to take, or cause to be taken,
all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of Wyndham, Acquisition Sub and
Patriot shall take all such necessary action.
7.3 Proxy Statement; Registration Statement. Wyndham, Acquisition Sub and
Patriot shall prepare and file with the SEC (with appropriate requests for
confidential treatment, unless the parties hereto otherwise agree) under the
Exchange Act, the Proxy Statement and forms of proxies relating to the
stockholders' meetings of Patriot and Wyndham and the votes of the
stockholders, in the case of Patriot, with respect to this Agreement and, in
the case of Wyndham, with respect to the Share Issuance, and promptly after
clearance by the SEC of the Proxy Statement, Wyndham shall prepare and
thereafter file with the SEC under the Securities Act a registration statement
on Form S-4 (such registration statement, together with any amendments or
supplements thereto, the "Form S-4"), in which the Proxy Statement will be
included as a prospectus, in connection with the registration under the
Securities Act of the shares of Wyndham Common Stock to be distributed to the
stockholders of Patriot Common Stock and Series A Preferred Stock in the Merger
(being referred to herein collectively as the "Registered Securities").
Wyndham, Acquisition Sub and Patriot will cause the Proxy
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<PAGE>
Statement and, in the case of Wyndham, the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Each of Wyndham and
Acquisition Sub, on the one hand, and Patriot, on the other hand, shall furnish
all information about itself and its business and operations and all necessary
financial information to the other as the other may reasonably request in
connection with the preparation of the Proxy Statement and the Form S-4.
Wyndham shall use its reasonable best efforts, and Patriot will cooperate with
it, to have the Form S-4 declared effective by the SEC as promptly as
practicable (including clearing the Proxy Statement with the SEC). Each of
Wyndham, Acquisition Sub and Patriot agrees promptly to correct any information
provided by it for use in the Proxy Statement and the Form S-4 if and to the
extent that such information shall have become false or misleading in any
material respect, and each of the parties hereto further agrees to take all
steps necessary to amend or supplement the Proxy Statement and, in the case of
Wyndham, the Form S-4, and to cause, in the case of Patriot, Wyndham and
Acquisition Sub, the Proxy Statement and, in the case of Wyndham, the Form S-4,
as so amended or supplemented to be filed with the SEC and to be disseminated
to Patriot's and Wyndham's stockholders, in each case as and to the extent
required by applicable federal and state securities laws and the DGCL. Each of
Wyndham, Acquisition Sub and Patriot agrees that the information provided by it
for inclusion in the Proxy Statement or the Form S-4 and each amendment or
supplement thereto, at the time of mailing thereof, will not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of Wyndham,
Acquisition Sub and Patriot will advise the other parties, and deliver copies
(if any) to them, promptly after receipt thereof, of (i) any request by or
correspondence or communication from the SEC with respect to the Proxy
Statement or the Form S-4, (ii) any responses thereto and (iii) notice of the
time when the Form S-4 has become effective or any supplement or amendment has
been filed, the issuance of any stop order, and the suspension of the
qualification of the Registered Securities for offering or sale in any
jurisdiction.
7.4 Listing Application. Wyndham, Acquisition Sub and Patriot shall
cooperate and promptly prepare and submit to the New York Stock Exchange (the
"NYSE") all reports, applications and other documents that may be necessary or
desirable to enable all of the shares of Wyndham Common Stock that will be
outstanding or will be reserved for issuance at the Effective Time to be listed
for trading on the NYSE.
7.5 Further Action. Each party hereto shall, subject to the fulfillment at
or before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger and the
transactions contemplated by this Agreement.
7.6 Affiliates of Patriot.
(a) At least 30 days prior to the Closing Date, Patriot shall deliver to
Wyndham and Acquisition Sub a list of names and addresses of those persons who
were, in Patriot's reasonable judgment, at the record date for its
stockholders= meeting to approve this Agreement, "affiliates" (each such
person, an "Affiliate") of Patriot within the meaning of Rule 145. Patriot
shall provide Wyndham and Acquisition Sub such information and documents as
Wyndham and Acquisition Sub shall reasonably request for purposes of reviewing
such list. Patriot shall use its reasonable best efforts to deliver or cause to
be delivered to Wyndham and Acquisition Sub, prior to the Closing Date, from
each of the Affiliates of Patriot identified in the foregoing list, an
affiliate letter in the form previously approved by the parties hereto. Wyndham
and Acquisition Sub shall be entitled to place legends as specified in such
affiliate letters on the certificates evidencing any shares of Wyndham Common
Stock to be received by such Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for the shares of Wyndham Common Stock, consistent with the terms of such
affiliate letters.
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(b) Wyndham shall file the reports required to be filed by it under the
Exchange Act and the rules and regulations adopted by the Securities and
Exchange Commission (the "SEC") thereunder, and shall take such further action
as any Affiliate of Patriot may reasonably request, all to the extent required
from time to time to enable such Affiliate to sell the shares of Wyndham Common
Stock received by such Affiliate, if any, in the Merger without registration
under the Securities Act pursuant to (i) Rule 145(d)(1) or (ii) any successor
rule or regulation thereto hereafter adopted by the SEC.
7.7 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, except that (a) the filing fees in connection with the
filing of the Proxy Statement and the Form S-4 with the SEC, (b) the filing fee
in connection with the listing of the shares of Wyndham Common Stock on the
NYSE, if any, (c) the expenses incurred for printing the Form S-4 and the Proxy
Statement and (d) the filing fee in connection with the filing(s), if any,
under the HSR Act, shall be shared equally by Patriot, on the one hand, and
Wyndham and Acquisition Sub, on the other hand. All costs and expenses for
professional services rendered in connection with the transactions contemplated
by this Agreement including, but not limited to, legal services, will be paid
by each party incurring such costs and expenses.
7.8 Indemnification.
(a) Wyndham and Acquisition Sub agree that all rights to indemnification
existing in favor, and all limitations on the personal liability, of a director
or officer of Patriot or any Patriot Subsidiary (any such person or entity, an
"Indemnified Party") provided for in the Patriot Certificate or the Patriot
Bylaws or the charter or bylaws or similar organizational documents of any of
the Patriot Subsidiaries, if and to the extent applicable, as in effect as of
the date hereof with respect to matters occurring prior to the Effective Time
shall (i) survive the Merger and (ii) continue in full force and effect for a
period of not less than six (6) years from the Effective Time; provided,
however, that all rights to indemnification in respect of any claim (a "Claim")
asserted or made within such period shall continue until the disposition of
such Claim. At or prior to the Effective Time, Wyndham shall purchase or keep
in effect directors' and officers' liability insurance coverage for Patriot's
directors and officers in a form reasonably acceptable to Patriot which shall
provide such directors and officers with so-called tail or other coverage for
six (6) years following the Effective Time of not less than the existing
coverage under, and have other terms not substantially less favorable to the
insured persons than, the directors' and officers' liability insurance coverage
presently maintained by Patriot.
(b) This Section 7.8 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties (as contemplated by
Section 10.3) and shall be binding on all successors and assigns of Wyndham and
the Surviving Corporation. Each of the Indemnified Parties shall be entitled to
enforce the covenants contained in this Section 7.8. The provisions for
indemnification contained in this Section 7.8 are not intended to be exclusive
and are without prejudice to any other rights to indemnification or advancement
of funds which any Indemnified Party may otherwise have.
(c) In the event Wyndham, the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person or entity, then, and in each
such case, proper provision shall be made so that the successors and assigns of
Wyndham or the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 7.8.
ARTICLE 8
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions, any or all of which may
be waived, in whole or in part by the parties hereto, to the extent permitted
by applicable law:
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(a) Stockholder Approvals. This Agreement shall have been approved by the
requisite vote of the stockholders of Patriot, and the Share Issuance shall
have been approved by the requisite vote of the stockholders of Wyndham.
(b) HSR Act. The waiting period with respect to consummation of the Merger
under the HSR Act, if applicable, shall have expired or been terminated.
(c) No Injunctions or Restraints. None of the parties hereto shall be
subject to any order, ruling or injunction of a court of competent jurisdiction
which prohibits consummation of the transactions contemplated by this
Agreement. In the event any such order, ruling or injunction shall have been
issued, each party agrees to use its reasonable best efforts to have any such
order, ruling or injunction lifted, stayed or reversed.
(d) Form S-4. The Form S-4 shall have been declared effective by the SEC
under the Securities Act, and no stop order suspending the effectiveness of the
Form S-4 shall have been issued by the SEC, and no proceedings for that purpose
shall have been initiated or, to the knowledge of Wyndham, Acquisition Sub or
Patriot, threatened by the SEC.
(e) Listing. Wyndham shall have obtained the approval for the listing of
the shares of Wyndham Common Stock issuable in the Merger on the NYSE, subject
to official notice of issuance.
(f) Reverse Stock Splits. The Reverse Stock Splits for the Patriot Common
Stock and the Wyndham Common Stock shall have been approved by the requisite
votes of the stockholders of Patriot and Wyndham, respectively, and shall have
become effective.
(g) Wyndham Preferred Stock. No shares of Wyndham's Series A Preferred
Stock, par value $.0l per share, or Wyndham's Series B Preferred Stock, par
value $.0l per share, shall be outstanding.
8.2 Conditions to Obligations of Patriot to Effect the Merger. The
obligation of Patriot to effect the Merger and the other transactions
contemplated hereby shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions, unless waived by Patriot:
(a) Representations and Warranties. Each of the representations and
warranties of Wyndham and Acquisition Sub contained in this Agreement shall
have been true and correct in all material respects when made and shall be true
and correct in all material respects as though made on and as of the Closing
Date except for any representations and warranties made as of a specific date,
in which case such representations and warranties shall be true and correct in
all material respects as of such date.
(b) Performance of Obligations. Wyndham and Acquisition Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
Wyndham or Acquisition Sub at or prior to the Closing.
(c) Certificate from Officers. Each of Wyndham and Acquisition Sub shall
have delivered to Patriot a certificate of its respective President, Treasurer
or Chief Financial Officer dated the Closing Date to the effect that the
statements set forth in paragraphs (a) and (b) above with respect to Wyndham or
Acquisition Sub, as the case may be, in this Section 8.2 are true and correct.
(d) Consents, Approvals, etc. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commissions,
boards, other regulatory bodies or third parties, lenders, joint venturers and
partners required to be made or obtained by Wyndham, Acquisition Sub or the
Wyndham Subsidiaries, in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made other than such
consents, authorizations, orders or approvals which if not obtained or made
would not, individually or in the aggregate, have a Wyndham Material Adverse
Effect.
8.3 Conditions to Obligation of Wyndham and Acquisition Sub to Effect the
Merger. The obligations of Wyndham and Acquisition Sub to effect the Merger and
the other transactions contemplated hereby shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions, unless waived by
Wyndham and Acquisition Sub:
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(a) Representations and Warranties. Each of the representations and
warranties of Patriot contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects as though made on and as of the Closing Date except for any
representations and warranties made as of a specific date, in which case such
representations and warranties shall be true and correct in all material
respects as of such date.
(b) Performance of Obligations. Patriot shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by Patriot at or prior to the
Closing.
(c) Certificate from Officers. Patriot shall have delivered to Wyndham and
Acquisition Sub a certificate of its President, Treasurer or Chief Financial
Officer dated the Closing Date to the effect that the statements set forth in
paragraphs (a) and (b) above in this Section 8.3 are true and correct.
(d) Consents, Approvals, Etc. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commissions,
boards, other regulatory bodies or third parties, lenders, joint venturers and
partners required to be made or obtained by Patriot or the Patriot Subsidiaries
in connection with the execution, delivery and performance of this Agreement
shall have been obtained or made other than such consents, authorizations,
orders or approvals which if not obtained or made would not, individually or in
the aggregate, have a Patriot Material Adverse Effect.
ARTICLE 9
TERMINATION; AMENDMENT; WAIVER
9.1 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of Patriot or
Wyndham:
(a) by mutual written consent of Wyndham, Acquisition Sub and Patriot;
(b) by Wyndham or Patriot, if any United States federal or state court of
competent jurisdiction or other governmental entity shall have issued a final
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and nonappealable;
(c) by Wyndham or Patriot, if the Merger shall not have been consummated on
or before July 31, 1999 (other than due to the failure of the party seeking to
terminate this Agreement to perform its obligations under this Agreement
required to be performed at or prior to the Effective Time);
(d) by Wyndham or Patriot, if the board of directors of such party
determines that it is reasonably objectively certain that the Investment
Transaction will not be consummated;
(e) by Patriot, if Wyndham or Acquisition Sub has failed to perform in any
material respect any of its obligations required to be performed by it under
this Agreement and such failure continues for more than 30 days after notice,
unless failure to so perform has been caused by or results from a breach of
this Agreement by Patriot; and
(f) by Wyndham, if Patriot shall have failed to perform in any material
respect any of its obligations required to be performed by it under this
Agreement and such failure continues for more than 30 days after notice, unless
failure to so perform has been caused by or results from a breach of this
Agreement by Wyndham or Acquisition Sub.
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9.2 Effect of Termination. In the event of termination of this Agreement by
either Patriot, Wyndham or Acquisition Sub as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Wyndham, Acquisition Sub or Patriot, other than
the provisions of this Section 9.2, Section 7.7 and the last sentence of
Section 10.3. Nothing contained in this Section 9.2 shall relieve any party
from its liabilities or obligations for any willful breach of the
representations, warranties, covenants or agreements set forth in this
Agreement.
9.3 Extension; Waiver. At any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties contained in this Agreement or in any document delivered
pursuant to this Agreement or (c) subject to the first sentence of Section
10.5, waive compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in writing in an instrument signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver
of such rights.
ARTICLE 10
GENERAL PROVISIONS
10.1 Nonsurvival of Representations, Warranties and Agreements . All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger,
provided, however, that the agreements contained in Article 4 and Sections 7.5,
7.6, 7.7 and 7.8 and this Article 10 shall survive the Merger.
10.2 Notices. Any notice required to be given hereunder shall be in writing
and shall be sent by facsimile transmission (confirmed by any of the methods
that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Wyndham or Acquisition Sub:
Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attn: General Counsel
If to Patriot:
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
Attn: General Counsel
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
10.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned prior to the
Closing by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, except
for the provisions of Article 4 and Sections 7.6 and 7.8 (including those in
Section 7.8 for the benefit of the Indemnified Parties), nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
F-14
<PAGE>
10.4 Entire Agreement. This Agreement and any documents expressly identified
in this Agreement as having been delivered or previously agreed upon by the
parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
10.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective boards of directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of Patriot or Wyndham, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws.
10.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
10.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
10.11 Exclusive Jurisdiction. Unless Patriot, Acquisition Sub and Wyndham
otherwise agree in writing, each hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State of
Delaware and the State of Texas and of the United States of America located in
either of such states (the "Approved Courts") for any litigation arising out of
or relating to this Agreement and the transactions contemplated hereby (and
agree not to commence any litigation relating thereto except in such courts),
waive any objection to the laying of venue of any such litigation in the
Approved Courts and agree not to plead or claim in any Approved Court that such
litigation brought therein has been brought in an inconvenient forum.
10.12 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
10.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions and other equitable remedies to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any Approved Court, this being in addition to any other remedy to which they
are entitled at law or in equity. Any requirements for the securing or posting
of any bond with respect to such remedy are hereby waived by each of the
parties hereto.
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<PAGE>
10.14 Certain Definitions.
(a) As used in this Agreement, the word "affiliate" shall have the meaning
set forth in Rule 12b-2 of the Exchange Act.
(b) As used in this Agreement, the term "Patriot Subsidiary" or "Patriot
Subsidiaries" when used with respect to any party means any corporation,
partnership, joint venture, business trust or other entity, of which Patriot
directly or indirectly owns or controls at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization or a majority of the economic
interest in such entity.
(c) As used in this Agreement, the word "person" means an individual, a
corporation, a partnership, an association, a joint-stock company, a trust, a
limited liability company, any unincorporated organization or any other entity.
(d) As used in this Agreement, the term "Wyndham Subsidiary" or "Wyndham
Subsidiaries" when used with respect to any party means any corporation,
partnership, joint venture, business trust or other entity, of which Wyndham
directly or indirectly owns or controls at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization or a majority of the economic
interest in such entity, including, but not limited to, Acquisition Sub.
[remainder of page intentionally left blank]
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<PAGE>
{Signature Page to Agreement and Plan of Merger}
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ James D. Carreker
-------------------------------------
Name: James D. Carreker
Title: Chief Executive Officer
WYNDHAM INTERNATIONAL, INC.
By: /s/ James D. Carreker
-------------------------------------
Name: James D. Carreker
Title: Chairman and Chief Executive
Officer
WYNDHAM INTERNATIONAL
ACQUISITION SUBSIDIARY INC.
By: /s/ James D. Carreker
-------------------------------------
Name: James D. Carreker
Title: Chief Executive Officer
F-17
<PAGE>
ANNEX G
Form of Amendment to Wyndham Certificate of Incorporation
to effect a reverse stock split
Article IV of the Amended and Restated Certificate of Incorporation of
Wyndham International, Inc. is amended be inserting the following as the first
paragraph of Article IV:
"As of 5:00 pm, eastern time, on the date on which this Amendment to the
Amended and Restated Certificate of Incorporation is filed with the Secretary
of State of Delaware (the "Effective Time"), each TWENTY outstanding shares of
common stock, $0.01 par value per share ("Old Common Stock"), shall thereupon
be reclassified and changed into ONE share of common stock, $0.01 par value per
share (the "Common Stock"). Upon the Effective Time, each holder of the Old
Common Stock shall thereupon automatically be and become the holder of ONE
share of Common Stock for every TWENTY shares of Old Common Stock held by such
holder prior thereto. Upon such Effective Time, each Certificate formerly
representing a stated number of shares of Old Common Stock shall thereupon be
deemed for all corporate purposes to evidence ownership of Common Stock in the
appropriately, reduced number of shares. As soon as practicable after the
Effective Time, stockholders as of the date of the reclassification will be
notified thereof and upon their delivery of their certificates of Old Common
Stock to the Corporation or its registered agent, will be sent stock
certificates representing their shares of Common Stock. Fractional share
certificates for Common Stock will be issued in connection with the revised
stock split."
<PAGE>
ANNEX H
Form of Amendment to Patriot Certificate of Incorporation
to effect a reverse stock split
Article IV of the Amended and Restated Certificate of Incorporation of
Patriot American Hospitality, Inc. is amended be inserting the following as the
first paragraph of Article IV:
"As of 5:00 pm, eastern time, on the date on which this Amendment to the
Amended and Restated Certificate of Incorporation is filed with the Secretary
of State of Delaware (the "Effective Time"), each TWENTY outstanding shares of
common stock, $0.01 par value per share ("Old Common Stock"), shall thereupon
be reclassified and changed into ONE share of common stock, $0.01 par value per
share (the "Common Stock"). Upon the Effective Time, each holder of the Old
Common Stock shall thereupon automatically be and become the holder of ONE
share of Common Stock for every TWENTY shares of Old Common Stock held by such
holder prior thereto. Upon such Effective Time, each Certificate formerly
representing a stated number of shares of Old Common Stock shall thereupon be
deemed for all corporate purposes to evidence ownership of Common Stock in the
appropriately, reduced number of shares. As soon as practicable after the
Effective Time, stockholders as of the date of the reclassification will be
notified thereof and upon their delivery of their certificates of Old Common
Stock to the Corporation or its registered agent, will be sent stock
certificates representing their shares of Common Stock. Fractional share
certificates for Common Stock will be issued in connection with the revised
stock split."
<PAGE>
ANNEX I
DELAWARE STATUTORY APPRAISAL RIGHTS
(S)262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares of fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section. shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may; within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw' his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least I week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
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<PAGE>
the Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 120, L.
'97, eff. 7-1-97.)
I-4
<PAGE>
ANNEX J
[LOGO OF CHASE APPEARS HERE]
Chase Securities Inc.
270 Park Avenue
New York, NY 10017-2070
As of December 15th, 1998
Board of Directors
Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Board of Directors
Wyndham International, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Members of the Boards:
Patriot American Hospitality, Inc. (including its subsidiaries and
affiliates, "Patriot") and Wyndham International, Inc. (including its
subsidiaries and affiliates, "Wyndham" and, together with Patriot, the
"Companies") have entered into a letter of intent dated as of December 15, 1998
(the "Agreement") with Apollo Real Estate Advisors III, L.P., Apollo Management
IV, L.P., Thomas H. Lee Company, Beacon Capital Partners, Inc. and Rosen
Consulting Group (collectively, the "Investors") that provides, among other
things, that the Investors and the Companies will negotiate in good faith
definitive agreements pursuant to which the Investors will purchase from
Patriot, and Patriot will issue and sell to the Investors (the "Transaction"),
a certain number of newly issued shares of (i) series A perpetual convertible
preferred stock of Patriot and (ii) series B perpetual convertible preferred
stock of Patriot, in each case having the terms contained in Appendix A to the
Agreement (together, the "Patriot Preferred Stock"). We understand that the
shares of common stock, par value $0.01 per share, of Patriot and the shares of
common stock, par value $0.01 per share, of Wyndham are paired and trade on the
New York Stock Exchange as a single unit (such unit referred to as the "Common
Stock").
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the Companies of the consideration to be received
in the aggregate by the Companies pursuant to the Transaction.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed the Agreement;
(b) reviewed certain publicly available business and financial information
that we deemed relevant relating to the Companies and the industry in
which they operate;
(c) reviewed certain internal non-public financial and operating data and
forecasts provided to us by the management of the Companies relating to
the business of the Companies;
(d) discussed, with members of the senior management of the Companies, the
Companies' operations, historical financial statements and future
prospects, before and after giving effect to the Transaction, as well
as their views of the business, operational and strategic benefits and
other implications of the Transaction;
J-1
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(e) compared the financial and operating performance of the Companies with
publicly available information concerning certain other companies we
deemed comparable and reviewed the relevant historical stock prices and
trading volumes of the Common Stock and certain publicly traded
securities of such other companies;
(f) reviewed the financial terms of certain recent transactions we deemed
reasonably comparable to the Transaction and otherwise relevant to our
inquiry;
(g) discussed with members of senior management of the Companies certain
financial restructuring alternatives to the Transaction;
(h) reviewed and discussed with members of senior management of the
Companies anticipated dividend requirements;
(i) reviewed the terms of the outstanding debt obligations and forward
equity commitments of the Companies; and
(j) made such other analyses and examinations as we have deemed necessary
or appropriate.
As you know, we have not had an opportunity to review any definitive
agreements providing for the Transaction. Accordingly, for purposes of
rendering our opinion we have assumed that the definitive agreements providing
for the Transaction will contain terms and conditions (i) consistent with those
set forth in the Agreement and (ii) that will not differ from the Agreement in
any respect material to our analysis. We have further assumed with your consent
for purposes of rendering our opinion that (a) the initial conversion price for
the Patriot Preferred Stock will be $10 per share and (b) the dividend on the
Common Stock will be limited to the minimum amount necessary in order to
maintain the qualification after the Transaction of the Companies, and that the
Companies will otherwise continue to so qualify, as a real estate investment
trust for federal income tax purposes.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion and have further relied upon the
assurance of the management of the Companies that they are not aware of any
facts that would make such information inaccurate or misleading. We have
neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities of the Companies, nor have we conducted a physical
inspection of the properties and facilities of the Companies. We have assumed
that the financial forecasts provided to us by the Companies have been
reasonably determined on bases reflecting the best currently available
estimates and judgments of the management of the Companies as to the future
financial performance of the Companies. We express no view as to such forecast
or projection information or the assumptions on which they were based.
For purposes of rendering our opinion, we have also assumed that all
material governmental, regulatory or other consents and approvals will be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which any of the Companies or the Investors are a
party, as contemplated by the Agreement, no restrictions will be imposed or
amendments, modifications or waivers made that would have any material adverse
effect on the contemplated benefits to the Companies of the Transaction.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
Companies of the consideration to be received in the aggregate by the Companies
pursuant to the Transaction and we express no opinion as to the merits of the
underlying decision by the Companies to engage in the Transaction. This opinion
does not constitute a recommendation to any stockholder of the Companies as to
how such stockholder should vote with respect to the Transaction. In addition,
we express no opinion as to the prices at which the Common Stock will trade
following the announcement or consummation of the Transaction.
J-2
<PAGE>
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as co-financial advisor to the Companies in
connection with the Transaction and will receive a fee for our services,
payment of a significant portion of which is contingent upon the consummation
of the Transaction. In addition, the Companies have agreed to indemnify us for
certain liabilities arising out of our engagement. As we have previously
advised you, The Chase Manhattan Corporation and its affiliates, including
Chase Securities Inc. (collectively, "Chase"), in the ordinary course of
business, have, from time to time, provided commercial and investment banking
services to the Companies and certain of the Investors for which we received
usual and customary compensation and in the future may continue to provide such
commercial and investment banking services. In addition, Chase has the
following other relationships with the Companies and Investors: (i) Chase is
the arranger, administrative agent and a lender under a $2.7 billion Amended
and Restated Credit Agreement among Patriot American Hospitality, Inc., Patriot
American Hospitality Partnership, L.P., and various lenders, dated June 2,
1998, as amended and restated, which indebtedness (including approximately $134
million in indebtedness owed to Chase) may be repaid, in part, from the
proceeds of the Transaction; (ii) Chase is a holder of a demand note of Patriot
American Hospitality Partnership, L.P. in the aggregate principal amount of
$49.2 million, which indebtedness may be repaid in whole, or in part, from the
proceeds of the Transaction; and (iii) Chase is an investor in, and from time
to time has provided commercial and investment banking services to, certain of
the Investors. In the ordinary course of business, we or our affiliates may
trade in the debt and equity securities of the Companies for our own accounts
and for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the consideration to be received in the aggregate by the
Companies pursuant to the Transaction is fair, from a financial point of view,
to the Companies.
This opinion is for the use and benefit of the Boards of Directors of the
Companies in their evaluation of the Transaction and shall not be used for any
other purpose without the prior written consent of Chase Securities Inc. This
opinion shall not be reproduced, disseminated, quoted, summarized or referred
to at any time, in any manner or for any purpose, nor shall any public
references to Chase Securities Inc. be made by the Companies, without the prior
written consent of Chase Securities Inc.
Very truly yours,
/s/ Chase Securities Inc.
CHASE SECURITIES INC.
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<PAGE>
EXHIBIT (a)(2)
FORM OF
LETTER OF TRANSMITTAL
WYNDHAM INTERNATIONAL, INC.
Offer to exchange common stock for all outstanding shares of series A
preferred stock and series B preferred stock
Pursuant to the Joint Proxy/Prospectus dated June 1, 1999
This exchange offer will expire at 5:00 p.m., New York City time, on June
29, 1999, unless extended by Wyndham. Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the expiration date.
To tender, this letter of transmittal should be delivered only to:
MacKenzie Partners, Inc.
By Mail or Hand Delivery: Facsimile Transmission:
156 Fifth Avenue (212) 929-0308
New York, NY 10010
To confirm receipt of this letter of transmittal, please call: (800) 322-2885
You must deliver this letter of transmittal to the above address or fax this
letter of transmittal to the above number for such delivery or fax to
constitute a valid delivery of this letter of transmittal.
By signing this letter of transmittal, you acknowledge that you have
received the Joint Proxy Statement/Prospectus dated June 1, 1999 of Wyndham
International, Inc., and Patriot American Hospitality, Inc., and this letter
of transmittal. Together, the Proxy/Prospectus and this letter of transmittal
are Wyndham's offer to exchange up to an aggregate of 71,247,080 shares of
Wyndham common stock, which have been registered under the Securities Act of
1933, for all of the issued and outstanding shares of series A preferred stock
and series B preferred stock of Wyndham.
By signing this letter of transmittal and completing the appropriate boxes
below, you indicate the action you desire to take in the exchange offer.
Please read this letter of transmittal and the Proxy/Prospectus carefully
before completing this letter of transmittal.
You must follow the instructions included with this letter of transmittal.
You should direct questions and requests for assistance or for additional
copies of the Proxy/Prospectus and this letter of transmittal to MacKenzie
Partners, Inc. at the address and telephone number listed above.
<PAGE>
For your tender of shares to be effective, we must receive this letter of
transmittal, properly completed and signed, certificates for tendered shares
of series A preferred stock or series B preferred stock, any required
signature guarantees, and any other documents required by this letter of
transmittal, on or before the expiration date.
If your shares of series A preferred stock or series B preferred stock are
not immediately available or you cannot deliver your certificates and all
other required documents to us on or before the expiration date, you must
tender your shares by following the guaranteed delivery procedures described
in the Proxy/Prospectus.
You must list below the shares of series A preferred stock or series B
preferred stock covered by this letter of transmittal. If the space provided
below is inadequate, you should attach a separate signed schedule listing the
certificate numbers and/or the number of shares of series A preferred stock or
series B preferred stock being tendered.
Description of Shares of Series A Preferred Stock Tendered
- -------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s): Number of Shares/Certificate
Numbers
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total:
Description of Shares of Series B Preferred Stock Tendered
- -------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s): Number of Shares/Certificate
Numbers
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total:
[_]Check here if you are tendering shares covered by a Notice of Guaranteed
Delivery previously sent to us. Enclose a photocopy of the Notice of
Guaranteed Delivery and complete the following:
Name of Registered Holder(s): ______________________________________________
Date Guaranteed Delivery was signed: _______________________________________
Name of Institution which Guaranteed Delivery: _____________________________
[_]Check here if you are a broker-dealer and wish to receive 10 additional
copies of the Proxy/Prospectus and 10 copies of any amendments or
supplements to the Proxy/Prospectus:
Name _______________________________________________________________________
Address ____________________________________________________________________
2
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
To Wyndham International:
By signing this letter of transmittal, I tender to Wyndham International,
Inc., the shares of Wyndham's series A preferred stock or series B preferred
stock listed in this letter of transmittal in exchange for shares of Wyndham's
common stock. My tender is on the terms of the exchange offer described in the
Joint Proxy Statement/Prospectus dated June 1, 1999. I acknowledge my receipt
of the Proxy/Prospectus and this letter of transmittal.
When all or any portion of the shares of series A preferred stock or series
B preferred stock I have tendered are accepted for exchange under the terms of
the exchange offer (including, if the exchange offer is extended or amended,
the terms and conditions of any such extension or amendment), I transfer to
Wyndham all right, title and interest in those shares.
I irrevocably constitute and appoint Wyndham as my agent and attorney-in-
fact for the tendered shares, with full power of substitution (such power of
attorney, an irrevocable power coupled with an interest) subject only to the
right of withdrawal described in the Proxy/Prospectus. As my agent and
attorney-in-fact, Wyndham will: (1) assign, transfer and exchange the tendered
shares; (2) upon receipt of the Wyndham common stock to be issued in exchange
for the tendered shares, deliver certificates for the tendered shares,
together with any required evidences of transfer and authenticity; (3) present
the tendered shares for transfer; and (4) transfer the tendered shares on its
books. I represent and warrant that I have full power and authority to tender,
exchange, assign and transfer the tendered shares and to acquire the Wyndham
common stock issuable upon the exchange of the tendered shares, and that, when
the tendered shares are accepted for exchange, Wyndham will acquire good and
unencumbered title to the tendered shares, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. I
also warrant that I will, upon request, sign and deliver any additional
documents that Wyndham considers to be necessary or desirable to complete the
exchange of the tendered shares. I have read and agree to all of the terms of
the exchange offer.
I understand that a tender of shares pursuant to the procedures described in
the Proxy/Prospectus and in the instructions attached to this letter of
transmittal will, on Wyndham's acceptance for exchange of such tendered
shares, constitute a binding agreement between me and Wyndham on the terms and
subject to the conditions of the exchange offer.
I understand that the exchange offer is subject to the conditions described
in the Proxy/Prospectus under the caption "The Exchange Offer--Conditions of
the Exchange Offer." I recognize that as a result of these conditions (which
may be waived, in whole or in part, by Wyndham), Wyndham may not be required
to exchange any of the shares that I tender.
The name and address of the registered holder of the tendered shares is
written above under "Description of Shares of Series A Preferred Stock
Tendered" or "Description of Shares of Series B Preferred Stock Tendered." The
number of tendered shares to which this letter of transmittal relates,
together with the number of tendered shares that I wish to tender, is
indicated in the appropriate boxes above under "Description of Shares of
Series A Preferred Stock Tendered" or "Description of Shares of Series B
Preferred Stock Tendered."
All authority conferred in this letter of transmittal will survive my death
or incapacity. Any of my obligations under this letter of transmittal will be
binding on my heirs, personal representatives, successors and assigns. I
understand that a tender of shares made pursuant to the exchange offer may not
be withdrawn after the expiration date. I also understand that a purported
notice of withdrawal of tendered shares will be effective only if delivered to
Wyndham in accordance with the procedures described in the Proxy/Prospectus
under the heading "The Exchange Offer--Withdrawal Rights."
I understand that if Wyndham does not exchange my tendered shares pursuant
to the exchange offer for any reason, Wyndham will return the certificates for
such non-exchanged shares to me, without expense to me, promptly following the
expiration or termination of the exchange offer.
3
<PAGE>
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, I direct that the Wyndham common stock to be issued in
exchange for my tendered shares be issued in my name.
By tendering my shares and signing this letter of transmittal, I represent
and agree that (1) I am not an affiliate of Wyndham, (2) any Wyndham common
stock to be received by me is being acquired in the ordinary course of my
business, (3) I have no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act of
1933) of Wyndham common stock to be received in the exchange offer, and (4) if
I am not a broker-dealer, I am not engaged in, and do not intend to engage in,
a distribution (within the meaning of the Securities Act of 1933) of such
Wyndham common stock.
If I am a broker-dealer, by tendering my shares and signing this letter of
transmittal, I represent and agree, consistent with certain interpretive
letters issued by the staff of the Division of Corporation Finance of the
Securities and Exchange Commission to third parties, that (a) I hold the
tendered shares only as a nominee, or (b) I acquired the tendered shares for
my own account as a result of market-making activities or other trading
activities and I will deliver the Proxy/Prospectus (as amended or supplemented
from time to time) in connection with any resale of such Wyndham common stock
(provided that, by so acknowledging and by delivering a Proxy/Prospectus, I
will not be deemed to admit that I am an "Underwriter" within the meaning of
the Securities Act of 1933).
By completing the boxes entitled "Description of Shares of Series A
Preferred Stock Tendered" or "Description of Shares of Series B Preferred
Stock Tendered" above and signing this Letter of Transmittal, I have tendered
the shares of Wyndham's series A preferred stock or series B preferred stock
listed in such boxes.
4
<PAGE>
HOLDER(S) SIGN HERE
If you are the registered holder of the tendered shares, you must sign your
name below exactly as your name appears on either (1) the share certificate
for the tendered shares, or (2) the register of holders maintained by Wyndham.
If you are a person authorized to become the registered holder of the tendered
shares, you must (1) sign your name below as it appears in the endorsement of
the tendered shares and (2) enclose any endorsement or other document relating
to the transfer of the tendered shares to you. Wyndham may require additional
information about any transfer of tendered shares. If someone else is signing
for you in a fiduciary or representative capacity, please indicate that
person's full title.
SIGNATURE(S) OF HOLDERS(s))
Date: _________________________, 1999
X _________________________________________________________________________
(Signature(s) of Holder(s))
___________________________________________________________________________
(Print Name(s) of Holder(s))
Capacity (full title) _____________________________________________________
Address ___________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number ____________________________________________
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS)
(Authorized Signatures)
Date: _________________________, 1999
X _________________________________________________________________________
(Signature(s))
___________________________________________________________________________
(Print Name of Firm)
Full Title of Signatory) __________________________________________________
Address ___________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number ____________________________________________
5
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions) (See Instructions)
To be completed ONLY if Wyndham To be completed ONLY if Wyndham
common stock or shares of series A common stock or shares of series A
preferred stock or series B preferred stock or series B
preferred stock not tendered are to preferred stock not tendered are to
be issued in the name of someone be sent to someone other than the
other than the registered holder of registered holder of the tendered
the tendered shares whose name shares of whose name appears above,
appears above. or such registered holder at an
address other than that shown
above.
Issue Mail
[_] series A preferred stock not [_] series A preferred stock not
tendered to: tendered to:
[_] series B preferred stock not [_] series B preferred stock not
tendered to: tendered to:
[_] common stock to: [_] common stock to:
Name(s): ___________________________ Name(s): ___________________________
(Please Print) (Please Print)
Address: ___________________________ Address: ___________________________
(Please Print) (Please Print)
____________________________________ ____________________________________
(Includes Zip Code) (Includes Zip Code)
____________________________________ ____________________________________
(Area Code and Telephone Number) (Area Code and Telephone Number)
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. How do I properly deliver this letter of transmittal and the certificates
for the shares I want to tender?
Wyndham must receive a properly completed and signed copy of this letter of
transmittal, with certificates representing the tendered shares and any
signature guarantees or other documents required by this letter of transmittal
at the address listed above, on or before the expiration date.
If you wish to tender your shares but your certificates are not immediately
available or you cannot deliver your tendered shares together with this letter
of transmittal and all other required documents to Wyndham on or before the
expiration date, you may tender your shares by properly completing and signing
a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures
described below. These procedures require that: (1) your tender be made by or
through an "eligible institution;" (2) a properly completed and duly signed
Notice of Guaranteed Delivery, substantially in the form made available by
Wyndham, must be received by Wyndham on or before the expiration date; and (3)
the certificates representing all tendered shares, in proper form for
transfer, together with a letter of transmittal, properly completed and duly
signed, with any required signature guarantees and any other documents
required by this letter of transmittal, must be received by Wyndham within
three business days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be mailed, delivered by hand or
transmitted by facsimile to the exchange agent, and must include a guarantee
by an eligible institution in the form required in such notice. For shares to
be properly tendered pursuant to the guaranteed delivery procedure, Wyndham
must receive a Notice of Guaranteed Delivery on or before the expiration date.
The term "eligible institution" means a firm or other entity identified in
Rule 17Ad-15 under the Securities Exchange Act of 1934 as "an eligible
guarantor institution," including (1) a bank; (2) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (3) a
credit union; (4) a national securities exchange, registered securities
association or clearing agency; or (5) a savings association that is a
participant in a securities transfer association.
Your method of delivery of this letter of transmittal and any other required
documents is at your election and risk. Except as otherwise provided below,
the delivery will be deemed made only when actually received or confirmed by
Wyndham. If such delivery is by mail, you should use registered mail with
return receipt requested, properly insured. In all cases, you should allow
sufficient time to permit timely delivery.
No alternative, conditional, irregular or contingent tenders will be
accepted. By executing this letter of transmittal, you waive any right to
receive notice of the acceptance of the tendered shares.
2. Does my signature need to be guaranteed?
You do not need a signature guarantee of this letter of transmittal if:
(1) this letter of transmittal is signed by the registered holder of the
tendered shares, unless such holder has completed either the box
entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" above, or
(2) the shares are tendered for the account of a firm that is an eligible
institution.
In all other cases, an eligible institution must guarantee the signature(s)
on this letter of transmittal.
3. What if there is not enough space to fill in the required information?
If the space provided in the box captioned "Description of Series A
Preferred Stock Tendered" or "Description of Series B Preferred Stock
Tendered" is inadequate, you should list the certificate number(s) and/or the
number of tendered shares and any other required information on a separate
signed schedule and attach that schedule to this letter of transmittal.
7
<PAGE>
4. Can I tender less than all of my shares?
If you tender fewer than all of your shares of series A preferred stock or
series B preferred stock, you should fill in the number of shares tendered in
the column entitled "Number of Shares Tendered."
5. How do I withdraw shares that I have tendered?
You may withdraw tendered shares at any time prior to the expiration date.
For a withdrawal to be effective, Wyndham must receive a written or facsimile
transmission notice of withdrawal prior to the expiration date at its address
listed above. A facsimile transmission must be confirmed by telephone and an
original delivered by guaranteed overnight delivery. Any notice of withdrawal
must state that you tendered the shares to be withdrawn, that you are
withdrawing your election to have the tendered shares exchanged, the name of
the registered holder of the tendered shares, and must be signed by the holder
in the same manner as the original signature on this letter of transmittal or
be accompanied by evidence satisfactory to Wyndham that the person withdrawing
the tender has succeeded to the beneficial ownership of the shares being
withdrawn. If certificates for the tendered shares have been delivered or
otherwise identified to Wyndham, then prior to the physical release of such
certificates for the shares, you must submit the serial numbers shown on the
particular certificates for the shares to be withdrawn and the signature on
the notice of withdrawal must be guaranteed by an eligible institution, except
in the case of shares tendered for the account of an eligible institution.
Wyndham will return the properly withdrawn shares promptly following receipt
of notice of withdrawal.
6. Who should sign this letter of transmittal?
If this letter of transmittal is signed by the registered holder(s) of the
tendered shares, the signature must correspond with the name as written on the
face of the certificates, if applicable, without alteration, enlargement or
any change.
If any of the tendered shares are owned of record by two or more joint
owners, all such owners must sign this letter of transmittal.
If any tendered shares are registered in different names on several
certificates, you must complete, sign and submit as many separate copies of
this letter of transmittal as there are different registrations of
certificates.
When this letter of transmittal is signed by the registered holder of the
tendered shares, no separate written instruments of transfer or exchange are
required.
If this letter of transmittal or separate written instruments of transfer or
exchange are signed by persons acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
Wyndham, proper evidence satisfactory to Wyndham of their authority so to act
must be submitted.
7. What if I want the stock issued in exchange for my tendered shares to be
issued or delivered to someone else?
If any shares of series A preferred stock or series B preferred stock not
tendered or any shares of Wyndham common stock issued in the exchange are to
be issued in someone's name other than the signer of this letter of
transmittal, or if such securities are to be sent to someone other than the
signer of this letter of transmittal, or if such securities are to be sent to
someone other than the signer of this letter of transmittal or to an address
other than that shown above, the appropriate boxes in this letter of
transmittal should be completed.
8. Who pays transfer taxes?
Wyndham will pay any transfer taxes applicable to the transfer and exchange
of tendered shares pursuant to the exchange offer. If a transfer tax is
imposed for any reason other than the transfer and exchange of tendered shares
pursuant to the exchange offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by you.
We will bill you directly for the amount of such transfer taxes unless you
provide us with satisfactory evidence of payment of such taxes or exception
from payment.
8
<PAGE>
9. Can Wyndham waive the conditions?
We reserve the right to waive in our reasonable judgment, in whole or in
part, at any time and from time to time, any of the conditions to the exchange
offer described in the Proxy/Prospectus.
10. How are defects or irregularities in tenders addressed?
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exchange of any tender of
shares and our determination will be final and binding. We reserve the
absolute right to reject any shares not properly tendered or the acceptance
for exchange of which may, in the opinion of our counsel, be unlawful. We also
reserve the absolute right to waive any defect or irregularity in the tender
of any shares. Unless waived, any defects or irregularities in connection with
tenders of shares for exchange must be cured within such reasonable period of
time as we determine. Neither Wyndham nor any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification.
11. Who should you contact for assistance or additional copies?
Questions relating to the procedure for tendering, as well as requests for
assistance or additional copies of the Proxy/Prospectus and this letter of
transmittal, may be directed to Mackenzie Partners at the address and
telephone numbers set forth above.
12. Will conditional tenders be accepted?
No alternative, conditioned, irregular or contingent tenders will be
accepted. All tendering holders waive any right to receive notice of
acceptance of such shares for exchange by execution of this letter of
transmittal.
IMPORTANT: This letter of transmittal must be received by Wyndham on or
before to the expiration date.
9
<PAGE>
EXHIBIT (a)(3)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number 1-9319 Commission File Number 1-9320
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
- ------------------------------------- -------------------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware 94-0358820 Delaware 94-2878485
- ------------------------------------- -------------------------------------
(State or other (I.R.S. Employer (State or other (I.R.S.
jurisdiction of Identification jurisdiction of Employer
incorporation or No.) incorporation or Identification
organization) organization) No.)
1950 Stemmons Freeway, Suite 6001 1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
- ------------------------------------- -------------------------------------
(Address of principal (Zip Code) (Address of principal (Zip Code)
executive offices) executive offices)
(214) 863-1000 (214) 863-1000
- ------------------------------------- -------------------------------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Common Stock,
par value New York Stock par value New York Stock
$0.01 per share Exchange $0.01 per share Exchange
- ------------------------------------- -------------------------------------
(Title of each (Name of each (Title of each (Name of each
class) Exchange on which class) Exchange on which
registered) registered)
Securities registered pursuant to Section 12(g) of the Act:
none none
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [_]
The aggregate market value of the paired voting stock held by non-affiliates
of Patriot American Hospitality, Inc. and Wyndham International, Inc. as of
March 22, 1999 was $970,668,027, based upon a price of $4.50 per paired share.
As of March 22, 1999, there were 234,131,492 paired shares of Patriot
American Hospitality, Inc. and Wyndham International, Inc. common stock issued
and outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
Form 10-K/A Annual Report
Index
<TABLE>
<CAPTION>
Form 10-K/A
Report
Item No. Page
- -------- -----------
<S> <C>
PART I
1.Business........................................................ 3
2.Properties...................................................... 3
Risk Factors.................................................... 23
3.Legal Proceedings............................................... 26
4.Submission of Matters to a Vote of Security Holders............. 27
PART II
5.Market Price for Registrant's Common Equity and Related
Stockholder Matters.............................................. 29
6.Selected Financial Information.................................. 30
7.Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 35
7a.Qualitative and Quantitative Disclosures about Market Risks.... 56
8.Financial Statements and Supplementary Data..................... 57
9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 57
PART III
10.Directors and Executive Officers of the Registrant............. 58
11.Executive Compensation......................................... 65
12.Security Ownership of Certain Beneficial Owners and
Management....................................................... 81
13.Certain Relationships and Related Transactions................. 84
PART IV
14.Exhibits, Financial Statements and Schedules, and Reports on
Form 8-K......................................................... 91
SIGNATURES
</TABLE>
2
<PAGE>
PART I
ITEM 1 AND 2. BUSINESS AND PROPERTIES
General Development of Business
Patriot American Hospitality, Inc. ("Old Patriot") was formed April 17, 1995
as a self-administered real estate investment trust ("REIT"). The Virginia
corporation was formed for the purpose of acquiring equity interests in hotel
properties. On October 2, 1995, Patriot completed an initial public offering
of shares of common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club,
with Cal Jockey being the surviving legal entity. Cal Jockey's shares of
common stock were paired with the shares of common stock of Bay Meadows
Operating Company. The shares traded as a single unit pursuant to a stock
pairing arrangement. In connection with the Cal Jockey merger, Cal Jockey
changed its name to "Patriot American Hospitality, Inc." referred to herein
after as Patriot and Bay Meadows changed its name to "Patriot American
Hospitality Operating Company." As a result of the merger with Wyndham Hotel
Company ("Old Wyndham") in January, 1998, the operating company subsequently
changed its name to "Wyndham International, Inc." ("Wyndham"). Patriot and
Wyndham are now collectively referred to as the Companies. Patriot and Wyndham
are both Delaware corporations.
The Cal Jockey merger has been accounted for as a reverse acquisition. Cal
Jockey is considered to be the acquired company for accounting purposes.
Consequently, the historical financial information of Old Patriot is the
historical financial information for Patriot. For accounting purposes, Wyndham
commenced its operations concurrent with the closing of the Cal Jockey merger
on July 1, 1997. The financial statements have been adjusted for the purchase
method of accounting whereby the Bay Meadows Racecourse facilities and related
leasehold improvements owned by Cal Jockey and Bay Meadows have been adjusted
to estimated fair market value.
The shares of common stock of Patriot and the shares of common stock of
Wyndham are paired on a one-for-one basis and may only be held and transferred
in units consisting of one share of Patriot common stock and one share of
Wyndham common stock. This single unit herein after is referred to as a paired
share.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in
Patriot American Hospitality Partnership, L.P. referred herein after to as the
Patriot Partnership. In addition, Patriot, through its wholly owned
subsidiary, PAH LP, Inc., owns an approximate 88.0% limited partnership
interest in the Patriot Partnership as of December 31, 1998. The Patriot
Partnership was formed in connection with Old Patriot's initial public
offering. Old Patriot contributed its assets to the partnership in exchange
for units of limited partnership interest ("OP units").
Wyndham owns a 1.0% general partnership interest and an approximate 86.8%
limited partnership interest in Patriot American Hospitality Operating
Partnership, L.P. as of December 31, 1998. As a result of the merger with
Wyndham Hotel Company, the operating company subsequently changed its name to
"Wyndham International Operating Partnership, L.P." referred to herein after
to as Wyndham Partnership. The Patriot Partnership and Wyndham Partnership are
now collectively referred to as the Operating Partnerships.
Generally, Patriot owns and leases hotels to Wyndham, which is responsible
for managing a majority of the hotels. In order for Patriot to qualify as a
REIT under the Internal Revenue Code of 1986 (the "Code"), Patriot leases a
substantial majority of its hotels to Wyndham or to other third-party leasees
who are responsible for operating the hotels. The paired share structure
facilitated the Companies' strategy to become a fully-integrated, multi-brand,
multi-product, multi-tiered hotel operating company. Following the merger with
and into California Jockey Club and the creation of Patriot paired shares, the
Companies acquired major hotel operating companies and brands. Patriot's
ability to utilize the paired share structure was limited as a result of tax
legislation adopted in July 1998.
3
<PAGE>
During 1998, Patriot and Wyndham, either directly or through the Operating
Partnerships and their subsidiaries, invested over $4.5 billion in the
acquisition of hotels and other related businesses. These acquisitions were
financed primarily with funds drawn on the Companies' revolving credit
facility as well as issuance of paired shares and OP units. The following
describes these acquisitions.
Wyndham Hotel Corporation
On January 5, 1998, Wyndham Hotel Corporation ("Old Wyndham") merged with
and into Patriot, with Patriot being the surviving corporation ("Wyndham
merger").
Patriot, as a result of the Wyndham merger, acquired ownership of ten Old
Wyndham hotels and 14 ClubHouse hotels and leased such hotels to Wyndham.
Thirteen of the 14 hotel leases assumed by Patriot were sub-leased to Wyndham.
Old Wyndham's 52 management and franchise contracts excluding the 16 Patriot
hotels that Wyndham managed prior to the merger, the Wyndham and ClubHouse
proprietary brand names, and the Wyndham hotel management company were
transferred to certain non-controlled subsidiaries. The total purchase
consideration for the Wyndham merger was approximately $982.0 million. The
consideration consisted of 21,594,137 paired shares; 4,860,876 shares of
Series A Convertible Preferred Stock of Patriot (which are convertible on a
one-for-one basis into paired shares); cash of approximately $339.0 million to
repay debt and pay Old Wyndham shareholders who elected to receive cash (which
was financed with funds drawn on Patriot's credit facility); and the
assumption of approximately $59.1 million in debt.
In 1998, the Companies issued an aggregate 261,224 paired shares valued at
approximately $5.8 million in settlement of certain purchase price adjustment
arrangements related to Old Wyndham's acquisition of ClubHouse Hotels, Inc.
prior to the merger with Patriot. In the first quarter of 1998, the Companies
announced conversion of six ClubHouse Inns to Wyndham Garden Hotels.
WHG Casinos & Resorts, Inc. and related transactions
On January 16, 1998, a subsidiary of Wyndham merged with and into WHG
Casinos & Resorts Inc., with WHG being the surviving corporation, ("WHG
merger"). As a result of the WHG merger, Wyndham acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the partnership that owns the 389-room
El San Juan Hotel & Casino and a 23.3% interest in the partnership that owns
the 751-room El Conquistador Resort & Country Club, all of which are located
in Puerto Rico. In addition, Wyndham acquired a 62% interest in Williams
Hospitality Group, Inc., the management company for the three hotels and the
Las Casitas Village at the El Conquistador. A total of 5,004,690 paired shares
were issued in connection with the WHG merger and approximately $21.3 million
of debt was assumed, resulting in total purchase consideration of
approximately $159.4 million.
Effective March 1, 1998, Patriot acquired from unaffiliated third parties a
40% interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity
interest in the El Conquistador and a 38% interest in Williams Hospitality
Group, Inc. for approximately $31 million in cash and issuance of 1,818,182
paired shares valued at approximately $49.2 million and the assumption of
approximately $169.6 million of debt.
On July 13, 1998, Patriot acquired the remaining minority interests held by
a third party in entities that own the El Conquistador and the El San Juan
Hotel & Casino for a total purchase price of approximately $3.9 million.
Wyndham owns the controlling general partner interest in the partnerships that
own the El San Juan Hotel & Casino and the El Conquistador. Wyndham also holds
voting control of Williams Hospitality Group, Inc. Therefore, the operating
results of these entities have been consolidated with those of Wyndham for
financial reporting purposes. During 1998, the El San Juan and the El
Conquistador were converted to Wyndham Resorts.
Arcadian International Limited
On April 6, 1998, Patriot announced the completion of its acquisition of all
of the issued and to-be-issued shares of Arcadian International Limited for 60
pence per share. Including the exercise of all outstanding options
4
<PAGE>
to purchase shares, the assumption of debt and the acquisition of the
remaining shares in the Malmaison Group, the total transaction cost was
approximately (Pounds)185.9 million (approximately $308.7 million U.S. based
on exchange rates at the time of closing). As a result of the transaction,
Patriot acquired ten owned hotels located throughout England; one owned hotel
in Jersey; five owned and managed Malmaison Hotels; two resorts under
development in Tuscany, Italy and Paris, France; and the proprietary Malmaison
brand name. Patriot also acquired Arcadian's 50% partnership interest in the
redevelopment of the luxury Great Eastern Hotel in London, to be branded as a
flagship Wyndham Hotel and operated by Wyndham once the development has been
completed. The Arcadian acquisition was financed through a short-term
financing agreement with PaineWebber Real Estate Services, Inc., for $160
million, at a rate equal to the borrowing rate on Patriot's credit facility.
In addition, Patriot assumed approximately $112.6 million of debt in
connection with the Arcadian acquisition.
Interstate Hotels Company
On June 2, 1998, pursuant to an Agreement and Plan of Merger dated as of
December 2, 1997, as thereafter amended, between Patriot, Wyndham and
Interstate Hotels Company, Interstate merged with and into Patriot with
Patriot being the surviving company ("Interstate merger"). Pursuant to the
Interstate merger agreement, stockholders of Interstate could elect to convert
each of their shares of Interstate common stock into the right to receive
either (i) $37.50 in cash, subject to proration in certain circumstances, or
(ii) a number of paired shares of Patriot and Wyndham common stock based on an
exchange ratio of 1.341 paired shares for each share of Interstate common
stock not exchanged for cash.
As a result of the Interstate merger, Patriot acquired controlling interest
in, or ownership of, 42 hotels representing over 12,000 rooms; leases for 84
hotels representing over 10,100 rooms and management or service agreements for
82 hotels representing over 20,400 rooms located throughout the United States
and in Canada, the Caribbean and Russia. During 1998, the Companies converted
two hotels acquired in the Interstate merger to Wyndham Hotels.
The total purchase consideration for the Interstate merger of approximately
$2.1 billion consisted of 28,825,875 paired shares, cash of approximately
$525.4 million to pay Interstate shareholders who elected to receive cash,
approximately $787.1 million in debt assumed or refinanced by Patriot and
approximately $73.4 million to pay other transaction-related costs. In
addition, Interstate shareholders received rights to receive a cash
distribution of $0.3997 on each share of Interstate common stock that was
converted into paired shares, aggregating approximately $9.1 million.
SF Hotel Company, L.P.
On June 5, 1998, Patriot, through the Patriot Partnership, acquired all of
the partnership interests in SF Hotel Company, L.P. for approximately $298.9
million ("Summerfield acquisition"). The total purchase consideration for the
Summerfield acquisition consisted of approximately 3,223,795 OP units,
1,397,281 paired shares, cash of approximately $165.5 million and assumption
of debt in the amount of approximately $17.1 million. In addition, the
purchase price is subject to future adjustment based on (i) the market price
of the paired shares through the end of 1998 (the "1998 Summerfield
adjustment") and (ii) achievement of certain performance criteria through 2000
for 24 managed hotels which were not open for business (or had recently
opened) as of the date of acquisition, and (iii) fulfillment of the companies
obligation to develop seven hotels. As a result of the Summerfield
acquisition, Patriot acquired four Summerfield Suites(R) hotels, leasehold and
management interests in 24 Summerfield Suites(R), Sierra Suites(R) and Sunrise
Suites hotels and management contracts and franchise interests for 12
additional Summerfield Suites(R) and Sierra Suites(R) hotels. Patriot has
leased or sub-leased 21 of these hotels to Wyndham. In addition, Patriot
acquired the development contracts for several additional hotels.
Effective January 15, 1999, an additional 1,311,709 OP units valued at
approximately $9.0 million were issued in connection with the Summerfield
acquisition as additional consideration pursuant to the purchase agreement in
satisfaction of the 1998 Summerfield adjustment.
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CHC International Merger
On June 30, 1998, pursuant to an Agreement and Plan of Merger dated as of
September 30, 1997 between Patriot, Wyndham and CHCI ("CHCI merger"), the
hospitality-related business of CHCI merged with and into Wyndham with Wyndham
being the surviving company. CHCI's gaming operations were transferred to a
new legal entity prior to the CHCI merger and such operations were not a part
of the transaction. As a result of the CHCI merger, Wyndham, through its
subsidiaries, acquired the remaining 50% investment interest in GAH-II, L.P.,
the remaining 17 leases and 16 of the associated management contracts related
to the Patriot hotels leased by CHC Lease Partners, 8 third-party management
contracts, two third-party asset management contracts, the Grand Bay
proprietary brand name and certain other hospitality management assets. The
aggregate purchase price of the 17 leasehold interests was approximately $52.7
million, which is reflected as a cost of acquiring leaseholds in the
accompanying statements of operations of Wyndham for the year ended December
31, 1998.
By operation of the CHCI merger, all the issued and outstanding shares of
common stock, par value $0.005 per share, of CHCI and certain stock option
rights were exchanged for an aggregate of 1,781,173 shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham
and 1,781,181 shares of Series B Redeemable Convertible Preferred Stock, par
value $0.01 per share, of Wyndham. In addition, Wyndham assumed CHCI's
outstanding debt in the amount of approximately $16.6 million.
In addition, on September 30, 2000 and September 30, 2002, Wyndham may be
obligated to pay the CHCI stockholders and a subsidiary of Wyndham may be
obligated to pay a Gencom-related entity additional consideration, in each
case based upon the performance of certain specific assets. During 1998, the
Companies converted 4 hotels acquired in the CHCI merger to proprietary
branded hotels.
Other
In July 1998, Wyndham acquired an approximate 49% limited partnership
interest in a partnership with affiliates of Don Shula's Steakhouse, Inc., for
$1.5 million in cash and 156,272 of Preferred OP units of the Wyndham
Partnership which were valued at approximately $3.5 million.
During 1998, Patriot also re-acquired the leasehold interests for nine of
its hotels from the lessees and purchased certain license agreements for an
aggregate purchase price of approximately $11.7 million, which is reflected as
a cost of acquiring leaseholds in the accompanying statements of operations of
Patriot. The Companies issued 118,812 paired shares valued at $3.0 million and
paid cash of $8.7 million. Patriot has leased the hotels to Wyndham.
During 1998, Patriot, through the Patriot Partnership and its subsidiaries,
invested approximately $234.1 million in the acquisition of four hotels with a
total of over 1,700 guest rooms and the Golden Door Spa. These acquisitions
were financed primarily with funds drawn on Patriot's credit facility, the
issuance of 53,989 OP units valued at approximately $1.5 million, the issuance
of 390,335 paired shares valued at approximately $10.0 million and the
assumption of mortgage debt in the amount of approximately $80.1 million. In
addition, Patriot acquired an office building that will be converted into a
hotel for approximately $33.9 million.
During 1998, Patriot sold its interest in four hotel assets: Courtyard by
Marriott Hotel in Orange, Connecticut, Courtyard by Marriott Hotel in St.
Louis, Missouri, Residence Inn in Pittsburgh, Pennsylvania and the Courtyard
by Marriott in Westborough, Massachusetts, collectively hereinafter referred
to as the Fine Transaction, for a net purchase price of approximately $32.5
million. Patriot recognized no gain or loss on sale as a result of the
transaction. The assets were sold to an affiliate of an independent member of
the Board of Directors of Patriot.
Additionally in December 1998, Patriot sold its interest in three hotel
assets previously leased to NorthCoast Hotels, LLC ("NorthCoast") (a third
party lessee of Patriot); the WestCoast Roosevelt Hotel, the WestCoast Gateway
Hotel located in Seattle, Washington and the WestCoast Wenatchee Hotel located
in Wenatchee, Washington to an affiliate of NorthCoast. Patriot received net
cash proceeds of approximately $23.7 million plus
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a mortgage note receivable in the amount of $2.0 million. Patriot has also
contracted with an affiliate of NorthCoast to sell a fourth hotel, the
WestCoast Long Beach Hotel and Marina located in Long Beach, California, for a
total purchase price of approximately $7.0 million. Patriot recognized a loss
on sale of approximately $9.5 million as a result of the sale of these assets.
Upon completion of the sale, the Companies will no longer have leases on owned
hotels with third-party lessees.
Recent Developments
Asset sales
On March 3, 1999, Patriot sold its interest in the Holiday Inn Crockett
Hotel located in San Antonio, Texas. The Companies received cash proceeds of
approximately $18.0 million after payment of legal costs and other closing
costs. Patriot will recognize an estimate gain on sale of asset of $3.3
million in 1999. In connection with the transaction, Patriot terminated its
lease to Wyndham for the hotel.
In February 1999, Patriot sold its interest in the Bay Meadows Racecourse
located in San Mateo, California. The Companies received cash proceeds of
approximately $3.4 million after payment of legal costs and other closing
costs. Patriot has recognized an estimated impairment loss on assets held for
sale of $42.3 million related to the Racecourse facility in 1998. In
connection with the transaction, Patriot terminated its lease to Wyndham for
the Racecourse facilities.
During the first quarter of 1999, the Companies entered into two new
management contracts including the conversion of the Marriott I-Drive in
Orlando, Florida to a Wyndham and the addition of the Lodge at Mountain
Village in Telluride, Colorado as a Wyndham Resort.
Acquisitions
In January 1999, Patriot acquired the remaining 25% minority interests in
each of the five following hotels; Embassy Suites Schaumburg, the Hilton
Dania, the Marriott Suites at Valley Forge, the Marriott Boston Andover and
the Marriott Tysons Corner from CIGNA. The acquisition of such interests was
financed through additional mortgage indebtedness totaling $49.8 million and
the transfer of an additional 10% interest in the Marriott Warner Center.
Consulting Agreements
On February 26, 1999, Patriot, Wyndham and Paul A. Nussbaum entered into a
Separation Agreement (the "Separation Agreement") whereby Mr. Nussbaum
resigned his position as Chairman of the Board of Directors and Chief
Executive Officer of Patriot, effective immediately. Pursuant to the
Separation Agreement, Mr. Nussbaum has been named Chairman Emeritus of the
Board of Directors of Patriot and will remain as a Director of Wyndham. In
addition, pursuant to the terms of the Separation Agreement, Mr. Nussbaum has
agreed to provide consulting services to the Companies for two years.
Securities Purchase Agreement
On February 18, 1999, Patriot, Wyndham, Patriot Partnership, Wyndham
Partnership and affiliates of each of Apollo Real Estate Management III, L.P.,
Apollo Management IV, L.P., Thomas H. Lee Equity Fund IV, L.P., Beacon Capital
Partners, L.P. and Rosen Consulting Group, entered into a purchase agreement
under which the investors will purchase $1 billion of a new series B preferred
stock of Wyndham. Patriot and Wyndham currently plan to use the proceeds from
the investment to settle their forward equity contracts, as described below,
to repay indebtedness, and for working capital and growth purposes.
Wyndham will pay dividends on its series B preferred stock quarterly, on a
cumulative basis, at a rate of 9.75% per year. For the first six years,
dividends will be payable partly in cash and partly in additional shares of
preferred stock, with the cash component initially equal to 30% for the first
dividend payment and declining over the period to approximately 19.8% for the
final dividend payment. Each share of series B preferred stock may be
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converted, at the option of its holder, into that number of shares of Wyndham
common stock equal to $100.00 divided by the conversion price of the series B
preferred stock. Initially the conversion price will be $8.59, but is subject
to adjustment under certain circumstances.
Restructuring
Under the terms of the purchase agreement, relating to the $1 billion equity
investment, Patriot and Wyndham are required to complete a restructuring of
their existing paired share REIT structure prior to the investment. Under the
terms of the restructuring, the following events will occur:
. A reverse stock split of the common stock of Wyndham and Patriot.
. A wholly-owned subsidiary of Wyndham will merge with and into Patriot
with Patriot surviving.
. The pairing agreement between Patriot and Wyndham will terminate.
. Patriot will terminate its status as a real estate investment trust
effective January 1, 1999.
. The non-voting stock of specified corporate subsidiaries held by the
Patriot Partnership will be transferred so that it will be owned
directly by Patriot and/or Wyndham, rather than through the Patriot
Partnership.
. The third party partners in both the Patriot Partnership and the
Wyndham Partnership will be offered an opportunity to exchange their
limited partner interests for Wyndham common stock.
. The preferred stockholders of Wyndham will be offered an opportunity
to exchange their preferred stock for Wyndham common stock.
Reverse Stock Splits
Prior to the merger of a subsidiary of Wyndham into Patriot, both Wyndham
and Patriot will implement a one-for-twenty reverse stock split of their
common stock.
Redemption Option
For a period of 170 days following the completion of the $1 billion equity
investment, Wyndham may redeem up to $300 million of the series B preferred
stock at a redemption price of $102.00 per share (102% of the stated amount
$100.00) plus all accrued dividends. Wyndham currently plans to fund this
redemption through the issuance of $300 million of series A preferred stock to
its stockholders. The series A preferred stock has the same economic terms as
the series B preferred stock.
New Debt Financing
New Credit Facility. Patriot has recently signed a commitment letter with
Chase Securities Inc. and The Chase Manhattan Bank for senior credit
facilities for Wyndham in the amount of $1.8 billion, comprised of a term loan
facility and a revolving loan facility. Definitive agreements relating to the
new credit facility are expected to be finalized at the same time that the
$1 billion equity investment is consummated. The commitment letter provided
that the Chase Manhattan Bank will act as the administrative agent and Chase
Securities Inc. will act as the lead arranger for a syndicate of lenders which
will provide Wyndham with $1 billion in term loans and up to $800 million
under the revolving loan facility, of which a maximum of $560 million may be
drawn at the closing of the investment. The term loan facility and the
revolving facility carry terms of 7 years and 5 years, respectively. The
commitment letter based interest rates for the new credit facility upon LIBOR
spreads varying from 1.50% to 3.00% per annum (for the revolving loan
facility) and 3.00% to 3.75% per annum (for the term loan facility), based
both on Wyndham's leverage ratio and on whether any increasing rate loans
(described below) are outstanding. However, at Wyndham's election or under
other specified circumstances, the term loans and revolving loans may instead
bear interest at an alternative base rate plus the applicable spread. The
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alternative base rate is equal to the greater of The Chase Manhattan Bank's
prime rate or federal funds rate plus 0.5%, and the alternative spread is 1.0%
below the applicable LIBOR spread. Subject to limited agreed-upon exceptions,
the New Credit Facility will be guaranteed by the domestic subsidiaries of
Wyndham, and will be secured by pledges of equity interests held by Wyndham
and its subsidiaries. The proceeds from the term loan facility will be used to
finance the restructuring of Wyndham and Patriot. The proceeds from the
revolving loan facility will be used for working capital and general corporate
purposes.
Increasing Rate Loans. Wyndham and Patriot have signed a commitment letter
with The Chase Manhattan Bank, Chase Securities Inc., Bear, Stearns & Co.
Inc., and The Bear Stearns Companies Inc. providing that The Chase Manhattan
Bank, The Bear, Stearns Companies Inc. and a possible syndicate of other
lenders will provide an increasing rate loan facility in the amount of up to
$650 million. The increasing rate loans carry a term of 5 years. Interest
rates for the increasing rate loans are based on LIBOR spreads and are
initially set at 0.25% below the initial LIBOR spread on the term loan
facility, but increase by 0.50% every three months, with a cap of LIBOR plus
4.75%. However, under other specified circumstances, interest accrues at an
alternate rate equal to the rate borne by three-month treasury securities plus
1.0%, plus the applicable spread. The lenders under the increasing rate loans
receive the benefit of the same guarantees and pledges of security provided
under the New Credit Facility. The proceeds from the increasing rate loans
will be used to finance the restructuring of Wyndham and Patriot.
Wyndham's ability to borrow under its revolving facility is subject to
Wyndham's compliance with a number of customary financial and other covenants,
including total leverage and interest coverage ratios, limitations on
additional indebtedness, and limitations on investments and stockholder
dividends.
In May 1999, The Chase Manhattan Bank and Chase Securities Inc. notified the
companies that they were exercising their rights under the "market flex"
provisions of the commitment letters to change the terms of the senior credit
facilities and the increasing rate loan facility. The revolving credit
facility has been reduced from $800 million to $600 million, the maximum that
may be drawn at the closing has been reduced from $560 million to $400 million
and the term loan facility has been increased from $1 billion to $1.2 billion.
Forward Equity Contracts
Patriot is party to forward equity contracts with three counterparties
involving the sale of an aggregate of 13.3 million paired shares, with related
price adjustment mechanisms. Upon entering into these contracts, the companies
agreed to sell a varying number of paired shares to each of the counterparties
at future settlement dates at prices adjusted for the then current market
price of the paired shares. None of the forward contracts provided for any
floor on the settlement price per share. Under the terms of the forward
contract entered into with UBS on December 31, 1997, the Companies issued 3.25
million unregistered paired shares to UBS on that date, for a purchase price
per paired share of $28.125, or aggregate consideration of approximately $93.6
million. Under the terms of the forward contract entered into with Nations on
February 26, 1998, the Companies issued 4.9 million unregistered paired shares
to Nations on that date, for a purchase price per paired share of $24.8625, or
aggregate consideration of approximately $121.8 million. Under the terms of
the forward contract entered into with PaineWebber on April 6, 1998, the
Companies issued 5.15 million unregistered paired shares to PaineWebber on
that date for a purchase price per paired share of $27.01125, or aggregate
consideration of approximately $139.1 million. The proceeds of these
placements were used by the Companies to repay borrowings under the Companies'
Credit Facility. The Credit Facility was then used to fund the cash portion of
the Companies mergers and acquisitions. Patriot's aggregate total remaining
obligation under the forward equity
transactions was approximately $321.9 million at April 12, 1999. As of such
date, Patriot had delivered an aggregate of 84.7 million shares to the
counterparties as collateral, including approximately 4 million shares issued
as dividends on the collateral shares, in addition to approximately 12.5
million original paired shares currently owned by the counterparties or their
affiliates. Based on the $5.3125 closing price of the paired shares on May 21,
1999 and assuming an average of 2% selling expenses, the forward
counterparties would have to sell approximately 62 million paired shares, to
settle all of the forward equity transactions in full.
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Under the terms of the forward equity transactions, the Companies sold
paired shares to each of the counterparties and simultaneously entered into a
forward contract under which they agreed to "settle" the transaction at a
stated maturity date based upon the adjusted price of the purchased shares at
maturity. During the term of the forward contract, the price of the purchased
shares increases at a rate that corresponds to an agreed-upon interest rate.
At maturity, the forward contracts provide that each counterparty will sell a
number of shares sufficient to generate proceeds equal to the total adjusted
purchase price of the purchased shares. Shares may be sold to the public
through an underwritten public offering or by other methods, or to private
investors. If the counterparty does not receive sufficient proceeds from its
sales of the originally purchased shares, the Companies must issue more paired
shares to that counterparty for resale until the obligation has been
satisfied. The Companies may pay their obligation under the forward equity
contracts in cash as well as paired shares. As of May 21, 1999, the Companies
have paid an aggregate of $54.3 million to the counterparties under the
forward equity contracts, in addition to the cash dividends paid on the
purchased shares.
On February 28, 1999, all three counterparties agreed, subject to specified
conditions, not to require settlement under their respective forward
agreements or to sell paired shares in connection with the forward agreements
until the earlier of the closing of the $1 billion equity investment or June
30, 1999. In connection with the standstill agreements, the Companies agreed
to pay a 2% fee to the three counterparties. The agreements provide that the
standstill obligations terminate if, among other events, the price of the
paired shares fell to a specified threshold. As of the date of this Form 10-
K/A, the price of the paired shares has fallen below each of the thresholds.
As a result, each of the forward counterparties has the right to require an
immediate settlement of its forward equity transaction. As of the date of this
Form 10 K/A, none of the counterparties has made any sale of paired shares,
other than the sale of 754,525 paired shares by one counterparty in December
1998, or required settlement of its forward transaction. However, the
Companies cannot assure you that the forward counterparties will not sell
paired shares or require settlement in the future.
The Companies may settle the forward transactions by delivering either cash
or paired shares. Sources of cash are not currently available for the
Companies to make the payments that would be required to settle one or more of
the forward transactions in cash. Moreover, the Companies cannot assure that
the bank lenders would consent to any cash settlements prior to the closing of
the $1 billion equity investment. Generally, the Companies may settle by
delivering paired shares only if a registration statement covering such paired
shares is effective. There are currently effective registration statements
covering the sale by the three forward counterparties of up to 40 million
paired shares and the sale of one counterparty of an additional 4 million
paired shares of which 754,525 paired shares were sold by that counterparty in
December 1998. The Companies can make no assurances that these registration
statements will remain effective. Given the current market price of the paired
shares, any settlement in paired shares would have severely dilutive effects
on our capital stock. Based on the $5.3125 closing price of the paired shares
on May 21, 1999 and assuming an average of 2% selling expenses, the forward
counterparties would have to sell approximately 62 million paired shares, to
settle all of the forward equity transactions in full. The number of shares
required would substantially increase if the market price of the paired shares
decreases as a result of the sales of paired shares by the forward
counterparties. If any of the counterparties sells paired shares, the
conversion price of the preferred stock to be issued to the investors will be
adjusted downward to the extent that the price recognized by us on the sale is
less than $8.75 per share.
The Companies intend to settle in full all of the forward transactions, with
a portion of the proceeds of the $1 billion equity investment. The estimated
aggregate dollar value of the settlement on June 30, 1999 is approximately
$333.6 million. If the Companies settle the forward transactions in cash, the
counterparties must deliver to the Companies all paired shares then owned by
them or held by them as collateral under the forward agreement.
Agreements Relating to Existing Credit Facility.
Patriot and Wyndham's existing credit facility with The Chase Manhattan
Bank, Chase Securities, Inc. and PaineWebber Real Estate consists of a $900
million revolving credit facility and a series of term loans in the aggregate
amount of $1.8 billion. Interest rates on the existing Credit Facility are
based on Patriot's and
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Wyndham's leverage ratio and vary from 1.5% to 2.5% over LIBOR. Under the
original terms of the Credit Facility, two of the term loans were scheduled to
matured on January 31, 1999 ($350 million) and March 31, 1999 ($400 million),
respectively. All of the requisite lenders under the Credit Facility have
agreed to extend the maturity of these two terms loans to June 30, 1999. If
the Companies do not consummate the Investment by June 30, 1999, or our
agreement with the Investor Group otherwise terminates, the maturity on these
two term loans will be extended to March 31, 2000 and the Companies will be
required to make a $300 million amortization payment by December 31, 1999.
Additionally, the Companies will be required to secure the Credit Facility
with mortgages and other security interests by June 30, 1999. In connection
with their agreement to extend the maturities of the term loans to June 30,
1999, the Companies have paid approximately $11.7 million in fees.
Interstate's Third-Party Hotel Management Business
In May, 1998, the Companies along, with Interstate Hotels Company
("Interstate") entered into a settlement agreement (as amended, the
"Settlement Agreement") with Marriott International, Inc. ("Marriott") which
addressed certain claims asserted by Marriott in connection with Patriot's
then proposed merger with Interstate. The Settlement Agreement provided for
the dismissal of litigation brought by Marriott, and allowed Patriot's merger
with Interstate to close. In addition to dismissal of the Marriott litigation,
the Settlement Agreement provides for the re-branding of ten Marriott hotels
under the Wyndham name, Marriott's assumption of the management (the "Assumed
Management Contracts") of ten Marriott hotels formerly managed by Interstate
for the remaining term of the Marriott franchise agreement, and the
divestiture of the third-party management business which was operated by
Interstate no later than June 14, 1999.
If the Companies do not complete the spin-off by June 14, 1999, Marriott
will be entitled to receive liquidated damages. The Companies will also be
subject to additional penalties including Marriott's right to purchase,
subject to third-party consents, the hotels to be submanaged by Marriott and
six additional Marriott hotels owned by Patriot at their then appraised
values.
Moreover, subject to any defenses the Companies may have, the Companies
would owe Marriott liquidated damages with respect to the hotels converted to
the Wyndham brand, those to be submanaged by Marriott, and the six additional
Marriott hotels Marriott would have the option to purchase. The Companies also
anticipate that Marriott would require third-party owners of Marriott-branded
hotels that Wyndham manages to replace Wyndham as manager of their hotels. As
a result, each respective hotel would either: (1) lose the Marriott brand, at
which time the Companies would have to compensate Marriott for any lost
franchise fees or (2) terminate the management contract with Wyndham and enter
into a contract with another manager. The Companies would owe liquidated
damages on any third-party Marriott-franchised hotel which chooses to convert
its brand.
Description of Business
The Companies are a fully-integrated and multi-branded hotel enterprise that
operates primarily in the upscale and luxury segments. Through a series of
acquisitions, the Companies have grown from 20 hotels at the time of its
initial public offering in 1995 to become one of the largest U.S. based hotel
operators with a portfolio totaling 472 hotels and approximately 101,000
rooms. The Companies classify their business into proprietary brand and non-
proprietary brand hotel divisions, under which they manage the business.
Among its proprietary branded hotels, the Companies are positioned in the
luxury segment under the Grand Bay Hotels & Resorts(R); in the upscale segment
under Wyndham(TM); and in the mid-priced segment under the ClubHouse. The core
Wyndham brand offers upscale, full-service accommodations to business and
leisure
travelers, ensures a quality and consistent product, and delivers outstanding
service through any of its four products: Wyndham Hotels, Wyndham Resorts,
Wyndham Garden Hotels(R), Wyndham Grand Heritage Hotels(R). Additionally, the
Companies offer proprietary branded all-suite accommodations through its
upscale Summerfield Suites and its mid-priced Sierra Suites. Other proprietary
hotel brands owned and developed by the Companies include Malmaison, Grand
Heritage(R) and Carefree(R).
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The Companies primary growth strategy is to develop their proprietary hotel
brands through increasing distribution, generating greater customer awareness,
building brand loyalty, and maintaining customer satisfaction. The Companies
intends to continue to expand and diversity its hotel portfolio through the
rebranding of existing non-proprietary brand hotels to one of its proprietary
brands and through the selective acquisition and development of hotels in
major metropolitan areas and destination. In 1998, the Companies converted 33
owned hotels to one of its proprietary upscale or luxury hotel brands.
Additionally, the Companies have 10 hotels under development which are
expected to open in mid to late 1999. These newly constructed hotels will be
proprietary branded and are situated in major metropolitan markets including
Boston, Chicago, Atlanta and London.
Additionally, the Companies own 93 non-proprietary branded hotels which
consists of 86 full service hotels, 3 resort hotels and 4 limited service
hotels. All but 5 of these hotels are operated under franchise or brand
affiliations with nationally recognized hotel companies, including
Marriott(R), Crowne Plaza(R), Hilton(R), Hyatt(R), Radisson(R), Holiday
Inn(R), Doubletree(R), Embassy Suites(R), Ramada(R), Four Points by
Sheraton(R), WestCoast(R), Hampton Inn(R), Courtyard by Marriott(R). The
Companies non-proprietary brand hotels are mostly operated by one of two
divisions, Patriot American Hospitality Management Services or Interstate
Hotel Management. Both divisions are focused on maximizing hotel profitability
at the owned hotels or for our third-party hotel owners. The Companies non-
proprietary branded business will continue to seek investments in hotels where
management believes that profits can be increased by the introduction of more
professional and efficient management techniques, a change of franchise
affiliation or the injection of capital for market repositioning, renovating,
or expanding a property.
Proprietary Brands
Grand Bay Hotels & Resorts are five-star, luxury hotel properties located in
major metropolitan markets and destination locations. Catering to the upscale
business and leisure traveler, Grand Bay hotels feature between 150 and 300
rooms, numerous fine dining options, the exclusive Golden Door Spa or Golden
Door CitySpa and other luxury amenities. Grand Bay Resorts include the former
Carefree Resorts, which are internationally renowned, signature resorts
distinguished by unique architecture that complements the indigenous
landscape; a wide variety of outdoor activities; Golden Door spas; innovative
service; and retail shopping.
Wyndham is a four-star, upscale hotel brand that offers full-service
accommodations to business and leisure travelers. Wyndham ensures a quality
and consistent product and delivers outstanding service through any of its
four products described below. Each product is geared to the customers
specific needs based on the properties' location and character.
. Wyndham Hotels are typically located in major urban centers, providing
an average of 400 hotel rooms, generally between 15,000 and 250,000
square feet of meeting space, and a full range of guest services and
amenities, including room service and recreational facilities. Wyndham
Hotels are marketed primarily to corporate groups as well as individual
business travelers.
. Wyndham Resorts are full-service, destination resorts targeted to
upscale and luxury leisure and incentive travelers. Primary destinations
currently include Orlando, South Florida and the Caribbean. Due to the
strength and size of the Wyndham Resorts portfolio, the chain is the
largest chain in the Caribbean.
. Wyndham Garden Hotels are located principally in suburban markets,
catering to individual business travelers and small business groups.
These full-service hotels feature between 150 and 225 guest rooms, up to
5,000 square feet of meeting space, a three-meal restaurant, signature
"Garden" libraries and laundry and room service.
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. Wyndham Grand Heritage Hotels are the newest addition to the Wyndham
brand, introduced in early 1998. Wyndham Grand Heritage Hotels are
distinguished by their unique combination of historic ambiance and
modern services and amenities. Usually situated in secondary and
tertiary markets throughout the United States, Wyndham Grand Heritage
Hotels are known for their aesthetic and historic appeal as well as
their architectural significance.
ClubHouse Inns are mid-priced, limited service hotels located principally in
secondary markets throughout the Midwest and the Southwest. ClubHouse Inns are
targeted at corporate individual travelers and featuring an average of 135
rooms, two meeting rooms, full-service breakfast buffets and evening
receptions.
Summerfield Suites and Sierra Suites are upscale and mid-priced, all-suite
hotel brands, respectively. Both brands focus on the needs of business
travelers attending corporate training programs but at different price points.
All-suite properties are designed for the business and leisure traveler who
usually anticipates a one to two week stay (suite hotels generally offer
weekly rates to their guests). The suite properties usually have limited
public space and no or limited food and beverage services. However, these
properties generally provide guests with larger partitioned rooms, a full
kitchen, or two rooms for added workspace.
Malmaison, located in the United Kingdom, are full-service, upscale hotels
typically housed in historic buildings that have been redeveloped and
retrofitted. Named "Best Hotels in the World Under (Pounds)100 Per Night" by
England's Tatler magazine, Malmaison hotels are a European equivalent in size
and service to Wyndham Gardens, with award-winning brasseries, which quickly
become popular gathering spots.
Operating Statistics--Owned Hotels
<TABLE>
<CAPTION>
Occupancy ADR REVPAR
------------ --------------- ---------------
1998 1997 1998 1997 1998 1997
----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Wyndham Branded Hotels.......... 70.50% 70.80% $119.57 $112.32 $ 84.35 $ 79.54
Grand Bay Hotels & Resorts...... 67.00 70.50 287.30 266.64 192.52 187.86
Summerfield Suites.............. 79.70 74.20 129.42 123.01 103.17 91.27
Malmaison....................... 83.50 75.40 125.65 117.27 104.89 88.44
Clubhouse....................... 66.40 71.50 68.07 65.75 45.23 47.01
Arcadian........................ 68.80 63.80 142.67 128.43 98.10 81.92
Non Proprietary -- Limited
Service........................ 67.80 74.10 74.57 65.87 50.54 48.83
Non Proprietary Brands.......... 71.70 71.20 99.59 94.29 71.39 67.16
----- ----- ------- ------- ------- -------
Weighted Average............... 71.10% 71.00% $109.94 $103.53 $ 78.15 $ 73.55
</TABLE>
13
<PAGE>
List of Owned Properties
The following table sets forth certain information for the hotels the
Companies owned as of December 31, 1998, and excludes those leased, managed or
franchised from third-party owners.
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Wyndham Brand Properties:
Wyndham Bel Age Hotel Los Angeles California 200 1984
Wyndham Bristol Place Hotel Toronto Canada 287 1974
Wyndham Buena Vista Palace Resort &
Spa (1) Orlando Florida 1,014 1977/1983
Wyndham Buttes Resort (1) Tempe Arizona 353 1986
Wyndham City Centre (2) Washington District of Columbia 352 1969
Wyndham Emerald Plaza San Diego California 436 1991
Wyndham Resort & Spa (1) Fort Lauderdale Florida 496 1961
Wyndham Franklin Plaza Philadelphia Pennsylvania 758 1979
Wyndham Greenspoint Hotel Houston Texas 472 1985
Wyndham Miami Beach Resort (1) Miami Florida 424 1963
Wyndham Gateway--Miami Airport (1) Miami Florida 408 1976
Wyndham Myrtle Beach Resort &
Golf Club (1) Myrtle Beach South Carolina 385 1974
Wyndham Northwest Chicago Chicago Illinois 408 1983
Wyndham Peachtree Conference Center (1) Atlanta Georgia 250 1984
Wyndham Toledo (1) Toledo Ohio 241 1985
Wyndham Riverfront Hotel New Orleans Louisiana 202 1996
Wyndham Washington D.C. (1) Washington District of Columbia 400 1983
Wyndham Westshore Hotel (1) Tampa Florida 324 1984
Wyndham Wind Watch Hotel & Golf Club Hauppage New York 360 1989
Wyndham El Conquistador Resort &
Club (1) San Juan Puerto Rico 751 1962
Wyndham El San Juan Resort & Casino (1) San Juan Puerto Rico 382 1958
Wyndham Rose Hall Golf & Beach Resort Montego Bay Jamaica 489 1984
Wyndham Garden Hotel--Brookfield Brookfield Illinois 178 1990
Wyndham Garden Hotel--Charlotte Charlotte North Carolina 173 1989
Wyndham Garden Hotel--Commerce Los Angeles California 201 1991
Wyndham Garden Hotel--Market Center Dallas Texas 228 1968/1997
Wyndham Garden Hotel--Park Central (1) Dallas Texas 197 1998
Wyndham Garden Hotel--Indianapolis Indianapolis Indiana 171 1990
Wyndham Garden Hotel--K.C. Airport (1) Kansas City Missouri 138 1992
Wyndham Garden Hotel--Knoxville (1) Knoxville Tennessee 137 1989
Wyndham Garden Hotel--LaGuardia Airport New York New York 229 1988
Wyndham Garden Hotel--Las Colinas Dallas Texas 168 1986
Wyndham Garden Hotel--Midtown Atlanta Georgia 191 1987
Wyndham Garden Hotel--Novi Detroit Michigan 148 1988
Wyndham Garden Hotel--Omaha (1) Omaha Nebraska 137 1991
Wyndham Garden Hotel--Overland Park Overland Park Kansas 180 1971/1997
Wyndham Garden Hotel--Pleasanton Pleasanton California 171 1985
Wyndham Garden Hotel--Richardson (1) Richardson Texas 137 1996
Wyndham Garden Hotel--Schaumburg Schaumburg Illinois 188 1985
Wyndham Garden Hotel--West Port (1) St. Louis Missouri 142 1997
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Wyndham Garden Hotel--
Vinings Atlanta Georgia 159 1985
Wyndham Garden Hotel--
Wichita (1) Wichita Kansas 120 1985
Wyndham Garden Hotel--
WoodDale Chicago Illinois 162 1986
Wyndham Grand Heritage--
Ambassador West (1) Chicago Illinois 219 1924
Wyndham Grand Heritage--
Bourbon Orleans (1) New Orleans Louisiana 216 1800s
Wyndham Grand Heritage--
The Fairmount (1) San Antonio Texas 37 1906
Wyndham Grand Heritage--
The
Mayfair (1) St. Louis Missouri 182 1925
Wyndham Grand Heritage--
The Tutwiler (1) Birmingham Alabama 147 1913
Wyndham Grand Heritage--
Tremont House (1) Boston Massachusetts 322 1925
Wyndham Grand Heritage--
Union Station (1) Nashville Tennessee 124 1986
Grand Bay Hotels &
Resort:
Carmel Valley Ranch Carmel California 144 1987
Grand Bay Hotel Coconut
Grove Miami Florida 178 1983
The Boulders Scottsdale Arizona 160 1985
The Lodge at Ventana
Canyon Tucson Arizona 49 1985
The Peaks Resort & Spa Telluride Colorado 174 1992
Las Casitas Spa & Villas San Juan Puerto Rico 157
Summerfield Suites:
Summerfield--Denver
South Denver Colorado 136 1997
Summerfield--Hanover Whippany New Jersey 136 1997
Summerfield--Morristown
(Hanover South) Morristown New Jersey 133 1997
Summerfield--Seattle
Downtown (1) Seattle Washington 193 1985
Summerfield--Waltham Waltham Massachusetts 136 1997
Malmaison:
Malmaison Edinburgh Edinburgh United Kingdom 60 1994
Malmaison Glasgow Glasgow United Kingdom 72 1997
Malmaison Manchester Manchester United Kingdom 112 1998
Malmaison Newcastle Newcastle United Kingdom 116 1998
ClubHouse Inns:
ClubHouse Inn--Nashville
Airport Nashville Tennessee 135 1988
ClubHouse Inn--
Albuquerque Albuquerque New Mexico 137 1987
ClubHouse Inn--Atlanta
(Norcross) Atlanta Georgia 147 1988
ClubHouse Inn--Overland
Park Overland Park Kansas 143 1988
ClubHouse Inn--Savannah Savannah Georgia 138 1989
ClubHouse Inn--Topeka Topeka Kansas 121 1986
ClubHouse Inn--Valdosta Valdosta Georgia 121 1988
ClubHouse Inn &
Conference Center Nashville Tennessee 285 1991
Non-Proprietary Brand
Properties:
Marriott Albany Albany New York 359 1985
Marriott Arlington Arlington Texas 310 1985
Marriott Atlanta North
Central Atlanta Georgia 287 1975
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Marriott Boston Andover Andover Massachusetts 293 1985
Marriott Boston
Westborough Westbourough Massachusetts 223 1985
Marriott Houston
Greenspoint North Houston Texas 391 1981
Marriott Minneapolis
Southwest Minnetonka Minnesota 320 1988
Marriott Colorado
Springs Colorado Springs Colorado 311 1989
Marriott Harrisburg Harrisburg Pennsylvania 348 1980
Marriott Indian River
Plantation Resort Stuart Florida 297 1987
Marriott Casa Marina
Resort Key West Florida 311 1980
Marriott Troy Troy Michigan 350 1990
Marriott Reach Resort Key West Florida 149 1978
Marriott Suites At
Valley Forge Valley Forge Pennsylvania 229 1985
Marriott Philadelphia
West West Conshohocken Pennsylvania 286 1991
Marriott Pittsburgh
Airport Pittsburgh Pennsylvania 314 1987
Marriott Roanoke Airport Roanoke Virginia 320 1983
Marriott San Diego
Mission Valley San Diego California 350 1988
Marriott St. Louis West St. Louis Missouri 300 1990
Marriott Syracuse East Syracuse New York 250 1977
Marriott Tysons Corner Tysons Corner Virginia 390 1981
Marriott Warner Center Woodland Hills California 463 1986
Courtyard by Marriott Beachwood Ohio 113 1986
Crowne Plaza Ravinia Atlanta Georgia 495 1986
Doubletree Hotel Anaheim Orange California 454 1984
Doubletree Hotel
Corporate Woods Overland Park Kansas 356 1982
Doubletree Hotel Post
Oak Houston Texas 449 1982
Doubletree Hotel St.
Louis St. Louis Missouri 223 1984
Doubletree Hotel Allen
Center Houston Texas 341 1978
Doubletree Guest Suites Glenview Illinois 252 1988
Doubletree Hotel
Westminster Denver Colorado 180 1980
Doubletree Hotel Tallahassee Florida 244 1977
Doubletree Hotel Des
Plaines Chicago Illinois 242 1969
Doubletree Hotel Minneapolis Minnesota 230 1986
Doubletree Hotel Tulsa Oklahoma 417 1982
Doubletree Park Place Minneapolis Minnesota 298 1981
Doubletree Miami Airport Miami Florida 266 1975
Embassy Suites Chicago Illinois 358 1991
Embassy Suites Schaumburg Illinois 209 1984
Embassy Suites Hunt Valley Maryland 223 1985
Embassy Suites Phoenix
North Phoenix Arizona 314 1985
Hyatt Newporter Newport Beach California 410 1962
Hyatt Regency Lexington Kentucky 365 1977
Hilton Cleveland South Independence Ohio 191 1980
Hilton Gateway Newark Newark New Jersey 253 1971
Hilton Columbus Columbus Georgia 177 1982
Hilton Del Mar San Diego California 245 1989
Hilton Greenwood Village Denver Colorado 305 1982
Hilton Dania Fort Lauderdale Florida 388 1988
Hilton Huntington Melville New York 302 1988
Hilton Parsipanny Parsippany New Jersey 510 1981
Hilton Melbourne Airport Melbourne Florida 237 1986
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Holiday Inn (3) Sebring Florida 148 1983
Holiday Inn San Angelo Texas 148 1984
Holiday Inn--YO Ranch Kerrville Texas 200 1984
Holiday Inn Aristocrat Dallas Texas 172 1925
Holiday Inn Beachwood
(3) Beachwood Ohio 172 1974
Holiday Inn Crockett (4) San Antonio Texas 204 1909
Holiday Inn Lenox Atlanta Georgia 297 1987
Holiday Inn Northwest Houston Texas 193 1982
Holiday Inn Northwest
Plaza Austin Texas 193 1984
Holiday Inn Select--
Farmers Branch Dallas Texas 379 1979
Holiday Inn Westlake Beachwood Ohio 266 1980
Holiday Inn Brentwood Brentwood Tennessee 247 1989
Holiday Inn San Francisco California 224 1964
Redmont Hotel Birmingham Alabama 112 1925
Omni Inner Harbor Hotel Baltimore Maryland 707 1968
Radisson Burlington Burlington Vermont 255 1975
Radisson Hotel & Suites Dallas Texas 198 1986
Radisson Englewood Englewood New Jersey 192 1989
Radisson Suite Hotel Kansas City Kansas 240 1931
Radisson Hotel Lisle Illinois 242 1987
Radisson New Orleans
Hotel New Orleans Louisiana 759 1924
Radisson Northbrook Northbrook Illinois 310 1976
Radisson Overland Park Overland Park Kansas 190 1974
Radisson Riverwalk Jacksonville Florida 322 1979
Radisson Plaza Hotel San
Jose Airport San Jose California 185 1985
Radisson Suites Town &
Country Houston Texas 173 1986
Radisson Hotel Beachwood Ohio 196 1968
Radisson Hotel Akron Ohio 130 1989
Ramada Hotel San Francisco California 323 1962
Sheraton Four Points Blacksburg Virginia 148 1971
Sheraton Four Points Saginaw Michigan 156 1984
WestCoast Hotel & Marina
(3) Long Beach California 195 1978
WestCoast Valley River
Inn Eugene Oregon 257 1973
Condado Plaza Hotel &
Casino San Juan Puerto Rico 570
Fort Magruder Inn &
Conference Center Williamsburg Virginia 303 1975
Pickwick Hotel San Francisco California 189 1928
Park Shore Honolulu Honolulu Hawaii 227 1968
Regency Hotel San Juan Puerto Rico 127 1963
Limited Service Hotels:
Hampton Inn (3) Canton Ohio 107 1985
Hampton Inn (3) Rochester New York 113 1986
Hampton Inn Cleveland
Airport (3) North Olmsted Ohio 113 1986
Hampton Inn Jacksonville
Airport (3) Jacksonville Florida 113 1985
Arcadian Hotels:
Arcadian--Brandschatch Brandschatch Place United Kingdom 41 1980
Arcadian--Chilston Park Chilston Park United Kingdom 53 1985
Arcadian--Ettington Park Ettington Park United Kingdom 48 1984
Arcadian--Haycock Haycock United Kingdom 59 1632
Arcadian--L'Horizon L'Horizon United Kingdom 107 1954
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Year
Number of Built/
Property Name City State Rooms Renovated
- ------------- ---- ----- --------- ---------
<S> <C> <C> <C> <C>
Arcadian--Mollington
Banastre Mollington Banastre United Kingdom 63 1953
Arcadian--Nutfield
Priory Nutfield Priory United Kingdom 60 1988
Arcadian--Priest House Priest House United Kingdom 45
Arcadian--Rookery Hall Rookery Hall United Kingdom 45 1960
Arcadian--Wood Hall Wood Hall United Kingdom 43 1988
Arcadian--Woodlands Park Woodlands Park United Kingdom 59 1988
Other:
Bay Meadows Racecourse
(4) San Mateo California 1934
Golden Door Spa Escondido California 1954
------
43,893
======
</TABLE>
- --------
Notes: (1) Converted to Wyndham in 1998.
(2) Converted to Wyndham subsequent to December 31, 1998.
(3) Assets sold subsequent to December 31, 1998.
(4) Assets sold subsequent to December 31, 1998.
Total Portfolio
<TABLE>
<CAPTION>
(Number of Hotels as of
December 31, 1998) Owned Leased Managed Franchised Total
----------------------- ----- ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Total Wyndham Brand Hotels & Resorts..... 50 14 40 10 114
Grand Bay Hotels & Resorts............... 6 0 0 0 6
Summerfield Suites and Sierra Suites..... 5 25 17 1 48
ClubHouse Inns........................... 8 0 2 1 11
Malmaison Hotels......................... 4 0 0 0 4
Arcadian and Grand Heritage Hotels....... 11 0 7 0 18
--- --- --- --- ---
Proprietary Brand Hotels--Subtotal..... 84 39 66 12 201
Non-Proprietary Brand Hotels........... 94 82 95 0 271
--- --- --- --- ---
Total.................................... 178 121 161 12 472
=== === === === ===
</TABLE>
Operation of the Hotels
As of March 22, 1999, Patriot and Wyndham, either directly or through the
Operating Partnerships and other subsidiaries, own interests in 178 hotels
with an aggregate of over 43,800 rooms (excluding hotels under development).
In order for Patriot to qualify for favorable tax status as a real estate
investment trust ("REIT") under the Code, Patriot leases each of its hotels,
to Wyndham or a third party lessee. Currently, Patriot leases all of its
hotels to Wyndham except for one hotel (the WestCoast Long Beach Hotel and
Marina) which is currently leased to NorthCoast which is under contract to be
sold and those hotels which are separately owned through special purpose
entities. Currently, Wyndham leases 206 hotels from Patriot pursuant to
participating lease agreements. Wyndham manages 184 of these hotels through
certain of its hotel management subsidiaries and has entered into separate
management agreements with third-party operators to manage 22 of the hotels.
In addition, the Companies lease 121 hotels from third parties, manage 161
hotels for independent owners and franchise 12 hotels. All of the leased
hotels are managed with 39 franchised under proprietary brands of the
Companies.
Patriot leases each of the hotels, except those hotels which are separately
owned through special purpose entities to Wyndham pursuant to separate
participating leases. The Participating Leases with various expiration dates
through 2008, subject to earlier termination upon the occurrence of certain
contingencies described in the Participating Leases (including, particularly,
irreparable damage or destruction of the hotel, condemnation of the
18
<PAGE>
hotel property, failure to meet performance goals, or disposition of the
hotel). The variation of the lease terms is intended to provide Patriot
protection from the risk inherent in simultaneous lease expirations.
In general, each participating lease requires the lessee of each hotel to
pay the greater of (i) base rent in a fixed amount or (ii) participating rent
based on percentages of room revenue, food and beverage revenue and other
revenue at each hotel leased by it, plus certain additional charges. In
general, Patriot is responsible for paying (i) real estate and personal
property taxes on the hotels (except to the extent that personal property
associated with the hotels is owned by the Lessee), (ii) casualty insurance on
the hotels, (iii) business interruption insurance on the hotels and (iv)
ground rent with respect to certain of the hotels. Wyndham is required to pay
for all liability insurance on the hotels it leases, with extended coverage,
including comprehensive general public liability, workers' compensation and
other insurance appropriate and customary for properties similar to the
hotels, with Patriot as an additional named insured.
Franchise and Brand Affiliations
As of December 31, 1998, all but 5 of the Companies' hotels are operated
under franchise or brand affiliations with nationally recognized hotel
companies. Franchisors and brand operators provide a variety of benefits for
hotels which include national advertising, publicity and other marketing
programs designed to increase brand awareness, training of personnel,
continuous review of quality standards and centralized reservation systems.
Wyndham generally is the licensee under the franchise agreement related to
such hotel. Wyndham is responsible for making all payments under the franchise
agreements to the franchisors. Franchise royalties and fees generally range up
to approximately 10% of room revenue. The duration of the franchise agreements
are varied, but generally may be terminated upon prior notice and/or upon
payment of certain specified fees. However, Wyndham is not entitled to
terminate the franchise license for a hotel without prior written consent of
Patriot.
The franchisors have agreed that upon the occurrence of certain events of
default by a lessee under a franchise license, the franchisors will transfer
the franchise license for the hotel to Patriot (or its designee) or make other
arrangements to continue the hotel as part of the franchisor's system.
Wyndham's rights related to branded hotels are generally contained in the
management agreements related to such hotels. The lessees do not pay
additional franchise royalties or fees other than those specified in the
management agreements for use of the brands. Generally, the lessees' rights to
use the brands terminate upon any termination of the applicable management
agreement.
Management of the Hotels
Wyndham has entered into management agreements with affiliated entities and
other third parties to operate and manage each of the hotels leased from
Patriot. As of December 31, 1998, all but 23 of Patriot's hotels were managed
by operators affiliated with Wyndham. The management agreements provide for
management fees based upon a percentage of total revenue at each of the hotels
managed by them. The management fees generally range from 2% to 5% of total
revenues. Generally, in the event of the termination of any of the
Participating Leases with the hotel lessees, the related management agreement
also terminates. Generally, the management agreements also provide for the
subordination of certain management fee payments to Wyndham's obligations
pursuant to the Participating Leases.
Maintenance and Improvements
The Participating Leases obligate Patriot to establish annually a reserve
for capital improvements at the hotels leased to the Lessees (including the
periodic replacement and refurbishment of furniture, fixtures and equipment
("FF&E"). Patriot and Wyndham agree on the use of funds in these reserves, and
Patriot has the right to approve Wyndham's annual and long-term capital
expenditure budgets. The aggregate minimum amount of such reserves average
4.0% of total revenue for the hotels. Patriot, at its election, may choose to
expend more
19
<PAGE>
than 4.0% on any hotel. Any unexpended amounts will remain the property of
Patriot upon termination of the Participating Leases. Otherwise, Wyndham is
required, at their own expense, to make repairs (other than capital repairs)
which may be necessary and appropriate to keep their leased hotels in good
order and repair.
Competition
The hotel industry is highly competitive and the Companies' hotels are
subject to competition from other hotels for guests. Many of the Companies'
competitors may have substantially greater marketing and financial resources
than the Companies. Each of the Companies' hotels compete for guests primarily
with other similar hotels in its immediate vicinity and secondarily with other
similar hotels in its geographic market. Management believes that brand
recognition, location, the quality of the hotel and services provided, and
price are the principal competitive factors affecting the Companies' hotels.
Patriot and Wyndham may compete for acquisition and development
opportunities with entities that have greater financial resources than the
Companies or which may accept more risk than the Companies. Competition may
generally reduce the number of suitable investment opportunities and increase
the bargaining power of property owners seeking to sell. Further, the
Companies' management believes that it will face competition for acquisition
opportunities from entities organized for purposes substantially similar to
the objectives of Patriot or Wyndham.
Seasonality
The hotel industry is seasonal in nature. Revenue at certain of the
Companies' hotels are greater in the first and second quarters of a calendar
year and at other hotels in the second and third quarters of a calendar year.
Seasonal variations in revenue at the hotels may cause quarterly fluctuations
in Patriot's lease revenues and in Wyndham's hotel-related revenues.
Employees
As of March 22, 1999, Patriot employs 14 persons, including Messrs.
Carreker, Evans and Jones, the executive officers of Patriot, and retains
appropriate support personnel to manage its operations in lieu of retaining an
advisor. Wyndham employs approximately 54,000 persons, including Messrs.
Carreker, Alibhai, Koonce, Bentley and Jones, the executive officers of
Wyndham, and retains appropriate support personnel to manage its operations,
including operation of the 206 hotels leased from Patriot.
Environmental Matters
Neither Patriot, Wyndham, the Patriot Partnership nor the Wyndham
Partnership has been identified by the United States Environmental Protection
Agency or any similar state agency as a responsible or potentially responsible
party for, nor have they been the subject of any involuntary governmental
proceedings with respect to, any hazardous waste contamination. Two of the
hotels owned by subsidiaries of the Patriot Partnership are participating in
the Texas voluntary clean-up program, the costs of which are to be absorbed by
others pursuant to certain indemnification agreements obtained at the time of
purchase. If Patriot, Wyndham or any of their respective subsidiaries were to
be identified as a responsible party, they would in most circumstances be
strictly liable, jointly and severally with other responsible parties, for
environmental investigation and clean-up costs incurred by the government and,
to a more limited extent, by private persons.
Phase I environmental site assessments have been performed on substantially
all Patriot hotels owned by the Companies. To date, these assessments have not
revealed any environmental liability or compliance concerns that management
believes would have a material adverse effect on the Companies' business,
assets, results of operations or liquidity. Based on the results of these
assessments, the Companies and their outside consultants believe that the
Companies' overall potential for environmental impairment is low.
20
<PAGE>
Based upon the environmental reports described above, the Companies believe
that a substantial number of the hotels incorporate potentially asbestos-
containing materials. Under applicable current federal, state and local laws,
asbestos need not be removed from or encapsulated in a hotel unless and until
the hotel is renovated or remodeled. The Companies have asbestos operation and
maintenance plans for each property testing positive for asbestos.
Based upon the above-described environmental reports and testing, future
remediation costs are not expected to have a material adverse effect on the
results of operations, financial position or cash flows of Patriot or Wyndham
and compliance with environmental laws has not had and is not expected to have
a material adverse effect on the capital expenditures, earnings or competitive
position of the Companies.
Tax Status
Cal Jockey has elected to be taxed as a REIT under Sections 856 through 860
of the Code since 1983. Patriot, as the successor to Cal Jockey in the Cal
Jockey Merger, has continued to be taxed as a REIT. As a REIT, Patriot
generally has not been subject to federal income tax on its taxable net income
that is distributed currently to its shareholders. On March 1, 1999, Patriot
announced that it had signed an agreement with an investor group, including
affiliates of Apollo Real Estate Management III, L.P., Apollo Management IV,
L.P., Thomas H. Lee Equity Fund IV, Beacon Capital Partners, L.P. and Rosen
Consulting Group, providing for an equity investment of up to $1 billion in
the Companies. In connection with this investment and the related
restructuring transactions Patriot would become a subsidiary of Wyndham and
convert from a REIT to a C corporation. The termination of REIT status would
have a retroactive date of January 1, 1999. The consummation of this
investment is subject to numerous conditions, including approval by Patriot
shareholders.
If the equity investment is consummated in 1999 as planned, or if Patriot
otherwise terminates its REIT status beginning in 1999, Patriot will be
subject to tax as a C corporation in 1999 and subsequent years. Therefore,
Patriot will be subject to federal income tax at regular corporate tax rates,
although the Companies will be eligible to file a consolidated federal income
tax return following the consummation of the proposed equity investment.
Distributions to shareholders will no longer be deductible or required, and
the amount of distributions is likely to be reduced. The termination of
Patriot's REIT status will also cause Patriot to permanently lose its special
status as a grandfathered paired share REIT under the rules described below.
If Patriot failed to qualify as a REIT for any year prior to 1999. Patriot
would also be taxed as a C corporation beginning in such year. Patriot would
therefore be subject to federal income tax and the loss of its status as a
grandfathered paired share REIT.
Legislation Affecting the Paired Share Structure
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Code.
Section 269B(a)(3) would ordinarily prevent a corporation from qualifying as a
REIT if its stock is paired with the stock of a corporation, such as Wyndham,
whose activities are inconsistent with REIT status. The "grandfathering" rules
governing Section 296B generally provide, however, that Section 296B(a)(3)
does not apply to a paired REIT if the REIT and the paired operating company
were paired on June 30, 1983. There are, however, no judicial or
administrative authorities interpreting this "grandfathering" rule in the
context of a merger or otherwise. Moreover, although Patriot's and Wyndham's
respective predecessors, Cal Jockey and Bay Meadows, were paired on June 30,
1983, if for any reason Cal Jockey failed to qualify as a REIT in 1983 the
benefit of the grandfathering rule would not be available to Patriot and
Patriot would not qualify as a REIT for any taxable year.
Patriot's ability to utilize the paired structure was limited as a result of
the Internal Revenue Service Restructuring and Reforming Act of 1998 (the "IRS
Reform Act of 1998"), which was signed into law by the President on July 22,
1998. Included in the IRS Reform Act of 1998 is a freeze on the grandfathered
status of paired share REITs such as Patriot. Under this legislation, the
anti-pairing rules generally apply to real property
21
<PAGE>
interests acquired after March 26, 1998 by Patriot and Wyndham, or a
subsidiary or partnership which a 10% or greater interest is owned by Patriot
or Wyndham (collectively, the "REIT Group"), unless (i) the real property
interests are acquired pursuant to a written agreement which is binding on
March 26, 1998 and all times thereafter or (ii) the acquisition of such real
property interests were described in a public announcement or in a filing with
the Securities and Exchange Commission on or before March 26, 1998. In
addition, the grandfathered status of any property under the foregoing rules
would be lost if the rent on a lease entered into or renewed after March 26,
1998, with respect to such property exceeds an arm's-length rate. The IRS
Reform Act of 1998 also provides that a property held by Patriot or Wyndham
that is not subject to anti-pairing rules would become subject to such rules
in the event of an improvement placed in service after December 31, 1999 that
changes the use of the property and the cost of which is greater than 200
percent of (x) the undepreciated cost of the property (prior to the
improvement) or (y) in the case of property acquired where there is a
substituted basis, the fair market value of the property on the day it was
acquired by Patriot and Wyndham. There is an exception for improvements placed
in service before January 1, 2004 pursuant to a binding contract in effect as
of December 31, 1999 and at all times thereafter. The IRS Reform Act of 1998
also provides an exception that permits Patriot to acquire new assets through
taxable subsidiaries of Patriot, although in order to comply with the general
REIT rules, Wyndham or persons unrelated to Patriot must own the voting
securities of any such taxable subsidiaries. To the extent of Wyndham's
proportionate interest in such subsidiaries the Act requires Patriot to treat
gross revenues from the assets as nonqualifying REIT income for purposes of
the REIT income tests (which generally limit the total amount of such revenues
to 5% of Patriot's gross income determined for tax purposes). In addition,
Patriot must account for its stock in such subsidiaries and any unsecured
loans it makes to them as nonqualifying assets under the REIT asset tests
(which generally limit the total value of Patriot's non-real estate assets of
25% of its total assets).
Issues Regarding REIT Status
As noted above, if Patriot ceases or fails to qualify as a REIT in any year,
Patriot will be subject to federal income tax on its taxable income for the
entire year of disqualification, and for future taxable years, at regular
corporate rates. If the proposed equity investment is not consummated and if
Patriot decides to retain its status as a REIT, Patriot will not qualify as a
REIT for 1999 or subsequent years unless it operates in accordance with the
various REIT qualification requirements imposed by the Internal Revenue Code.
These requirements impose numerous restrictions on the Companies' activities
and could preclude the Companies from engaging in activities that might
otherwise be beneficial. Moreover, compliance with those requirements is more
difficult in the case of a paired REIT such as Patriot, is further complicated
by the additional requirements of the IRS Reform Act of 1998, and could be
impacted by future legislation.
Goodwin, Procter & Hoar LLP, special tax counsel to Patriot, has previously
rendered an opinion to Patriot dated April 30, 1998 to the effect that
commencing with the taxable year ending December, 13, 1983 to the date of such
opinion, Patriot had been organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code, and that
as of the date of such opinion Patriot's proposed method of operation would
enable it to continue to meet the requirements for qualification and taxation
as a REIT under the Code. Patriot has not received any similar REIT
qualification opinion subsequent to April 30, 1998. Stockholders should be
aware, however, that opinions of counsel are not binding upon the IRS or any
court. Goodwin, Procter & Hoar LLP's opinion was based on certain assumptions
and representations or about the date of such opinion as to factual matters,
including representations regarding the nature of Patriot's properties and the
future conduct of Patriot's business. Any inaccuracy in such assumptions and
representations (including as a result of Patriot's activities subsequent to
the date of the opinion) could adversely affect the opinion.
Pending Adoption of Authoritative Statements
Derivative Instruments and Hedging Activities
In June 1998, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in
22
<PAGE>
years beginning after June 15, 1999. The Companies expect to adopt Statement
133 effective January 1, 2000. Statement 133 will require the Companies to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings,
or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. Management has not yet
determined what the effect of Statement 133 will be on the earnings and
financial position of the Companies.
Hotel Industry Risks
Operating Risks
The Companies primary business is buying, selling, leasing and managing
hotels. Patriot leases its hotels to Wyndham and to third-party lessees (the
"Lessees") pursuant to separate participating leases (the "Participating
Leases"). Consequently, Patriot is dependent on the ability of Wyndham, the
Lessees and the hotel management entities that manage the hotels (the
"Operators") to manage the operations of the hotels that are leased to or
operated by them. The Companies business is subject to operating risks common
to the hotel industry. These risks include, among other things, (1)
competition for guests from other hotels, a number of which may have greater
marketing and financial resources and experience than the Companies do, (2)
increases in operating costs due to inflation and other factors, which
increases may not have been offset in past years, and may not be offset in
future years, by increased room rates, (3) dependence on business and
commercial travelers and tourism, which business may fluctuate and be
seasonal, (4) increases in energy costs and other expenses of travel, which
may deter travelers and (5) adverse effects of general and local economic
conditions. These factors could adversely affect the ability of Wyndham and
the Lessees to generate revenues. The Companies are also subject to the risk
that in connection with the acquisition of hotels and hotel operating
companies it may not be possible to transfer certain operating licenses, such
as food and beverage licenses, to the Lessees, the Operators or Wyndham, or to
obtain new licenses in a timely manner in the event such licenses cannot be
transferred. Although hotels can provide alcoholic beverages under interim
licenses or licenses obtained prior to the acquisition of these hotels, there
can be no assurance that these licenses will remain in effect until Patriot or
Wyndham obtains new licenses or that new licenses will be obtained. The
failure to have alcoholic beverages licenses or other operating licenses could
adversely affect the ability of the affected Lessees, and Operators or Wyndham
to generate revenues.
Operating Costs and Capital Expenditures; Hotel Renovation
Hotels, in general, have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
or refurbishment of furniture, fixtures and equipment ("F F& E"). Under the
terms of the Participating Leases, Patriot is obligated to establish a reserve
to pay the cost of certain capital expenditures at its hotel and pay for
periodic replacement or refurbishment of F F& E. If capital expenditures
exceed Patriot's expectations, the additional cost could have an adverse
effect on Patriot's financial condition and results of operations. In
addition, Patriot may acquire hotels where significant renovation is either
required or desirable. Renovation of hotels involves certain risks, including
the possibility of environmental problems, construction cost overruns and
delays, uncertainties as to market demand or deterioration in market demand
after commencement of renovation and the emergence of unanticipated
competition from other hotels.
Competition for Hotel Acquisition Opportunities
The Companies may be competing for investment opportunities with entities
that have substantially greater financial resources. These entities may be
able to accept more risk than we can prudently manage, including risks with
respect to the creditworthiness of a hotel operator or the geographic
proximity of its investments. Competition may generally reduce the number of
suitable investment opportunities offered to us and increase the bargaining
power of property owners seeking to sell.
23
<PAGE>
Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other
hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at our hotels may cause quarterly fluctuations in our
revenues.
Real Estate Investment Risks
General Risks
The Companies investments will be subject to varying degrees of risk
generally incidental to the ownership of real property. The underlying value
of Patriot's real estate investments and its income will be dependent upon the
ability of the Lessees, the Operators and Wyndham to operate Patriot's hotels
in a manner sufficient to maintain or increase revenues and to generate
sufficient income in excess of operating expenses to make rent payments under
their leases with Patriot. Income from Patriot's hotels may be adversely
affected by changes in national economic conditions, changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics, changes in interest rates and in the
availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older structures,
changes in real estate tax rates and other operating expenses, adverse changes
in governmental rules and fiscal policies, adverse changes in zoning laws,
civil unrest, acts of God, including earthquakes and other natural disasters
(which may result in uninsured losses), acts of war and other factors which
are beyond our control.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The Companies ability to
vary our portfolio in response to changes in economic and other conditions is
limited. If the Companies must sell an investment, there can be no assurance
that the Companies will be able to dispose of it in the time period desired or
that the sales price of any investment will equal or exceed the amount of our
investment.
Property Taxes
The Companies hotels are subject to real property taxes. The real property
taxes on the Companies hotel properties may increase or decrease as property
tax rates change and as the value of the properties are assessed or reassessed
by taxing authorities. If property taxes increase, the Companies financial
condition and results of operations could be adversely affected.
Consents of Ground Lessor Required for Sale of Certain Hotels
Certain of the Companies hotels are subject to ground leases with third
party lessors. In addition, the Companies may acquire hotels in the future
that are subject to ground leases. Any proposed sale by the Companies of a
property that is subject to a ground lease or any proposed assignment of the
Companies leasehold interest in the ground lease may require the consent of
third party lessors. As a result, the Companies may not be able to sell,
assign, transfer or convey the Companies interest in any such property in the
future absent the consent of such third parties.
Environmental Matters
The Companies operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances and
regulations, as well as the cost of complying with future legislation. Under
various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic
substances on, under, or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or
24
<PAGE>
was responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
borrow by using such real property as collateral. Persons who arrange for the
transportation, disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removal or remediation of such substances at
the disposal or treatment facility, whether or not such facility is or ever
was owned or operated by such person. Certain environmental laws and common
law principles could be used to impose liability for releases of hazardous
materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs
or other hazardous materials. Environmental laws may also impose restrictions
on the manner in which a property may be used or transferred or in which
businesses may be operated, and these restrictions may require expenditures.
In connection with the ownership and operation of any of our hotels, we may be
potentially liable for any such costs. The cost of defending against claims of
liability or remediating contaminated property and the cost of complying with
environmental laws could materially adversely affect our results of operations
and financial condition. Phase I environmental site assessments ("ESAs") have
been conducted at substantially all of our hotels by qualified independent
environmental engineers. The purpose of Phase I ESAs is to identify potential
sources of contamination for which any of our hotels may be responsible and to
assess the status of environmental regulatory compliance. The ESAs have not
revealed any environmental liability or compliance concerns that we believe
would have a material adverse effect on our business, assets, results of
operations or liquidity, nor are we aware of any such liability or concerns.
Nevertheless, it is possible that these ESAs did not reveal all environmental
liabilities or compliance concerns or that material environmental liabilities
or compliance concerns exist of which we are currently unaware. We have not
been notified by any governmental authority, and have no other knowledge of,
any material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental substances in connection with any of the
hotels.
Uninsured and Underinsured Losses
Each of the Participating Leases specifies comprehensive insurance to be
maintained on each of the applicable leased hotels, including liability, fire
and extended coverage. The Companies believe such specified coverage is of the
type and amount customarily obtained for or by an owner of hotels. Leases for
subsequently acquired hotels will contain similar provisions. However, there
are certain types of losses, generally of a catastrophic nature, such as
earthquakes and floods, that may be uninsurable or not economically insurable.
The Companies will use discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on the Companies investments at a reasonable cost and on
suitable terms. This may result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full current market value
or current replacement cost of our lost investment. Inflation, changes in
building codes and ordinances, environmental considerations, and other factors
also might make it infeasible to use insurance proceeds to replace the
property after such property has been damaged or destroyed. Under such
circumstances, the insurance proceeds received by us might not be adequate to
restore the Companies economic position with respect to such property.
Acquisition and Development Risks
The Companies currently intend to pursue acquisitions of additional hotels
and, under appropriate circumstances, may pursue development opportunities.
Acquisitions entail risks that such acquired hotels will fail to perform in
accordance with expectations and that estimates of the cost of improvements
necessary to market, acquire and operate properties will prove inaccurate as
well as general risks associated with any new real estate acquisition. In
addition, hotel development is subject to numerous risks, including risks of
construction delays or cost overruns that may increase project costs, new
project commencement risks such as receipt of zoning, occupancy and other
required governmental approvals and permits and the incurrence of development
costs in connection with projects that are not pursued to completion.
25
<PAGE>
Dependence on Management Contracts
Management contracts are acquired, terminated, renegotiated or converted to
franchise agreements in the ordinary course of our business. These management
contracts generally may be terminated by the owner of the hotel property if
the hotel manager fails to meet certain performance standards, if the property
is sold to a third party, if the property owner defaults on indebtedness
encumbering the property and/or upon a foreclosure of the property. Other
grounds for termination of our upscale hotel management contracts include a
hotel owner's election to close a hotel and, in the case of the Wyndham
Anatole, Dallas, Texas, if James Carreker ceases to be Chairman and Chief
Executive Officer of Patriot and Wyndham.
The Companies can make no assurances that the Companies will be able to
replace terminated management contracts, or that the terms of renegotiated or
converted contracts will be as favorable as the terms that existed before such
renegotiation or conversion. The Companies are also subject to the risk of
deterioration in the financial condition of a hotel owner and such owner's
ability to pay management fees to the Companies. In addition, in certain
circumstances, the Companies may be required to make loans to or capital
investments or advances in hotel properties in connection with management
contracts. A material deterioration in the operating results of one or more of
these hotel properties and/or a loss of the related management contracts could
adversely affect the value of our investment in such hotel properties.
Risks Relating to Gaming Operations
Regulation of Gaming Operations
We own and operate several casino gaming facilities at certain of our
hotels, including El San Juan, El Conquistador, Condado Plaza and Old San Juan
in Puerto Rico. Each of these gaming operations is subject to extensive
licensing, permitting and regulatory requirements administered by various
governmental entities.
Typically, gaming regulatory authorities have broad powers with respect to
the licensing of gaming operations. They may revoke, suspend, condition or
limit our gaming approvals and licenses, impose substantial fines and take
other actions, any of which could have a material adverse effect on our
business and the value of our hotel/casinos. Our directors, officers and some
key employees, are subject to licensing or suitability determinations by
various gaming authorities. If any of those gaming authorities were to find
someone unsuitable, we would have to sever our relationship with that person.
Risks Associated with High-End Gaming
The high-end gaming business is more volatile than other forms of gaming.
Variability in high-end gaming could have a positive or negative impact on
cash flow, earnings and other financial measures in any given quarter. In
addition, a portion of our table gaming is attributable to the play of a
relatively small number of international customers. The loss of, or a
reduction in play of, the most significant of such customers could have an
effect on our future operating results.
ITEM 3. LEGAL PROCEEDINGS
Except as indicated below, the Patriot, Wyndham and their respective
subsidiaries are currently not subject to any material legal proceedings or
claims nor, to management's knowledge, are any material legal proceedings or
claims currently threatened.
On January 12, 1999, a purported class action lawsuit was filed on behalf of
the shareholders of Patriot and Wyndham in the Delaware Chancery Court. The
lawsuit, captioned Charles Fraschilla v. Paul A. Nussbaum, et al., No.
16895NC, names as defendants the directors of Patriot, as well as the
Investors. The lawsuit alleges that the Directors breached their fiduciary
duties to Patriot's shareholders by "effectively selling control" of Patriot
to the Investors for inadequate consideration and without having adequately
considered or explored all other alternatives to this sale or having taken
steps to maximize stockholder value. The lawsuit also alleges that the
26
<PAGE>
Investors aided and abetted the Directors in their purported breaches of
fiduciary duty. The plaintiffs seek an unspecified amount of monetary damages
from the Directors as well as an injunction preventing the consummation of the
deal with the Investors. On January 19, 1999, three nearly identical purported
class action lawsuits were filed in the same court on behalf of different
purported class representatives: (1) Sybil R. Meisel and Steven Langsam,
Trustees, No. 16905NC; (2) Crandon Capital Partners, No. 16906NC; and (3)
Robert A. Staub, No. 16907NC.
In April 1999, the parties entered into a memorandum of understanding to
settle these lawsuits. In the memorandum of understanding Wyndham agreed to
make the proposed $300 million rights offering no earlier than 60 days after
the closing of the $1 billion equity investment and to hold the rights
offering open for a period of not less than 30 days. Wyndham also agreed to
use good faith efforts to commence the rights offering no later than 120 days
after the closing of the $1 billion equity investment. Wyndham will not be
required to make the rights offering if: (1) the $1 billion equity investment
is not made; (2) the SEC does not declare effective any registration statement
with regard to securities of Wyndham to be offered in the rights offering; (3)
there is a pending court order, motion, legal proceeding or other action to
enjoin, prevent or delay the rights offering; or (4) the rights offering
cannot be completed, despite Wyndham's good faith efforts, within 170 days of
the closing of the $1 billion investment.
The memorandum of understanding and the proposed settlement are conditioned
on:
. the completion of the $1 billion investment;
. the drafting and execution of a stipulation of settlement and related
documents;
. the completion by plaintiffs of reasonable and appropriate discovery;
and
. final court approval of the settlement and dismissal of the action
with prejudice by the court.
In the stipulation, the parties will request that the court certify, for
purposes of settlement, a non-opt out, binding class of all persons, exclusive
of defendants and their affiliates, who owned shares of Patriot on or after
December 15, 1998, and their successors in interest and transferees, through
and including the closing of the $1 billion investment; that the court approve
the settlement, including the release of all claims by class members against
the defendants; and that the court enter final judgment dismissing with
prejudice all claims of the plaintiffs and the class against the defendants.
Patriot has agreed to pay an award of attorney's fees and expenses not to
exceed $1.25 million to counsel for class plaintiffs if ordered by the court.
On February 3, 1999, McNeill Investment Company, Inc. filed a lawsuit
against the Patriot in the United States District Court for the Western
District of Pennsylvania. In the lawsuit, captioned McNeill Investment
Company, Inc. v. Patriot American Hospitality, Inc., No. 99-165, the plaintiff
alleges that the Patriot breached its obligations under a registration rights
agreement that Patriot became obligated under through its merger transaction
with Interstate Hotels Corporation. The plaintiff claims approximately $9.0
million in damages. Counsel is currently conducting a factual investigation of
the claims made in the complaint. Also, counsel is investigating the
possibility of settlement with the plaintiff, but if the matter is not
settled, it will have to be litigated. Patriot filed an answer denying all
liability in response to the complaint is due on or before March 26, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Patriot and Wyndham each convened special meetings of their stockholders on
March 30, 1998, which meetings were subsequently adjourned to April 2, 1998
(the "Special Stockholders Meetings"), to consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated December 2, 1997, by and among
Interstate Hotels Company, Patriot and Wyndham (the "Interstate Merger
Agreement"). On April 2, 1998, the votes of stockholders were submitted at the
Patriot and Wyndham Special Stockholders Meetings. For each of
27
<PAGE>
Patriot and Wyndham, 63,483,644 shares were voted in favor of the Interstate
Merger Agreement; 112,606 shares were voted against the Interstate Merger
Agreement; and abstentions were recorded with respect to 269,293 shares.
Patriot held its annual meeting of stockholders on May 28, 1998, to elect
three directors to serve until 2001. Patriot's stockholders elected the
following individuals to serve as directors for additional terms:
<TABLE>
<CAPTION>
Name Votes FOR Withhold
---- ---------- --------
<S> <C> <C>
Paul A. Nussbaum....................................... 77,651,439 247,906
Harlan R. Crow......................................... 77,704,598 194,747
John C. Deterding...................................... 77,704,419 194,926
</TABLE>
Wyndham held its annual meeting of stockholders on May 28, 1998, to elect
three directors to serve until 2001. Wyndham's stockholders elected the
following individuals to serve as directors for additional terms:
<TABLE>
<CAPTION>
Name Votes FOR Withhold
---- ---------- --------
<S> <C> <C>
James D. Carreker...................................... 74,048,041 228,808
Russ Lyon, Jr. ........................................ 74,094,633 182,216
Sherwood M. Weiser..................................... 74,091,374 185,475
</TABLE>
28
<PAGE>
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
On July 1, 1997, Old Patriot merged with and into Cal Jockey and Cal Jockey
changed its name to Patriot American Hospitality, Inc. The Cal Jockey merger
was accounted for as a reverse acquisition and, consequently, the historical
financial information of Old Patriot became the historical financial
information of Patriot. The following table sets forth the quarterly high and
low sale prices per share as reported on the New York Stock Exchange ("NYSE")
of Old Patriot Common Stock (symbol "PAH") through July 1, 1997, and the
distributions paid by Old Patriot with respect to each such period. From and
after July 2, 1997, the following table sets forth the quarterly high and low
sale prices per share of the Paired shares as reported on the NYSE (symbol
"PAH"). The sale prices and distributions in the table through July 1, 1997
have been adjusted to reflect (i) Old Patriot's 2-for-1 stock split in March
1997, (ii) the conversion of each share of Old Patriot Common Stock into
0.51895 Paired shares issued in the Cal Jockey Merger, (iii) the Companies'
1.927-for-1 stock split in July 1997 and (iv) the stock dividend of $0.44
declared on December 22, 1998 and distributed to shareholders of record on
December 30, 1998.
<TABLE>
<CAPTION>
Per Share
High (1) Low (1) Dividend (1)
-------- ------- ------------
<S> <C> <C> <C>
1997:
First Quarter.................................. $26.38 $20.75 $0.2446
Second Quarter................................. $23.75 $18.50 $0.3005(2)
Third Quarter.................................. $32.13 $22.00 $0.2446
Fourth Quarter................................. $34.50 $26.88 $0.2981(3)
1998:
First Quarter.................................. $29.50 $24.00 $0.2981
Second Quarter................................. $28.25 $19.75 $0.2981
Third Quarter.................................. $24.50 $11.50 $ -- (4)
Fourth Quarter................................. $13.25 $5.313 $0.4400(5)
</TABLE>
- --------
(1) Represents shares of Old Patriot common stock for periods through July 1,
1997, and Paired shares for periods after July 1, 1997, except that
dividends have been paid only on shares of Patriot common stock for
periods after July 1, 1997. No dividends have been paid on shares of
Wyndham common stock.
(2) Dividends paid for the second quarter of 1997 include a special dividend
of $0.0559 share paid by Old Patriot on June 30, 1997. To maintain its
qualification as a REIT prior to consummation of the Cal Jockey Merger,
Old Patriot was required to distribute to its stockholders any
undistributed "real estate investment trust taxable income" of Old Patriot
for Old Patriot's short taxable year ending with the consummation of the
Cal Jockey Merger.
(3) On December 23, 1997, Patriot declared a dividend of $0.2981 common share
to holders of record as of January 8, 1998. A portion of this dividend
will be used to reduce 1997 REIT taxable income of Patriot.
(4) On October 5, 1998, Patriot made a significant capital contribution to
Wyndham to facilitate an acquisition by Wyndham. This contribution
resulted in a "deemed distribution" for tax purposes to Patriot's
shareholders of common stock of $0.7081 share. No cash was actually
distributed to the shareholders. However, for tax purposes the
shareholders will treat the distribution as though cash was received and
then contributed to Wyndham. On November 20, the Company announced that it
would not declare a dividend with respect to the third quarter of 1998.
(5) On December 22, 1998, Patriot declared a stock dividend of $0.44 cents per
share of common stock for the fourth quarter of 1998. The dividend is
payable on January 25, 1999 to shareholders of record on December 30,
1998.
29
<PAGE>
Holders
As of March 22, 1999, there were approximately 3,808 record holders of the
Companies' paired shares, including shares held in "street name" by nominees
who are record holders, and over 26,000 shareholders.
Dividends
The Board of Directors, in its sole discretion, determines the actual
distribution rate based on a number of factors, including the amount of cash
available for distribution, Patriot's financial condition, capital expenditure
requirements for Patriot's properties, the annual distribution requirements
under the REIT provisions of the Internal Revenue Code of 1986, as amended
(the "Code") and such other factors as the Board of Directors deems relevant.
Patriot's actual cash available for distribution is affected by a number of
factors, including changes in occupancy or ADR at its hotels.
In order to maintain its qualification as a REIT, Patriot must make annual
distributions to its shareholders of at least 95% of its taxable income
(excluding net capital gains). Under certain circumstances, Patriot may be
required to make distributions in excess of cash available for distribution in
order to meet such distribution requirements. In such event, Patriot would
seek to borrow the amount of the deficiency or sell assets to obtain the cash
necessary to make distributions to retain its qualification as a REIT for
federal income tax purposes.
If Patriot's status as a REIT is terminated for any reason, including the
result of the proposed equity investment of up to $1 billion in the Companies,
the Companies will no longer be required to pay dividends to shareholders and
the amount of such dividends paid is likely to be reduced or eliminated.
Recent Sales of Unregistered Securities
None
ITEM 6. SELECTED FINANCIAL INFORMATION
The following tables set forth selected separate and combined historical
financial information for Patriot and Wyndham. The following financial
information should be read in conjunction with, and is qualified in its
entirety by, the historical financial statements and notes thereto of Patriot
and Wyndham included elsewhere in this Annual Report on Form 10-K.
30
<PAGE>
PATRIOT AND WYNDHAM
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Period
October 2, 1995
Year Ended December 31, (Inception of
---------------------------------- Operations) through
1998 1997 1996 December 31, 1995
---------- ----------- --------- -------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Data:
Total revenue........... $2,056,341 $ 335,035 $ 76,493 $ 11,095
(Loss) income before
income tax provision,
minority interest and
extraordinary item..... (112,508) 4,142 44,813 7,064
(Loss) income before
extraordinary item..... (126,406) 362 37,991 6,096
Net (loss) income....... $ (158,223) $ (2,172) $ 37,991 $ 5,359
Per Share Data (1):
Basic earnings per
share:
(Loss) income before
extraordinary item... $ (1.13) $ 0.01 $ 0.84 $ 0.16
Extraordinary item,
net of minority
interest............. (0.23) (0.04) -- (0.02)
---------- ----------- --------- ---------
Net (loss) income per
paired share......... $ (1.36) $ (0.03) $ 0.84 $ 0.14
========== =========== ========= =========
Diluted (loss) earnings
per share (2).......... $ (2.57) $ (0.03) $ 0.83 $ 0.14
========== =========== ========= =========
Dividends per paired
share (3).............. $ 1.0362 $ 1.0878 $ 0.9154 $ 0.2236
========== =========== ========= =========
Cash Flow Data:
Cash provided by
operating activities... $ 244,493 $ 108,110 $ 61,196 $ 7,618
Cash used in investing
activities............. (2,076,359) (1,202,124) (419,685) (306,948)
Cash provided by
financing activities... 1,943,384 1,134,846 360,324 304,099
<CAPTION>
As of December 31,
-------------------------------------------------------
1998 1997 1996 1995
---------- ----------- --------- -------------------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Investment in real
estate and related
improvements and land
held for development,
at cost, net........... $5,585,616 $ 2,044,649 $ 641,825 $ 265,759
Total assets............ 7,415,670 2,507,853 760,931 324,224
Total debt.............. 3,857,521 1,112,709 214,339 9,500
Minority interest in
Operating
Partnerships........... 253,970 220,177 68,562 41,522
Minority interest in
consolidated
subsidiaries........... 229,537 49,694 11,711 --
Stockholders' equity.... 2,603,037 989,892 437,039 261,778
<CAPTION>
Period
October 2, 1995
Year Ended December 31, (Inception of
---------------------------------- Operations) through
1998 1997 1996 December 31, 1995
---------- ----------- --------- -------------------
(in thousands)
<S> <C> <C> <C> <C>
Other Data:
Funds from operations
(4).................... $ 86,362 $ 57,043 $ 64,463 $ 9,798
Cash available for
distribution (5)....... 40,652 39,897 55,132 8,603
Weighted average number
of common shares and OP
units outstanding (6).. 163,532 76,040 52,259 44,060
Ratio of earnings to
fixed charges ......... 0.59 1.08 7.00 80.37
Deficiency of earnings
to fixed charges....... $ 112,508 -- -- --
</TABLE>
31
<PAGE>
PATRIOT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period
October 2, 1995
Year Ended December 31, (Inception of
--------------------------- Operations) through
1998 1997 1996 December 31, 1995
-------- -------- ------- -------------------
<S> <C> <C> <C> <C>
Operating Data:
Total revenue.................. $595,410 $185,554 $76,493 $11,095
(Loss) income before income
tax, minority interests and
extraordinary item............ (3,404) 3,769 44,813 7,064
(Loss) income before
extraordinary item............ (14,328) 382 37,991 6,096
Net (loss) income.............. $(44,888) $ (2,152) $37,991 $ 5,359
Per Share Data (1):
Basic earnings per share:
(Loss) income before
extraordinary item.......... $ (0.30) $ 0.01 $ 0.84 $ 0.16
Extraordinary item, net of
minority interests.......... (0.22) (0.04) -- (0.02)
-------- -------- ------- -------
Net (loss) income per common
share....................... $ (0.52) $ (0.03) $ 0.84 $ 0.14
======== ======== ======= =======
Diluted (loss) earnings per
share (2)..................... $ (1.73) $ (0.03) $ 0.83 $ 0.14
======== ======== ======= =======
Dividends per common share
(3)........................... $ 1.0362 $ 1.0878 $0.9154 $0.2236
======== ======== ======= =======
</TABLE>
WYNHDAM INTERNATIONAL
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Operating Data:
Total Revenue....................................... $2,002,227 $204,134
(Loss) income before income tax provision, minority
interests and extraordinary item................... (77,826) 373
(Loss) before extraordinary item.................... (111,162) (20)
Net loss............................................ $ (112,419) $ (20)
Per Share Data (1):
Basic loss per share:
(Loss) before extraordinary item.................... $ (0.83) $ --
Extraordinary item, net of minority interest........ (0.01) --
---------- --------
Loss per paired share............................... $ (0.84) $ --
========== ========
Diluted loss per share (2).......................... $ (0.84) $ --
========== ========
Dividend per common share........................... $ -- $ --
========== ========
</TABLE>
See accompanying notes on following page.
32
<PAGE>
Notes to Patriot and Wyndham Selected Financial Information
(1) On January 30, 1997, the Old Patriot Board of Directors declared a 2-
for-1 stock split effected in the form of a stock dividend on March 18, 1997
to stockholders of record on March 7, 1997. On July 1, 1997, by operation of
the Cal Jockey merger, each issued and outstanding share of Old Patriot Common
Stock was converted into 0.51895 paired shares. In addition, on July 10, 1997,
the respective Boards of Directors of Patriot and Wyndham declared a 1.927-
for-1 stock split on their shares of common stock effected in the form of a
stock dividend distributed on July 25, 1997 to shareholders of record on July
15, 1997. All references herein to the number of shares, per share amounts and
market prices of the paired shares and options to purchase paired shares have
been restated to reflect the impact of the Cal Jockey Merger and the above-
described stock splits, as applicable.
In addition, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("Statement 128"). Statement 128 specifies the computation,
presentation and disclosure requirements for basic earnings per share and
diluted earnings per share. The earnings per share amounts presented herein
have been restated to reflect the impact of Statement 128.
On December 21, 1998, Patriot declared a stock dividend of $0.44 cents per
share of common stock for the fourth quarter ended December 31, 1998 (the
"Dividend"). The Dividend was payable on January 25, 1999 to shareholders of
record on December 30, 1998. Each shareholder received the option to receive
the Dividend in the form of additional paired shares or shares of Series B
Cumulative Perpetual Preferred Stock, par value $0.01 per share of Patriot.
Earnings per common share, weighted average shares outstanding and all stock
option activity have been restated to reflect the stock dividend.
(2) For 1998 the dilutive effect of unvested stock grants of 880,000 the
option to purchase common stock of 753,000 and shares issued in connection
with forward equity contracts of 2,507,000 and 6,613,000 preferred shares were
not included in the computation of diluted earnings per share for the year
ended December 31, 1998 because they are anti-dilutive. For 1997, the dilutive
effect of unvested stock grants of 804 and the option to purchase common stock
of 1,017,000 were excluded in the computation of diluted earnings per share
for the year ended December 31, 1997 because they are anti-dilutive.
(3) Dividends paid for the year ended December 31, 1997 include a special
dividend of $0.06 per share paid by Old Patriot on June 30, 1997. To maintain
its qualification as a REIT prior to consummation of the Cal Jockey merger,
Old Patriot was required to distribute to its shareholders any undistributed
"real estate investment trust taxable income" of Old Patriot for Old Patriot's
short taxable year ending with the consummation of the Cal Jockey merger. No
dividends have been paid by Wyndham for the six months ended December 31,
1997.
(4) In accordance with the resolution adopted by the Board of Governors of
the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations ("FFO") represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains or
losses from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships, joint
ventures and corporations. Adjustments for Patriot's unconsolidated
subsidiaries are calculated to reflect FFO on the same basis. Patriot and
Wyndham have also made certain adjustments to FFO for real estate related
amortization expense and the write off of certain costs of acquiring
leaseholds. FFO should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating, investing
or financing activities as a measure of liquidity. FFO does not reflect
working capital changes, cash expenditures for capital improvements or
principal payments on indebtedness. Under the Participating Leases, Patriot is
obligated to establish a reserve for capital improvements at its hotels
(including the replacement or refurbishment of FF&E) and to pay real estate
and personal property taxes and casualty insurance. Management believes that
FFO is helpful to investors
33
<PAGE>
as a measure of performance of an equity REIT, because, along with cash flows
from operating activities, investing activities and financing activities, it
provides investors with an understanding of the ability of Patriot and Wyndham
to incur and service debt and to make capital expenditures. Patriot and
Wyndham's FFO may not be comparable to FFO reported by other REITs due to
varying interpretations of the NAREIT definition. In order to facilitate a
clear understanding of its operating results, management believes FFO should
be examined in conjunction with net income (loss) as presented in the audited
consolidated combined financial statements of the Companies. See detailed FFO
calculation on page 54.
(5) Cash available for distributions represents FFO, as adjusted for certain
non-cash items (e.g., non-real estate related depreciation and amortization),
less reserves for capital expenditures. The reconciliation from FFO to cash
available for distribution is as follows:
<TABLE>
<CAPTION>
Period
October 2, 1995
(Inception of
Operations)
Year ended December 31, through
--------------------------- December 31,
1998 1997 1996 1995
------- -------- -------- ---------------
<S> <C> <C> <C> <C>
FFO........................... $86,362 $ 57,043 $ 64,463 $ 9,798
Amortization of Unearned
Compensation................. 7,622 4,686 1,068 71
Non-Real Estate Related
Depreciation and
Amortization................. 28,660 2,543 495 93
FF&E Reserve ................. (81,992) (24,375) (10,894) (1,359)
------- -------- -------- -------
Cash Available for
Distribution................. $40,652 $ 39,897 $ 55,132 $ 8,603
======= ======== ======== =======
</TABLE>
(6) The number of limited partnership units of the Operating Partnerships
("OP units") used in the calculation is based on the equivalent number of
paired shares issuable upon redemption (after giving effect to the change in
the OP unit conversion factor which coincides with the 2-for-1 stock split,
the conversion of shares in the Cal Jockey merger and the 1.927-for-1 stock
split).
34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements with respect to future events, including, without
limitation, statements regarding availability of equity or debt financing, the
Companies' ability to successfully refinance or extend the maturity of
existing indebtedness, and the Companies' ability to successfully negotiate a
settlement to the forward equity contracts in this form 10-K constitute
"forward-looking statements" as that term is defined under (S)21E of the
Securities Exchange Act of 1934, as amended and the Private Securities
Litigation Reform Act of 1995. The words "believe", "expect", "anticipate",
"intend", estimate", and other expressions which are predictions of or
indicate future events and trends and which do not relate to historical
matters identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements. 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 the
Companies to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements. The
Companies undertake no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future events or
otherwise. Certain factors that might cause a difference include, but are not
limited to, risks associated with the availability of equity or debt financing
at terms and conditions favorable to the Companies, the willingness of the
Companies' existing lenders to refinance, extend or amend the terms of
existing indebtedness, the willingness of the counterparties to the Companies'
forward equity contracts to enter into settlements regarding those agreements;
the Companies' ability to effect sales of assets on favorable terms and
conditions; risks associated with the hotel industry and real estate markets
in general; risks associated with debt financing; as well as other risks
described in this Form 10-K.
BACKGROUND
Organization
Patriot American Hospitality, Inc. ("Old Patriot") was formed April 17, 1995
as a self-administered real estate investment trust ("REIT"). The Virginia
corporation was formed for the purpose of acquiring equity interests in hotel
properties. On October 2, 1995, Patriot completed an initial public offering
of shares of common stock and commenced operations. Between October 2, 1995
and July 1, 1997, Old Patriot acquired interests in 56 hotel properties. These
hotels were leased to various third party lessees.
On July 1, 1997, Patriot merged with and into California Jockey Club, with
Cal Jockey being the surviving legal entity, hereinafter referred to as the
"Cal Jockey merger". Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company
("Bay Meadows") as a single unit pursuant to a stock pairing agreement. In
connection with the Cal Jockey merger, Cal Jockey changed its name to "Patriot
American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to
"Patriot American Hospitality Operating Company". Subsequent to year end, as a
result of the merger of Wyndham Hotel Corporation with and into Patriot as
discussed below, Patriot Operating Company changed its name to Wyndham
International, Inc. and is referred to herein, collectively with its
subsidiaries, as "Wyndham". The term "Companies" as used herein includes
Patriot, Wyndham and their respective subsidiaries.
Generally, Patriot owns and leases hotels to Wyndham, which is responsible
for managing a majority of the hotels. In order for Patriot to qualify as a
REIT under the Internal Revenue Code of 1986, Patriot leases a substantial
majority of its hotels to Wyndham or to other third party lessees who are
responsible for operating the hotels. The paired share structure facilitated
the Companies' strategy to become a fully-integrated, multi-brand, multi-
product, multi-tiered hotel operating company. Following the merger with and
into California Jockey Club and the creation of Patriot paired shares, the
Companies acquired major hotel operating companies and brands. Patriot's
ability to utilize the paired share structure was limited as a result of tax
legislation adopted in July 1998.
35
<PAGE>
Subsequent to the Cal Jockey merger through December 31, 1998, the Companies
acquired ownership and leasehold interests in an additional 243 hotels through
the Wyndham merger, the WHG merger, the Arcadian acquisition, the Interstate
merger, the Summerfield acquisition and the CHCI merger. At December 31, 1998,
the Companies had 173 management and franchise agreements through these
mergers and acquisitions. See Items 1 and 2, "Business and Properties," for a
more detailed discussion of these merger agreements.
As of December 31, 1998, Patriot and Wyndham, either directly or through the
Operating Partnerships and other subsidiaries, own interests in 178 hotels
with an aggregate of over 43,800 rooms (excluding hotels under development).
The Companies' portfolio consists of proprietary brand hotels including;
WyndhamSM, Wyndham Hotels & Resorts, Wyndham Garden Hotels(R), Wyndham Grand
Heritage(R), Grand Bay Hotels & Resorts, Summerfield Suites, Sierra Suites,
Malmaison and Clubhouse. These hotels are diversified by brand affiliation,
service level, price point and location and most serve primarily major U.S.
business centers, including Atlanta, Boston, Chicago, Cleveland, Dallas,
Denver, Houston, Los Angeles, Miami, Minneapolis, San Diego, San Francisco and
Seattle as well as the United Kingdom. Additionally, the Companies offer
luxury and upscale resort accommodations through its luxury Grand Bay brand
and its upscale Wyndham Resort product, situated in major tourist and
destination locations. As of December 31, 1998, the Companies proprietary
brand portfolio of owned hotels include 50 Wyndhams (including Wyndham
Resorts, Wyndham Grand Heritage and Wyndham Gardens Hotels), 6 Grand Bay, 5
Summerfield Suites, 4 Malmaison Hotels and 8 ClubHouse Inns.
Additionally, the Companies have 94 non-proprietary branded hotels which
consists of 87 full service hotels, and 3 resort hotels, 4 limited service
hotels. All but 5 of these hotels are operated under franchise or brand
affiliations with nationally recognized hotel companies, including
Marriott(R), Crowne Plaza(R), Hilton(R), Hyatt(R), Radisson(R), Holiday
Inn(R), Doubletree(R), Embassy Suites(R), Ramada(R), Four Points by
Sheraton(R), WestCoast(R), Hampton Inn(R), and Courtyard by Marriott(R).
The Companies also leases 121 hotels from third parties, manages 161 hotels
for independent owners and franchises 12 hotels. Additionally, the Companies
have 10 hotels under development which are expected to open in mid to late
1999. All of the leased hotels are managed by Wyndham or its subsidiaries with
39 franchised under proprietary brands of the Companies.
Patriot leases each of its hotels, except those hotels which are separately
owned through special purpose entities, to Wyndham or to third party lessees
who are responsible for operating the hotels. As of December 31, 1998, 203
owned and leased hotels were leased to Wyndham and its affiliates and 5 hotels
were leased to third party lessees. Certain hotel acquisitions were structured
without lessees and are managed directly by Wyndham or other third party
operators. Wyndham manages 185 of its hotels through certain of its hotel
management subsidiaries and has entered into separate management agreements
with third party hotel operators to manage 18 of its hotels.
36
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
Results of Operations: Year Ended December 31, 1998
Compared with Year Ended December 31, 1997
Patriot's Participating Lease revenue from the lessees (including Wyndham)
for the year ended December 31, 1998 increased 220% from $180,451,000 in 1997
to $578,029,000 in 1998. This increase is primarily due to the net increase in
owned and leased hotel properties to 299 at December 31, 1998 from 91 at
December 31, 1997. Also included in Participating Lease revenue is the income
related to the lease of the Racecourse facility and land to Wyndham which
increased from $2,792,000 for the year ending December 31, 1997 to $5,594,000
for the year ended December 31, 1998. This increase is due to 1998 including a
full year of revenue related to the racecourse, 1997 included only the period
subsequent to the acquisition of Cal Jockey by Patriot in July 1997.
Interest and other income increased from $5,103,000 in 1997 to $17,381,000
in 1998 which is primarily attributable to the mergers and acquisitions of
Interstate, Summerfield, Wyndham Hotel Corporation and Arcadian during 1998,
the subscription notes payable from Wyndham and interest and dividend income
earned on cash investments.
Real estate and personal property taxes and casualty insurance was
$55,352,000 for the year ended December 31, 1998, compared to $17,958,000 for
the year ended December 31, 1997. This increase is primarily due to the
increase in owned and leased hotel properties to 299 at December 31, 1998 from
91 at December 31, 1997.
General and administrative expenses were $29,784,000 for the year ended
December 31, 1998, compared to $11,157,000 for 1997. The increase is primarily
attributable to additional general and administrative expenses incurred
related to the growth of the Company's portfolio during 1998 of which the
largest component is salaries and wages. General and administrative expenses
also include the amortization of unearned stock compensation of $7,622,000 for
1998 which increased from $4,686,000 for 1997. This increase is due to a full
year's amortization in 1998 of stock grants issued in 1997. Also included in
general and administrative expenses are the costs associated with evaluating
properties and companies which were ultimately not acquired of $2,455,000 in
1998 increasing from $1,068,000 in 1997. Although general and administrative
expenses increase in dollar value in 1998 over 1997, the expenses expressed as
a percentage of total revenues decreased to 5.0% in 1998 from 6.0% in 1997.
Ground lease expense increased from $4,117,000 for the year ended December
31, 1997 to $44,972,000 for the year ended December 31, 1998. This increase is
attributable to the acquisition of leasehold interests in hotel properties
during 1998.
Interest expense for the year ended December 31, 1998 was $245,205,000
compared to $51,000,000 in 1997. The primary components of this increase are
an increase of approximately $126,355,000 related to additional borrowings,
the Credit Facility and Term Loans, an increase of approximately $33,551,000
related to additional mortgage notes, an increase of approximately $22,319,000
related to additional amortization of deferred financing costs and an increase
of approximately $21,530,000 related to subscription notes due to Wyndham,
other amounts due to Wyndham, unsecured debt, swap arrangements and capital
lease obligations. These increases are the result of the increase in Patriot's
outstanding debt obligations from $1,112,709,000 as of December 31, 1997 to
$3,612,076,000 as of December 31, 1998. The increase in the Company's debt
outstanding is the result of borrowings to fund the cash purchase prices of
acquisitions of hotel properties and companies during 1998 and the assumption
of debt in connection with the various mergers executed during 1998.
Additionally, Patriot capitalized interest totaling $12,112,000 and $2,562,000
for the years ended December 31, 1998 and 1997, respectively, associated with
major renovations of certain hotel properties.
In connection with Patriot's acquisition of 9 leasehold interests and
certain license agreements in 1998 for hotels that Patriot owns, Patriot
recognized expense of $11,686,000 related to the cost of acquiring these
37
<PAGE>
leasehold interests. In connection with Patriot's acquisition of eight
leasehold interests in 1997 for hotels that Patriot owns and leased to CHC
Lease Partners, Patriot recognized expense of $54,499,000 related to the cost
of acquiring these leasehold interests.
During 1998, Patriot recorded a $49,334,000 one-time charge to earnings as a
result of the settlement of three treasury interest rate lock agreements.
These agreements were executed to protect the Companies against the
possibility of rising interest rates in anticipation of closing mortgage loans
in the near future. Under the rate lock agreements, Patriot received or made
payments based on the difference between specified interest rates, 6.06%,
6.07% and 5.62%, and the actual 10-year U.S. Treasury interest rate on a
principal amount of $525,000,000. Due to the substantial downward movement in
the underlying treasury security market and the Company's liquidity situation,
the agreements were settled and the settlement cost was recorded as a charge
against earnings.
In connection with the sale of three assets in 1998, Patriot recognized a
loss on sale of assets of $9,453,000 based on the excess book value over cash
proceeds received in the sale.
For the year ended December 31, 1998, Patriot recognized approximately
$27,897,000 of impairment losses related to assets held for sale. In
accordance with SFAS No. 121, when management identifies an asset held for
sale a fair value, less cost to sell, is estimated. If the fair value of the
asset is less than the carrying amount, a reserve for impairment is
established.
Depreciation and amortization expense was $161,857,000 for the year ended
December 31, 1998, compared to $49,069,000 for the same period in 1997. This
increase is primarily due to the net increase in owned and leased hotel
properties to 299 at December 31, 1998 from 91 at December 31, 1997.
Patriot's share of income from unconsolidated subsidiaries increased to
$36,726,000 for the year ended December 31, 1998, compared to $6,015,000 in
1997. This increase is due to unconsolidated subsidiaries acquired through
various mergers and acquisitions during 1998.
Minority interest share of income in the Patriot Partnership was $98,000 and
$1,713,000 for the years ended December 31, 1998 and 1997, respectively. The
decrease is due to the dilution of the minority interest as a result of the
common shares issued in connection with the various mergers occurring during
1998 and certain non-recurring expenses recognized by the Patriot Partnership
during 1998.
Minority interest share of income in Patriot's other consolidated
subsidiaries was $8,084,000 in 1998 and $1,674,000 in 1997. The increase is
due to the various mergers and acquisitions during 1998.
Extraordinary items for debt extinguishment increased from $2,534,000 in
1997 to $30,560,000 in 1998. The increase is due to the repayment of certain
debt obligations of Old Wyndham, Interstate and Summerfield in 1998. In
connection with these repayments, Patriot incurred prepayment penalties and
wrote-off the remaining balance of unamortized deferred financing costs
associated with such debt. In 1997, the extraordinary item relates to the
write-off of the remaining balance of unamortized deferred financing costs
associated with the Old Credit Facility which was repaid in 1997.
As a result of the factors discussed above, primarily due to non-recurring
charges and the costs of acquiring leaseholds, net loss was $44,888,000 for
the year ended December 31, 1998, as compared to net loss of $2,152,000 for
the year ended December 31, 1997.
Results of Operations: Year Ended December 31, 1997
Compared with Year Ended December 31, 1996
Patriot's Participating Lease revenue from the lessees (including Wyndham)
for the year ended December 31, 1997 increased 137.7% from $75,893,000 in 1996
to $180,451,000 in 1997. This increase is primarily due to the net increase in
owned hotel properties to 91 at December 31, 1997 from 46 at December 31,
38
<PAGE>
1996. Also included in Participating Lease revenue for the year ending
December 31, 1997 is the income related to the lease of the Racecourse
facility and land to Wyndham of $2,792,000 which was acquired during 1997.
Interest and other income increased from $600,000 in 1996 to $5,103,000 in
1997 which is primarily attributable to additional investments in mortgage
notes receivable during 1997 and interest and dividend income earned on cash
investments.
Real estate and personal property taxes and casualty insurance was
$17,958,000 for the year ended December 31, 1997, compared to $7,150,000 for
the year ended December 31, 1996. This increase is primarily due to the net
increase in owned hotel properties to 91 at December 31, 1997 from 46 at
December 31, 1996.
General and administrative expenses were $11,157,000 for the year ended
December 31, 1997, compared to $4,500,000 for 1996. The increase is primarily
attributable to additional general and administrative expenses incurred
related to the growth of the Company's portfolio during 1997 of which the
largest component is salaries and wages. Also included in general and
administrative expenses is the amortization of unearned stock compensation
which increased to $4,686,000 for 1997 from $1,068,000 for 1996. This increase
is due to a full year's amortization in 1997 of stock grants issued in 1996 as
well as amortization of stock grants issued in 1997. Also included in general
and administrative expenses are the costs associated with evaluating
properties and companies which were ultimately not acquired of $1,068,000 in
1997 which increased from $173,000 in 1996. Although general and
administrative expenses increased in dollar value in 1997 over 1996, the
expenses expressed as a percentage of total revenues remained relatively
constant at 6.0% in 1997 and 5.8% in 1996.
Ground lease expense increased from $1,075,000 for the year ended December
31, 1996 to $4,117,000 for the year ended December 31, 1997. This increase is
primarily due to the ground lease payments for the Race course facility
acquired in July of 1997.
Interest expense for the year ended December 31, 1997 was $51,000,000
compared to $7,380,000 in 1996. The primary components of this increase are an
increase of approximately $29,466,000 related to borrowings under the Credit
Facility and Term Loan an increase of approximately $12,585,000 related to
additional borrowings under the Old Line of Credit and mortgage financing
obtained in 1997, an increase of approximately $2,150,000 related to
amortization of deferred financing costs and an increase of approximately
$1,890,000 related to additional subscription notes due to Wyndham and other
miscellaneous note and commitments payable (including swap arrangements)
entered into in 1997. These increases are the result of the increase in
Patriot's outstanding debt obligations from $214,339,000 as of December 31,
1996 to $1,112,709,000 at December 31, 1997. The increase in the Company's
debt outstanding is the result of borrowings to fund the cash purchase prices
of acquisitions of hotel properties and companies during 1997 and the
assumption of debt in connection with these acquisitions. Additionally,
Patriot capitalized interest totaling $2,562,000 and $91,000 for the years
ended December 31, 1997 and 1996, respectively, associated with major
renovations of certain hotel properties.
In connection with Patriot's acquisition of eight leasehold interests in
1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot
recognized expense of $54,499,000 related to the cost of acquiring these
leasehold interests.
Depreciation and amortization expense was $49,069,000 for the year ended
December 31, 1997, compared to $17,420,000 for the same period in 1996. This
increase is primarily due to the net increase in owned hotel properties to 91
at December 31, 1997 from 46 at December 31, 1996.
Minority interest share of income in the Patriot Partnership was $1,713,000
and $6,767,000 for the years ended December 31, 1997 and 1996, respectively.
The decrease is due to the dilution of the minority interest as a result of
the common shares issued in connection with the various mergers and common
stock offerings occurring during 1997.
39
<PAGE>
Minority interest share of income in Patriot's other consolidated
subsidiaries was $1,674,000 in 1997 and $55,000 in 1996. The increase is due
to the acquisition of properties during 1997 in which minority interest
holders owned an interest.
Concurrent with the repayment of the Old Line of Credit, Patriot wrote off
the remaining balance of unamortized deferred financing costs associated with
the Old Line of Credit in the amount of $2,534,000. This amount, net of
minority interest share of the net loss, has been reported as an extraordinary
item for the year ended December 31, 1997. No such write-offs were incurred
during 1996.
As a result of the factors above, primarily due to the costs of acquiring
leaseholds, net loss was $2,152,000 for the year ended December 31, 1997,
compared to net income of $37,991,000 for the year ended December 31, 1996.
Results of Operations: Year Ended December 31, 1996
Compared with the Period October 2, 1995 (inception of operations) through
December 31, 1995
Old Patriot completed its initial public offering of common stock on October
2, 1995 and commenced operations with the acquisition of 20 hotels. Because
1995 was a short fiscal year for Patriot, the operating results for the year
ended December 31, 1996 are not directly comparable to 1995. For the year
ended December 31, 1996, Patriot's Participating Lease revenue from the
Lessees was $75,893,000, compared $10,582,000 in 1995. Interest and other
income was $600,000 for the year ended December 31, 1996, compared to $513,000
in 1995. In 1995, interest and other income consisted primarily of interest
earned on invested cash balances resulting from the net proceeds of the
initial public offering.
For the year ended December 31, 1996 as compared to the period October 2,
1995 (inception of operations) through December 31, 1995, Patriot experienced
similar increases in expenses as a result of the short fiscal year for Patriot
in 1995, as discussed above.
General and administrative expenses were $4,500,000 for the year ended
December 31, 1996, compared to $607,000 for 1995. General and administrative
expenses include the amortization of unearned stock compensation of $1,068,000
for 1996 and $71,000 for 1995.
Ground lease expense totaled $1,075,000 in 1996 (none in 1995). Real estate
and personal property taxes and insurance was $7,150,000 for 1996, compared to
$901,000 for 1995
Patriot reported $7,380,000 of interest expense for the year ended December
31, 1996, compared to $89,000 in 1995. Patriot's outstanding debt obligations
as of December 31, 1996 and 1995 were approximately $214,339,000 and
$9,500,000, respectively. Interest expense in 1996 consisted primarily of
$6,755,000 of interest incurred on the Revolving Credit Facility, the Old Line
of Credit and mortgage note balances outstanding and $431,000 of amortization
of deferred financing costs. Interest expense in 1995 consisted of $62,000 of
interest incurred on the Old Line of Credit balance and $27,000 of
amortization of deferred financing costs.
Depreciation and amortization expense was $17,420,000 for 1996, compared to
$2,590,000 for 1995.
Patriot's share of income from unconsolidated subsidiaries was $5,845,000 in
1996, compared to $156,000 in 1995.
Minority interest's share of income of the REIT Partnership was $6,767,000
for the year ended December 31, 1996, compared to $968,000 in 1995. Minority
interest's share of income of other consolidated Patriot subsidiaries was
$55,000 for 1996 (none in 1995).
Patriot reported extraordinary losses in 1995 totaling $737,000 (net of the
minority interest share of the loss) related to the pay-off of assumed
mortgage debt on hotel properties acquired.
As a result, net income was $37,991,000 for the year ended December 31,
1996, compared to net income of $5,359,000 for the period October 2, 1995
(inception of operations) through December 31, 1995.
40
<PAGE>
WYNDHAM INTERNATIONAL, INC.
Results of Operations: Year Ended December 31, 1998
Compared with Six Months Ended December 31, 1997
Concurrent with the closing of the Cal Jockey merger, the entity now known
as Wyndham began leasing four hotels from the Patriot Partnership and
commenced its hotel management operations on July 1, 1997. During the
remainder of 1997, Wyndham acquired the leases for 51 additional Patriot
hotels. At December 31, 1997, Wyndham leased 55 hotels from PAH, managing 24
of those hotels, and managed 27 for third parties. As of December 31, 1998,
Wyndham leased 203 hotels from Patriot, managing 185 of those hotels, and
manages 163 hotels for third parties.
Hotel revenues were $1,842,682,000 for the year ended December 31, 1998 as
compared to $167,727,000 for the six months ended December 31, 1997. The
increase in revenues is due not only to the increase in the number of leased
hotels from 51 in 1997 to 203 in 1998, but also due to the increases in REVPAR
experienced by the hotel portfolio as a whole (see statistical information).
Hotel expenses increased to $1,251,548,000 for the year ended December 31,
1998 as compared to $118,317,000 for the six months ended December 31, 1997.
The increases are due to the full year's results in 1998 for hotels leased
during 1997 and the additional hotel leases acquired during 1998. As a
percentage of hotel revenues, hotel expenses decreased from 70.5% for the 1997
period to 67.9% for 1998 due to the cyclical nature of the revenue stream. The
first six months of revenues are higher, but fixed expenses remain constant,
which caused the percentage of expenses to revenue to be higher in 1997.
Racecourse facility revenue increased from $26,344,000 for the six months
ended December 31, 1997 to $51,259,000 for the year ended December 31, 1998.
Racecourse facility expenses increased from $24,245,000 for the six months
ended December 31, 1997 to $43,198,000 for the year ended December 31, 1998.
The increase is due to the number of race days in 1998 of 106 as opposed to
the number of race days in 1997 of 63. As a percentage of racecourse facility
revenues, racecourse facility expenses decreased from 92.0% for the 1997
period to 84.3% for 1998 due to reductions in administrative payroll expenses.
Management fee and service fee income increased from $7,088,000 for the six
months ended December 31, 1997 to $89,983,000 for the year ended December 31,
1998. This increase is primarily the result of the acquisition of third party
management contracts during 1998.
Interest and other income increased from $2,975,000 for the six months ended
December 31, 1997 to $18,303,000 for the year ended December 31, 1998. The
increase is primarily attributable to the mergers and acquisitions of the
hotel management and related businesses of Interstate, Summerfield, Wyndham
and Arcadian during 1998, the subscription notes payable from Patriot and
interest and dividend income earned on cash investments.
General and administrative expenses increased from $6,024,000 for the six
months ended December 31, 1997 to $87,882,000 for the year ended December 31,
1998 of which salaries and wages is the major component. This increase is due
primarily to the overhead required due to the growth in portfolio of managed
and leased hotels during 1998. Also, Wyndham recorded costs associated with
evaluating properties and companies which were ultimately not acquired of
$12,358,000.
Wyndham acquired 17 leaseholds of hotels owned by Patriot during the year
ended December 31, 1998 resulting in cost of acquiring leaseholds of
approximately $52,721,000.
For the year ended December 31, 1998, Wyndham recognized approximately
$23,184,000 of impairment losses related to assets held for sale. In
accordance with SFAS No. 121, when management identifies an asset held for
sale a fair value is estimated. If the fair value of the asset is less than
the carrying amount, a reserve for impairment is established.
41
<PAGE>
Depreciation and amortization expense was $69,375,000 for the year ended
December 31, 1998, compared to $3,616,000 for the six months ended December
31, 1997. This increase is primarily due to amortization of goodwill,
management contracts and trade names of approximately $39,286,000. It also
includes approximately $30,089,000 in depreciation and amortization,
predominantly from the WHG acquisition as well as other miscellaneous
acquisitions.
Participating Lease expense increased to $519,589,000 for the year ended
December 31, 1998 from $50,626,000 for the six months ended December 31, 1997.
The increase is due to a full year's expense for the leases acquired in 1997
and the expense related to the leases acquired in 1998. As a percentage of
hotel revenues, Participating Lease expense remained constant after accounting
for the effect of eliminating lease expense and lease revenue with Wyndham.
Interest expense increased to $35,690,000 for the year ended December 31,
1998 from $933,000 for the six months ended December 31, 1997. The increase is
primarily due to approximately $19,555,000 in interest expense and loan
amortization for the WHG assets, the subscription and other notes with Patriot
of approximately $12,493,000 and approximately $1,977,000 in interest expense
on the capital lease of the Harbour Island Hotel.
Wyndham's share of income from unconsolidated subsidiaries was $3,134,000
during 1998 resulting from the acquisition of hotels owned through
unconsolidated subsidiaries during 1998.
The provision for income taxes increased from $481,000 for the six months
ended December 31, 1997 to $14,381,000 for the year ended December 31, 1998.
The increase is due to the operation of certain special purpose Wyndham
controlled subsidiaries which separately report and pay taxes on their taxable
income. For federal income tax purposes, the taxable income from these Wyndham
controlled subsidiaries can not be consolidated with Wyndham's taxable income
or loss and can not be offset by net operating losses created at Wyndham.
Minority interest's share of loss in the Wyndham Partnership was $12,750,000
for the year ended December 31, 1998 and $29,000 for the six months ended
December 31, 1997. The increase is due to the increase in the net loss before
minority interest resulting from the increases in the revenues and expenses
discussed above.
Minority interest's share of income in Wyndham's other consolidated
subsidiaries was $31,705,000 for the year ended December 31, 1998 and the
minority interest's share of the loss was $59,000 for the six months ended
December 31, 1997. The increase is due to Patriot's 99.0% ownership of most of
the decontrolled subsidiaries consolidated by Wyndham.
As a result of the factors discussed above, primarily due to the non-
recurring charges and the costs of acquiring leaseholds, net loss was
$112,419,000 for the year ended December 31, 1998, as compared to net loss of
$20,000 for the six months ended December 31, 1997.
Results of Reporting Segments: For the year ended December 31, 1998
Compared with the year ended December 31, 1997
The Companies' management reviews Patriot's and Wyndham's results of
operations on a combined basis. Patriot's revenues and the majority of its
expenses are classified in the "other" reportable segment. Patriot classifies
real estate and personal property taxes and casualty insurance and ground
lease expense with their related hotel operations. Wyndham's results of
operations are classified into all six reportable segments.
The results of reporting segments discussion includes 12 months of 1998 for
Patriot and Wyndham, 12 months of 1997 for Patriot and 6 months of 1997 for
Wyndham.
The Companies manage the business in six reportable segments. Those segments
include Wyndham hotels, resort properties, all suite properties, other
proprietary branded properties, non-proprietary branded properties and other.
42
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Wyndham hotels properties include Wyndham Hotels, Wyndham Gardens and
Wyndham Grand Heritage and represent approximately 29.7% and 3.2% of total
revenue for 1998 and 1997, respectively. Total revenue was $610,523,000 for
the year ended December 31, 1998 compared to $10,711,000 in 1997. The increase
is primarily due to the additional lease agreements entered into with Patriot
as a result of the acquisition of hotels and mergers in 1998. Operating income
for the Wyndham hotels was $153,723,000 for the year ended December 31, 1998
compared to $2,388,000 for 1997.
Resort properties including Grand Bay and Wyndham, represent approximately
15.4% and 9.1% of total revenue for 1998 and 1997, respectively. Total revenue
was $315,674,000 for the year ended December 31, 1998 compared to $30,334,000
in 1997. The increase is primarily due to the additional lease agreements
entered into with Patriot as a result of the acquisition of hotels and mergers
in 1998. Operating income for the resort properties was $76,349,000 for the
year ended December 31, 1998 compared to $6,628,000 for 1997.
All suite properties, including Summerfield and Sierra, represent
approximately 3.6% of total revenue for 1998. Patriot purchased 4 properties
and Patriot and Wyndham acquired 26 leaseholds in 1998 and leased them to
Wyndham. Total revenue was $74,333,000 for the year ended December 31, 1998
and operating income was $14,690,000 in 1998.
Other proprietary branded properties including Malmaison, Grand Heritage,
Clubhouse and hotels acquired in the Arcadian acquisition, represent
approximately 3.9% and 2.9% of total revenue for 1998 and 1997, respectively.
Total revenue was $80,998,000 for the year ended December 31, 1998 compared to
$9,595,000 in 1997. The increase is primarily due to the additional lease
agreements entered into with Patriot as a result of the acquisition of hotels
and mergers in 1998. Operating income for these properties was $26,492,000 for
the year ended December 31, 1998 compared to $1,436,000 for 1997.
Non-proprietary branded properties including Hampton, Hilton, Holiday Inn,
Marriott, Ramada, Radisson and other major hotel franchises, represent
approximately 37.0% and 34.4% of total revenue for 1998 and 1997,
respectively. Total revenue was $761,154,000 for the year ended December
31,1998 compared to $115,223,000 in 1997. The increase is primarily due to the
additional lease agreements entered into with Patriot as a result of the
acquisition of hotels and mergers in 1998. Operating income for these
properties was $183,703,000 for the year ended December 31, 1998 compared to
$29,947,000 for 1997.
Other represents revenue from various operating businesses including Bay
Meadows racetrack, management and other service companies as well as
participating lease revenue for those hotels leased to third parties. Total
revenue for the other segment was $213,659,000 and $169,172,000 for the years
ended December 31, 1998 and 1997, respectively. The increase in total revenue
is a result of a full year of operations reflected in 1998 compared to six
months of operations in 1997. Operating loss of the other segment was
$576,963,000 for the year ended December 31, 1998 compared to $42,272,000. The
increase in operating loss is a result of the following items: the treasury
lock settlement of $49,334,000; the loss on the sale of the North Coast
Transaction assets of $9,453,000; the impairment loss on assets held for sale
(including the Bay Meadows racetrack) of $51,081,000; the increase in the
costs of acquiring leaseholds in 1998 over 1997 of $9,908,000; the increase in
interest expense of $209,572,000 as a result of the increased borrowings to
fund the 1998 mergers and acquisitions; and the increase in depreciation and
amortization of $178,548,000 as a result of the 1998 mergers and acquisitions.
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Statistical Information
During 1998, Patriot's and Wyndham's portfolio of 178 owned hotels
experienced strong growth in both average daily rate ("ADR") and revenue per
available room ("REVPAR") of approximately 6.2% and 6.3%, respectively, while
occupancy remained relatively stable. Management attributes this growth to
continued marketing efforts throughout the portfolio on hotels that have been
newly renovated, and repositioned in certain cases, as well as to the current
strength of market conditions in the U.S. lodging industry. The following
table sets forth certain statistical information for the Companies' 178 owned
hotels as of December 31, 1998 and 1997 as if the hotels were owned at the
beginning of the periods presented.
<TABLE>
<CAPTION>
Occupancy ADR REVPAR
------------ --------------- ---------------
1998 1997 1998 1997 1998 1997
----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Wyndham Branded Hotels.......... 70.50% 70.80% $119.57 $112.32 $ 84.35 $ 79.54
Grand Bay Hotels & Resorts...... 67.00 70.50 287.30 266.64 192.52 187.86
Summerfield Suites.............. 79.70 74.20 129.42 123.01 103.17 91.27
Malmaison....................... 83.50 75.40 125.65 117.27 104.89 88.44
Clubhouse....................... 66.40 71.50 68.07 65.75 45.23 47.01
Arcadian........................ 68.80 63.80 142.67 128.43 98.10 81.92
Non Proprietary -- Limited
Service........................ 67.80 74.10 74.57 65.87 50.54 48.83
Non Proprietary Brands.......... 71.70 71.20 99.59 94.29 71.39 67.16
----- ----- ------- ------- ------- -------
Weighted average............... 71.10% 71.00% $109.94 $103.53 $ 78.15 $ 73.55
</TABLE>
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Combined cash and cash equivalents as of December 31, 1998 were $158.9
million, including restricted cash of $35.9 million. Combined cash and cash
equivalents as of December 31, 1997 were $47.4 million, including capital
improvement reserves of $5.0 million. The increase is primarily the result of
net cash provided by operating and financing activities exceeding the net cash
used in investing activities.
Cash Flow Provided by Operating Activities
The Companies' principal source of cash to fund operating expenses and
distributions to its shareholders is cash flow provided by operating
activities. Patriot's principal source of revenue is rent payments from the
lessees, including Wyndham, under the participating leases. Wyndham's
principal source of cash flow is from the operation of the hotels it leases
and manages. Wyndham's ability to make the rent payments to Patriot is
dependent upon their ability to efficiently manage the hotels and generate
sufficient cash flow from operation of the hotels. Combined cash flows from
operating activities of the Companies were $244.5 million for the year ended
December 31, 1998, which represent a combination of the collection of rents
under participating leases with third party lessees and cash flows generated
by the hotels operated by Wyndham. Cash flows from operating activities were
$108.1 million for the year ended December 31, 1997, which primarily represent
the collection of rents under participating leases. The increase is due
primarily to the results of operations or the lease payments for 208 hotels
acquired during 1998.
Cash Flows from Investing and Financing Activities
During 1998, the Companies continued to experience rapid growth through the
merger and acquisition of hotel properties and management companies. These
transactions were funded with a combination of issuance and or assumption of
debt as well as sale of registered securities, issuance of OP units and
proceeds from the forward equity transactions. The proceeds from the forward
equity transaction were used to repay borrowings under the Companies' Credit
Facility. The Credit Facility was then used to fund the cash portion of the
Companies mergers and acquisitions.
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Combined cash flows used in investing activities of the Companies were $2.1
billion for the year ended December 31, 1998, resulting primarily from the
merger and acquisition of various hotel properties and management companies,
and the renovation expenditures at certain hotels. Combined cash flows used in
investing activities of the Companies were $1.2 billion for the year ended
December 31, 1997, resulting primarily from the Cal Jockey merger, the
acquisition of various hotel properties and management companies, and the
renovation expenditures at certain hotels. Combined cash flows used in
investing activities were $419.7 million for the year ended December 31, 1996,
resulting primarily from the acquisition of hotel properties.
Combined cash flows from financing activities of $1.9 billion for the year
ended December 31, 1998 were primarily related to borrowings on the Credit
Facility, the Term Loans and mortgage notes and net proceeds from public and
private placement of equity securities, net of payments of dividends and
distributions. Combined cash flows from financing activities of $1.1 billion
for the year ended December 31, 1997 were primarily related to borrowings on
the Credit Facility, the Term Loans and mortgage notes and net proceeds from
public and private placement of equity securities, net of payments of
dividends and distributions. Cash flows from Patriot's financing activities of
$360.3 million for the year ended December 31, 1996 were primarily related to
borrowings on the Old Line of Credit and net proceeds from public and private
placement of equity securities, net of payments of dividends and
distributions.
In June 1998 in connection with the Interstate merger, the Companies closed
on the commitment from The Chase Manhattan Bank and Chase Securities, Inc. and
Paine Webber Real Estate Securities, Inc. to increase Patriot's existing
credit facilities to an aggregate of $2.7 billion (an increase of $1.5 billion
from the prior $1.25 billion credit package). The increased credit facilities
include the $900 million revolving credit facility ("Credit Facility") and a
series of term loans in the aggregate amount of up to $1.8 billion (the "Term
Loans"). Proceeds from the increased credit facilities were used to fund the
cash portion of the Interstate merger consideration, as well as to refinance
certain outstanding indebtedness of the Patriot Companies. Interest rates will
be based on the Companies' leverage ratio and may vary from 1.5% to 2.5% over
LIBOR. As of December 31, 1998 the effective rate of interest was 7.314% for
all borrowings under the credit facility except for Tranche B which was
7.564%. Patriot incurred approximately $27.4 million in loan fees and other
expenses associated with this financing arrangement.
As of December 31, 1998, the Companies had no additional availability under
the Credit Facility. The weighted average interest rate in effect for the
Credit Facility for the period ended December 31, 1998 was 7.90% per annum. As
of December 31, 1998, there was $875.6 million outstanding under the Credit
Facility. Additionally, Patriot had outstanding letters of credit totaling
$24.4 million as of December 31, 1998.
The Credit Facility matures July 2000. The Term Loans had maturities of
January 31, 1999 ($350 million); March 31, 1999 ($400 million); March 31, 2000
($450 million); and March 31, 2003 ($599 million).
All of the requisite lenders under the Credit Facility have agreed to extend
maturity of the two term loans which were scheduled to mature on January 31,
1999 and March 31, 1999 to June 30, 1999, subject to Patriot and Wyndham
consummating the Investment by that date. If the Companies do not consummate
the Investment by June 30, 1999, or the agreement with the Investor Group
otherwise terminates, the maturity on these two term loans will be extended to
March 31, 2000 and the Companies will be required to make a $300 million
amortization payment by December 31, 1999. Additionally, the Companies will be
required to secure the Credit Facility with mortgages and other security
interest. Fees of $11.7 million have been paid to the lenders under the Credit
Facility in connection with their agreement to extend the maturities of the
term loans to June 30, 1999.
As of March 22, 1999, the Companies had approximately $875.6 million
outstanding under the Credit Facility and $1.8 billion outstanding on the Term
Loans. Additionally, the Companies had outstanding letters of credit totaling
$24.4 million. As of March 22, 1999, Patriot also had over $993 million of
mortgage debt outstanding that encumbered 49 hotels and 3 hotels under
development and approximately $241 million in other debt, resulting in total
indebtedness of approximately $3.9 billion. As of March 22, 1999, the
Companies had no additional availability under the Credit Facility.
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<PAGE>
As of March 22, 1999, the Companies have entered into four interest rate
swap arrangements to swap floating rate LIBOR-based interest rates for fixed
rate interest amounts as a hedge against $822 million of the outstanding
balance on the Credit Facility. The interest rate swaps cover borrowings under
the Credit Facility and related Term Loans and fixes the LIBOR portion of the
Credit Facility and Term Loans interest rate at 5.80%, 6.255% (as amended),
5.84%, and 5.56% respectively. The interest rate swap arrangements expire
December 2000 ($72 million--entered January 31, 1996), November 2002 ($375
million--entered February 28, 1999), November 2002 ($125 million--entered
January 9, 1998) and June 2003 ($250 million--entered July 1, 1998). If the
actual LIBOR rate is less than the specified fixed interest rate, Patriot is
obligated to pay the differential interest amount, such amount being recorded
as incremental interest expense. If the LIBOR is greater than the specified
fixed interest rate, the differential interest amount is refunded to Patriot.
The Companies have entered into two additional interest rate swap
arrangements to swap floating rate LIBOR-based interest rates for a fixed rate
interest amount as a hedge against $51 million of the outstanding balance on
specific property related debt. The interest rate swap fixes the LIBOR portion
of the debt interest rate at 5.31% per annum through January 2000 ($20
million--entered January 4, 1999) and 5.42% per annum through March 2001 ($31
million--entered January 4, 1999). If the actual LIBOR rate is less than the
specified fixed interest rate, Patriot is obligated to pay the differential
interest amount, such amount being recorded as incremental interest expense.
If the LIBOR is greater than the specified fixed interest rate, the
differential interest amount is refunded to Patriot.
As of March 22, 1999, Patriot has six interest rate cap arrangements as
follows: an interest rate cap that limits LIBOR to 6% on up to $105 million of
indebtedness through June 1999; an interest rate cap that limits LIBOR to 7%
on up to $208.8 million of indebtedness through October 1999; an interest rate
cap that limits LIBOR to 7% on up to $1.5 billion of indebtedness through
April 2000; an interest rate cap that limits LIBOR to 8.5% on up to $29.1
million of indebtedness through August 2004; an interest rate cap that limits
LIBOR to 7.83% on up to $38 million of indebtedness through October 2001; and
an interest rate cap that limits LIBOR to 6.75% on up to $19.5 million of
indebtedness through March 2001.
Forward Equity Contracts. In addition to its debt obligations and related
interest payments, Patriot is a party to forward equity contracts with three
counterparties involving the sale of an aggregate of 13.3 million paired
shares, with related price adjustment mechanisms. After consideration of the
decreasing amount of available funds under the Credit Facility and the funding
requirements of the anticipated closings of several mergers and acquisitions,
management of the Companies decided that the forward equity transactions would
be an appropriate source of capital to meet these requirements. Upon entering
into these contracts, the companies agreed to sell a varying number of paired
shares to each of the counterparties at future settlement dates at prices
adjusted for the then current market price of the paired shares. None of the
forward contracts provided for any floor on the settlement price per share.
Under the terms of the forward contract entered into with UBS on December 31,
1997, the Companies issued 3.25 million unregistered paired shares to UBS on
that date, for a purchase price per paired share of $28.125, or aggregate
consideration of approximately $93.6 million. Under the terms of the forward
contract entered into with Nations on February 26, 1998, the Companies issued
4.9 million unregistered paired shares to Nations on that date, for a purchase
price per paired share of $24.8625, or aggregate consideration of
approximately $121.8 million. Under the terms of the forward contract entered
into with PaineWebber on April 6, 1998, the Companies issued 5.15 million
unregistered paired shares to PaineWebber on that date for a purchase price
per paired share of $27.01125, or aggregate consideration of approximately
$139.1 million. The proceeds of these placements were used by the Companies to
repay borrowings under the Companies' Credit Facility. The Credit Facility was
then used to fund the cash portion of the Companies mergers and acquisitions.
Patriot's aggregate total remaining obligation under the forward equity
transactions was approximately $321.9 million at April 12, 1999. As of such
date, Patriot had delivered an aggregate of 84.7 million shares to the
counterparties as collateral, including approximately 4 million shares issued
as dividends on the collateral shares, in addition to approximately 12.5
million original paired shares currently owned by the counterparties or their
affiliates. Based on the $5.3125 closing price of the paired shares
46
<PAGE>
on May 21, 1999 and assuming an average of 2% selling expenses, the forward
counterparties would have to sell approximately 62 million paired shares, to
settle all of the forward equity transactions in full.
Under the terms of the forward equity transactions, the Companies sold
paired shares to each of the counterparties and simultaneously entered into a
forward contract under which they agreed to "settle" the transaction at a
stated maturity date based upon the adjusted price of the purchased shares at
maturity. During the term of the forward contract, the price of the purchased
shares increases at a rate that corresponds to an agreed-upon interest rate.
At maturity, the forward contracts provide that each counterparty will sell a
number of shares sufficient to generate proceeds equal to the total adjusted
purchase price of the purchased shares. Shares may be sold to the public
through an underwritten public offering or by other methods, or to private
investors. If the counterparty does not receive sufficient proceeds from its
sales of the originally purchased shares, the Companies must issue more paired
shares to that counterparty for resale until the obligation has been
satisfied. The Companies may pay their obligation under the forward equity
contracts in cash as well as paired shares. As of May 21, 1999, the Companies
have paid an aggregate of $54.3 million to the counterparties under the
forward equity contracts, in addition to the cash dividends paid on the
purchased shares.
On February 28, 1999, all three counterparties agreed, subject to specified
conditions, not to require settlement under their respective forward
agreements or to sell paired shares in connection with the forward agreements
until the earlier of the closing of the $1 billion equity investment or June
30, 1999. In connection with the standstill agreements, the Companies agreed
to pay a 2% fee to the three counterparties. The agreements provide that the
standstill obligations terminate if, among other events, the price of the
paired shares fell to a specified threshold. As of the date of this Form 10-
K/A, the price of the paired shares has fallen below each of the thresholds.
As a result, each of the forward counterparties has the right to require an
immediate settlement of its forward equity transaction. As of the date of this
Form 10 K/A, none of the counterparties has made any sale of paired shares,
other than the sale of 754,525 paired shares by one counterparty in December
1998, or required settlement of its forward transaction. However, the
Companies cannot assure you that the forward counterparties will not sell
paired shares or require settlement in the future.
The Companies may settle the forward transactions by delivering either cash
or paired shares. Sources of cash are not currently available for the
Companies to make the payments that would be required to settle one or more of
the forward transactions in cash. Moreover, the Companies cannot assure that
the bank lenders would consent to any cash settlements prior to the closing of
the $1 billion equity investment. Generally, the Companies may settle by
delivering paired shares only if a registration statement covering such paired
shares is effective. There are currently effective registration statements
covering the sale by the three forward counterparties of up to 40 million
paired shares and the sale of one counterparty of an additional 4 million
paired shares of which 754,525 paired shares were sold by that counterparty in
December 1998. The Companies can make no assurances that these registration
statements will remain effective. Given the current market price of the paired
shares, any settlement in paired shares would have severely dilutive effects
on our capital stock. Based on the $5.3125 closing price of the paired shares
on May 21, 1999 and assuming an average of 2% selling expenses, the forward
counterparties would have to sell approximately 62 million paired shares, to
settle all of the forward equity transactions in full. The number of shares
required would substantially increase if the market price of the paired shares
decreases as a result of the sales of paired shares by the forward
counterparties. If any of the counterparties sells paired shares, the
conversion price of the preferred stock to be issued to the investors will be
adjusted downward to the extent that the price recognized by us on the sale is
less than $8.75 per share.
The Companies intend to settle in full all of the forward transactions with
a portion of the proceeds of the $1 billion equity investment. The estimated
aggregate dollar value of the settlement on June 30, 1999 is approximately
$333.6 million. If the Companies settle the forward transactions in cash, the
counterparties must deliver to the Companies all paired shares then owned by
them or held by them as collateral under the forward agreement.
47
<PAGE>
Securities Purchase Agreement
Investment
As of February 18, 1999, Patriot, Wyndham, Patriot Partnership, Wyndham
Partnership and affiliates of each of Apollo Real Estate Management III, L.P.,
Apollo Management IV, L.P., Thomas H. Lee Equity Fund IV, L.P., Beacon Capital
Partners, L.P. and Rosen Consulting Group, entered into a purchase agreement
under which the investors will purchase $1 billion of a new series B preferred
stock of Wyndham. Patriot and Wyndham currently plan to use the proceeds from
the investment to settle their forward equity contracts, as described above,
to repay indebtedness, and for working capital and growth purposes.
Wyndham will pay dividends on its series B preferred stock quarterly, on a
cumulative basis, at a rate of 9.75% per year. For the first six years,
dividends will be payable partly in cash and partly in additional shares of
preferred stock, with the cash component initially equal to 30% for the first
dividend payment and declining over the period to approximately 19.8% for the
final dividend payment. Each share of series B preferred stock may be
converted, at the option of its holder, into that number of shares of Wyndham
common stock equal to $100.00 divided by the conversion price of the series B
preferred stock. Initially the conversion price will be $8.59, but is subject
to adjustment under certain circumstances.
Restructuring
Under the terms of the purchase agreement, relating to the $1 billion equity
investment, Patriot and Wyndham are required to complete a restructuring of
their existing paired share REIT structure prior to the investment. Under the
terms of the restructuring, the following events will occur:
. A reverse stock split of the common stock of Wyndham and Patriot.
. A wholly-owned subsidiary of Wyndham will merge with and into Patriot
with Patriot surviving.
. The pairing agreement between Patriot and Wyndham will terminate.
. Patriot will terminate its status as a real estate investment trust
effective January 1, 1999.
. The non-voting stock of specified corporate subsidiaries held by the
Patriot Partnership will be transferred, and subsequently will be
owned directly by Patriot and/or Wyndham, rather than through the
Patriot Partnership.
. The third party partners in both the Patriot Partnership and the
Wyndham Partnership will be offered an opportunity to exchange their
limited partner interests for Wyndham common stock.
. The preferred stockholders of Wyndham will be offered an opportunity
to exchange their preferred stock for Wyndham common stock.
Reverse Stock Splits
Prior to the merger of a subsidiary of Wyndham into Patriot, both Wyndham
and Patriot will implement a one-for-twenty reverse stock split of their
common stock.
Redemption Option
For a period of 170 days following the completion of the $1 billion equity
investment, Wyndham may redeem up to $300 million of the series B preferred
stock at a redemption price of $102.00 per share (102% of the stated amount
$100.00) plus all accrued dividends. Wyndham currently plans to fund this
redemption through the issuance of $300 million of series A preferred stock to
its stockholders. The series A preferred stock has the same economic terms as
the series B preferred stock.
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<PAGE>
Liquidity
As a condition of the $1 billion equity investment, the Companies are
required to restructure their existing organization. As discussed above, the
pairing agreement between Wyndham and Patriot will terminate, Patriot's status
as a REIT will terminate effective January 1, 1999 and Patriot will become a
taxable corporation at that date. As a result of that transaction, the Company
will be required to record a charge for deferred income taxes for the
difference between the income tax basis and the recorded carrying value of
assets and liabilities. The Company is continuing its analysis of the expected
effects of this non-cash charge. Currently the estimate is in the range of
$750 million, however; this amount could vary when the analysis is completed.
In addition, the Company will charge off the value of an intangible asset
associated with the paired share structure of approximately $84.2 million.
In the event that the equity and related debt transaction referred to above
are not completed, management has determined that additional capital would
have to be raised from other sources or the Companies would have to sell
significant amounts of assets to produce proceeds sufficient to meet its
existing current debt maturity obligations. These asset sales could include
resort properties or Wyndham-managed properties in major cities and could
negatively impact operations. Management believes these alternatives, if
necessary, represent a viable plan to address Company's liquidity needs.
New Debt Financing
New Credit Facility. Patriot has recently signed a commitment letter with
Chase Securities Inc. and The Chase Manhattan Bank for senior credit
facilities for Wyndham in the amount of $1.8 billion, comprised of a term loan
facility and a revolving loan facility. Definitive agreements relating to the
new credit facility are expected to be finalized at the same time that the
$1 billion equity investment is consummated. The commitment letter provided
that the Chase Manhattan Bank will act as the administrative agent and Chase
Securities Inc. will act as the lead arranger for a syndicate of lenders which
will provide Wyndham with $1 billion in term loans and up to $800 million
under the revolving loan facility, of which a maximum of $560 million may be
drawn at the closing of the investment. The term loan facility and the
revolving facility carry terms of 7 years and 5 years, respectively. The
commitment letter based interest rates for the new credit facility upon LIBOR
spreads varying from 1.50% to 3.00% per annum (for the revolving loan
facility) and 3.00% to 3.75% per annum (for the term loan facility), based
both on Wyndham's leverage ratio and on whether any increasing rate loans
(described below) are outstanding. However, at Wyndham's election or under
other specified circumstances, the term loans and revolving loans may instead
bear interest at an alternative base rate plus the applicable spread. The
alternative base rate is equal to the greater of The Chase Manhattan Bank's
prime rate or federal funds rate plus 0.5%, and the alternative spread is 1.0%
below the applicable LIBOR spread. Subject to limited agreed-upon exceptions,
the New Credit Facility will be guaranteed by the domestic subsidiaries of
Wyndham, and will be secured by pledges of equity interests held by Wyndham
and its subsidiaries. The proceeds from the term loan facility will be used to
finance the restructuring of Wyndham and Patriot. The proceeds from the
revolving loan facility will be used for working capital and general corporate
purposes.
Increasing Rate Loans. Wyndham and Patriot have signed a commitment letter
with The Chase Manhattan Bank, Chase Securities Inc., Bear, Stearns & Co.
Inc., and The Bear Stearns Companies Inc. providing that The Chase Manhattan
Bank, The Bear, Stearns Companies Inc. and a possible syndicate of other
lenders will provide an increasing rate loan facility in the amount of up to
$650 million. The increasing rate loans carry a term of 5 years. Interest
rates for the increasing rate loans are based on LIBOR spreads and are
initially set at 0.25% below the initial LIBOR spread on the term loan
facility, but increase by 0.50% every three months, with a cap of LIBOR plus
4.75%. However, under other specified circumstances, interest accrues at an
alternate rate equal to the rate borne by three-month treasury securities plus
1.0%, plus the applicable spread. The lenders under the increasing rate loans
receive the benefit of the same guarantees and pledges of security provided
under the New Credit Facility. The proceeds from the increasing rate loans
will be used to finance the restructuring of Wyndham and Patriot.
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Wyndham's ability to borrow under its revolving facility is subject to
Wyndham's compliance with a number of customary financial and other covenants,
including total leverage and interest coverage ratios, limitations on
additional indebtedness, and limitations on investments and stockholder
dividends.
In May 1999, The Chase Manhattan Bank and Chase Securities Inc. notified the
companies that they were exercising their rights under the "market flex"
provisions of the commitment letters to change the terms of the senior credit
facilities and the increasing rate loan facility. The revolving credit
facility has been reduced from $800 million to $600 million, the term loan
facility has been increased from $1 billion to $1.2 billion and the maximum
that may be drawn at the closing has been reduced from $560 million to $400
million.
Wyndham and Patriot have agreed to pay to the agents and the lenders
customary fees for a facility of this nature of approximately $61 million.
Interstate's Third-Party Hotel Management Business
In May, 1998, Patriot along, with Interstate Hotels Company ("Interstate")
entered into a settlement agreement (as amended, the "Settlement Agreement")
with Marriott International, Inc. ("Marriott") which addressed certain claims
asserted by Marriott in connection with Patriot's then proposed merger with
Interstate. The Settlement Agreement provided for the dismissal of litigation
brought by Marriott, and allowed Patriot's merger with Interstate to close. In
addition to dismissal of the Marriott litigation, the Settlement Agreement
provides for the Companies re-branding of ten Marriott hotels under the
Wyndham name, Marriott's assumption of the management (the "Assumed Management
Contracts") of ten Marriott hotels formerly managed by Interstate for the
remaining term of the Marriott franchise agreement, and the divestiture of the
third-party management business which was operated by Interstate no later than
June 14, 1999.
If the Companies do not complete the spin-off by June 14, 1999, Marriott
will be entitled to receive liquidated damages. We will also be subject to
additional penalties including Marriott's right to purchase, subject to third-
party consents, the hotels to be submanaged by Marriott and six additional
Marriott hotels owned by Patriot at their then appraised values.
Moreover, subject to any defenses the Companies may have, we would owe
Marriott liquidated damages with respect to the hotels converted to the
Wyndham brand, those to be submanaged by Marriott, and the six additional
Marriott hotels Marriott would have the option to purchase. The Companies also
anticipate that Marriott would require third-party owners of Marriott-branded
hotels that Wyndham manages to replace Wyndham as manager of their hotels. As
a result, each respective hotel would either: (1) lose the Marriott brand, at
which time the Companies would have to compensate Marriott for any lost
franchise fees or (2) terminate the management contract with us and enter into
a contract with another manager. The Companies would owe liquidated damages on
any third-party Marriott-franchised hotel which chooses to convert its brand.
Renovations and Capital Improvements
During 1998, the Companies completed approximately $175 million in total
capital improvements and renovations on various hotel properties, including
(i) costs related to converting hotels to one of the Companies' proprietary
brands; (ii) costs related to recurring maintenance capital expenditures (iii)
costs related to enhancing the revenue-producing capabilities of its hotels.
Approximately $76 million of the total capital costs related to 33 hotels that
were converted to proprietary brands in 1998. These major renovations included
upgrading the quality of the furniture and fixtures in guest rooms, public
meeting space and lobby areas as well as adding additional rooms to certain of
the hotels. Patriot completed over $82.2 million of capital improvements and
renovations during 1997. During 1997, approximately $56.9 million of total
capital improvement expenditures were related to significant renovations at
certain of the hotel properties.
Pursuant to the Participating Leases, Patriot is obligated to establish a
reserve for each hotel for capital improvements, including the periodic
replacement or refurbishment of furniture, fixtures and equipment ("F F&E").
Management reserves an average of 4.0% of total hotel revenues and believes
such amounts are
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sufficient to fund recurring capital expenditures for the hotels. Capital
expenditures, exclusive of renovations, may exceed 4.0% of total revenues in a
single year.
The Companies attempt to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruption to
the hotel's operations. Therefore, management does not believe such
renovations and capital improvements will have a material effect on the
results of operations of the hotels. However, no assurance can be made that
such renovations and capital improvements will not impact the results of
operations. Capital expenditures will be financed through the capital
expenditure reserves, the Credit Facility, other financing sources, or with
working capital.
Legislation Affecting the Paired Share Structure
Patriot's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of Section 269B(a)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"). Section 269B(a)(3) of the Code
would ordinarily prevent a corporation from qualifying as a REIT if its stock
is paired with the stock of a corporation whose activities are inconsistent
with REIT status, such as Wyndham. The "grandfathering" rules governing
Section 296B generally provide, however, that Section 296B(a)(3) does not
apply to a paired REIT if the REIT and its paired operating company were
paired on June 30, 1983. There are, however, no judicial or administrative
authorities interpreting this "grandfathering" rule in the context of a merger
into a grandfathered REIT or otherwise. Moreover, although Patriot's and
Wyndham's respective predecessors, Cal Jockey and Bay Meadows, were paired on
June 30, 1983, if for any reason Cal Jockey failed to qualify as a REIT in
1983 the benefit of the grand fathering rule would not be available to Patriot
and Patriot would not qualify as a REIT for any taxable year.
Patriot's exemption from the anti-pairing rules could be lost, or its
ability to utilize the paired structure could be revoked or limited, as a
result of future legislation. In this regard, legislation to freeze the
grandfathered status of paired share REITS such as Patriot was included in the
Internal Revenue Service Restructuring and Reform Act of 1998 (the "IRS Reform
Act of 1998"), which was signed into law by the President on July 22, 1998.
Under the IRS Reform Act of 1998, the anti-pairing rules generally apply to
real property interests acquired after March 26, 1998 by Patriot and Wyndham,
or a subsidiary or partnership in which a 10% or greater interest is owned by
Patriot or Wyndham (collectively, the "REIT Group"), unless (i) the real
property interests are acquired pursuant to a written agreement which is
binding on March 26, 1998 and all times thereafter or (ii) the acquisition of
such real property interests were described in a public announcement or in a
filing with the Securities and Exchange Commission on or before March 26,
1998. In addition, the grandfathered status of any property under the
foregoing rules will be lost if the rent on a lease entered into or renewed
after March 26, 1998, with respect to such property exceeds an arm's-length
rate. The IRS Reform Act of 1998 also provides that a property held by Patriot
or Wyndham that is not subject to the anti-pairing rules would become subject
to such rules in the event of an improvement placed in service after December
31, 1999 that changes the use of the property and the cost of which is greater
than 200 percent of (x) the undepreciated cost of the property (prior to the
improvement) or (y) in the case of property acquired where there is a
substituted basis, the fair market value of the property on the day it was
acquired by Patriot and Wyndham. There is an exception for improvements placed
in service before January 1, 2004 pursuant to a binding contract in effect as
of December 31, 1999 and at all times thereafter.
The IRS Reform Act of 1998 generally permits Patriot to continue its current
method of operations with respect to its existing assets, including the assets
acquired in the Interstate merger, the Arcadian acquisition, the Summerfield
acquisition and the CHCI merger. However, the legislation would require
Patriot to modify its method of operations with respect to newly acquired
assets.
Year 2000 Compliance
Many computer systems were not designed to interpret any dates beyond 1999,
which could lead to business disruptions in the United States and
internationally (the "Year 2000 issue"). The Companies recognize the
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importance of minimizing the number and seriousness of any disruptions that
may occur as a result of Year 2000 and have adopted an extensive compliance
program. The Companies' compliance program involves three major program areas:
. corporate information technology infrastructure and reservation systems
. other electronic assets (such as, but not limited to, automated time
clocks, point-of-sale systems, non-information technology systems,
including embedded technologies that operate fire-life safety systems,
phone systems, energy management systems and other similar systems)
. third parties with whom the Companies conduct business
The Companies are applying a three phase approach to each program area:
. Inventory Phase (identify systems and third parties that may be affected
by Year 2000 issues)
. Assessment Phase (prioritize the inventoried systems and third parties,
assess their Year 2000 readiness, plan corrective actions)
. Remediation Phase (implement corrective actions, verify implementation,
formulate contingency plans)
The Companies engaged a consulting firm to conduct the inventory and
assessment phases of the compliance program. The Companies have completed
inventory and assessment phases with respect to their corporate information
technology infrastructure and reservation systems. The Companies have also
completed the inventory and assessment phases with respect to the information
technology and other electronic assets that are located in the Companies'
Hotels, other than some of the Hotels which are either managed by Wyndham but
not owned by Patriot or owned by Patriot but not leased or operated by Wyndham
(the "Third Party Compliance Hotels"). Based on those assessments, the
Companies, working with their consultants, determined which systems were not
Year 2000 compliant and developed appropriate remediation plans.
The Companies have begun the necessary work to remediate those systems at
their owned and leased Hotels, and have completed 10 percent of that work. The
Companies previously engaged a consulting firm to provide the support and
additional skills to effect the necessary remediation in sufficient time for
testing and any necessary modifications.
Of the 93 Third Party Compliance Hotels that were not acquired in the merger
with Interstate Hotels (the "Interstate merger"), 66 Third Party Compliance
Hotels have been assessed as part of the Companies' compliance program and the
Companies have begun to implement remediation plans at 21 of those hotels. The
owners of the other 45 Third Party Compliance Hotels that were assessed have
to date neither taken any action to effect the necessary remediation
identified in the assessment nor authorized the Companies to effect the
remediation on behalf of the owners. While none of the remaining 27 Third
Party Compliance Hotels have been assessed by the Companies, 4 of the owners
have informed the Companies that the owners completed their own assessments.
The Companies are continuing to monitor the status of the Third Party
Compliance Hotels and have reminded the owners of the importance of making the
Third Party Compliance Hotels Year 2000 compliant in sufficient time to permit
adequate testing. The Companies have begun surveying the Year 2000 compliance
of the owners of the hotels that are franchised under the Wyndham brand but
not managed by Wyndham, and have informed those owners of the appropriate
standards to make the equipment operating Wyndham's systems Year 2000
compliant. However, as the systems at the Third Party Compliance Hotels and
franchised hotels are not under the Companies' control, the Companies will be
required to rely on the information provided by those owners or
managers/operators and will not be able to test the assessment or remediation
effected by third parties at the Third Party Compliance Hotels or the
franchised hotels.
The Companies presently expect to expend approximately $34 million in
connection with Year 2000 issues. To date, the Companies have incurred $1.75
million in connection with the inventory and assessment phases of their
compliance program and $4.6 million to remediate their systems. However, the
Companies' anticipated expenditures may increase as the Companies effect the
remediation plans.
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As part of the settlement of litigation arising out of the Interstate
merger, the Companies agreed to contribute to a new company management of the
Third Party Compliance Hotels acquired in that merger, and then dispose of
substantially all of that new company's stock by means of a spin-off to the
Companies' shareholders or otherwise. As the hotels acquired in the Interstate
merger whose management will be contributed to the new company are owned by
third parties, the Companies expect those owners to bear all costs related to
the inventory, assessment and remediation of those hotels.
The Companies have identified the vendors and service providers that are
critical to the Companies' businesses and have requested those parties to
provide information concerning their Year 2000 compliance and remediation
efforts. The Companies are now seeking additional information from those
parties that did not respond or did not provide sufficient information, but
cannot guarantee that all vendors or service providers will comply with the
Companies' requests. More importantly, the Companies must rely on the
information provided by the third parties and will not be able to test the
third parties' compliance. As a result, the Companies may not be able to
accurately determine the Year 2000 compliance of those vendors or service
providers. Based on preliminary responses, the Companies believe that their
most critical vendors and service providers will not cause the Companies'
operations to be materially disrupted as a result of Year 2000 issues. During
1999, the Companies intend to determine the extent to which they will be able
to replace vendors and service providers that are expected to be non-
compliant. Due to the lack of an alternative source, there may be instances in
which the Companies will have no alternative but to remain with non-compliant
vendors or service providers. As the Companies identify the non-compliant
vendors and service providers, they will then determine appropriate
contingency plans.
The Companies believe that their current compliance program will allow them
sufficient time to identify which of their systems and other electronic assets
are not Year 2000 compliant and to effect the necessary remediation to avoid
substantial problems arising from Year 2000 induced failures. The Companies
believe that their reprogramming, upgrading and systems replacements will be
implemented by the end of the third quarter of 1999. The Companies believe
that this should provide adequate time to further correct any problems that
did not surface during the implementation and testing for those systems.
Notwithstanding that, the Companies do recognize that some vendors and the
owners and managers/operators of the Third Party Compliance Hotels may not
comply with their present schedules and could affect the Companies' timing and
remediation efforts generally. If the Companies are not successful in
implementing their Year 2000 compliance plan, the Companies may suffer a
material adverse impact on their consolidated results of operations and
financial condition.
In addition to those systems within the Companies' control and the control
of its vendors and suppliers, there are other systems that could have an
impact on the Companies' businesses and which may not be Year 2000 compliant
by January 1, 2000. These systems could affect the operations of the air
traffic control system and airlines or other segments of the lodging and
travel industries, or the economy and travel generally. In addition, these
systems could affect the Third Party Compliance Hotels or the Hotels
franchised under the Companies' brands whose owners and managers/operators are
implementing their own compliance programs. These systems are outside of the
Companies' control or influence and their compliance may not be verified by
the Companies. However, these systems could adversely affect the Companies'
financial condition or results of operation.
During the second quarter of 1999, the Companies intend to develop
contingency plans to address potential Year 2000 induced failures. Because the
Companies have no control over third party assessment and remediation efforts,
the Companies expect to focus most of their contingency planning on externally
caused disruptions. In addition, the Companies will develop their plans on
their belief that the consequences of Year 2000 induced failures will be local
in nature. These plans will be based on existing contingency plans for
operations during storms and other natural disasters. While each Hotel will
develop a contingency plan, any disruption in utilities or other key local
services could have the effect of disrupting operations of several Hotels
located in the affected geographic area. As part of the Companies' contingency
planning, they also expect to evaluate their continued management of the Third
Party Compliance Hotels that do not become Year 2000 compliant.
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Inflation
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit Wyndham's and the Lessees'
ability to raise room rates in the face of inflation.
Seasonality
The hotel industry is seasonal in nature. Revenues for certain of Patriot's
hotels are greater in the first and second quarters of a calendar year and at
other hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at the hotels may cause quarterly fluctuations in the
Patriot Companies' revenues.
FUNDS FROM OPERATIONS
Combined Funds from Operations of the Companies (as defined and computed
below) $86.4 million for the year ended December 31, 1998 and $57.0 million
for the year ended December 31, 1997.
Funds from Operations, as defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation of
real property, amortization of goodwill and amortization of management
contracts and trade names, and after adjustments for unconsolidated
partnerships, joint ventures and corporations. Adjustments for Patriot's
unconsolidated subsidiaries are calculated to reflect Funds from Operations on
the same basis.
The Companies believe that Funds from Operations is helpful to investors as
a measure of the performance of an equity REIT because, along with cash flow
from operating, financing, and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures, and to fund other cash needs. The Companies believe
that in order to facilitate a clear understanding of their operating results,
Funds from Operations should be examined in conjunction with net income (loss)
as presented in the audited combined financial statements of the Companies.
Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
should not be considered as an alternative to net income or other measurements
under generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financing activities
as a measure of liquidity. Funds from Operations does not reflect working
capital changes, cash expenditures for capital improvements or principal
payments on indebtedness.
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The following reconciliation of net (loss) income to Funds from Operations
illustrates the difference between the two measures of operating performance
for the years ended December 31, 1998, 1997 and 1996 and for the period
October 2, 1995 (inception of operations) through December 31, 1995:
<TABLE>
<CAPTION>
Period
October 2, 1995
Year Ended December 31, (inception of operations)
--------------------------- through
1998 1997 1996 December 31, 1995
--------- ------- ------- -------------------------
(in thousands)
<S> <C> <C> <C> <C>
Net (loss) income....... $(158,223) $(2,172) $37,991 $5,359
Add:
Extraordinary loss
from early
extinguishment of
debt................. 31,817 2,534 -- 737
Minority interest in
the Operating
Partnerships......... (12,651) 1,684 6,767 968
Minority interest in
consolidated
subsidiaries......... (8,185) -- -- --
Depreciation of
buildings and
improvements and
furniture, fixtures
and equipment........ 176,059 47,694 17,302 2,529
Amortization of
goodwill............. 28,702 1,851 -- --
Amortization of
management contracts
and trade names...... 24,323 1,886 204 50
Adjustment for Funds
from Operations of
unconsolidated
subsidiaries:
Equity in earnings of
unconsolidated
subsidiaries......... (9,498) (6,015) (5,845) (156)
Funds from Operations
of unconsolidated
subsidiaries......... 14,018 9,581 8,044 311
--------- ------- ------- ------
Funds from Operations... $ 86,362 $57,043 $64,463 $9,798
========= ======= ======= ======
Weighted average shares
and OP units
outstanding:
Basic................. 152,778 74,219 51,721 43,923
========= ======= ======= ======
Diluted............... 163,532 76,040 52,259 44,060
========= ======= ======= ======
</TABLE>
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ITEM 7a. QUALITATIVE AND QUANTATIVE DISCLOSURES ABOUT MARKET RISKS
The Companies' primary market risk exposure is to future changes in interest
rates related to the Companies' derivative financial instruments and other
financial instruments including debt obligations, interest rate swaps,
interest rate caps, future debt commitments, and interest rate sensitive
forward equity contracts.
In addition to the risk of interest rate fluctuations, Patriot is exposed to
market risk with respect to forward stock contracts that are sensitive to
changes in the price of the Companies' common stock.
Patriot 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 the Companies' exposure to rising interest rates.
The following table provides information about the Companies' derivative and
other financial instruments that are sensitive to changes in interest rates
and the market price of the Companies' stock.
. 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 December 31, 1998. For
variable rate debt obligations, the table presents principal cash
flows by expected maturity date and contracted interest rates at
December 31, 1998.
. Variable rate debt commitments represent commitments from lenders for
future credit facilities that may be obtained to replace portions of
the current fixed and variable debt obligations. The debt commitments
were entered into subsequent to December 31, 1998 and are not binding
at this time. For variable rate debt commitments, the table presents
principal cash flows by expected maturity date and expected average
contracted interest rates at December 31, 1998.
. 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 December 31, 1998.
. For forward equity contracts which are both interest rate and stock
price sensitive, the table presents the notional amounts, the
weighted-average interest rates and the stock price at December 31,
1998 by expected maturity dates.
Upon completion of the new credit facility, most of the maturities of the
variable rate debt obligations will be replaced with the maturities of the
variable rate debt commitments. The "market flex" provisions of the debt
commitments permit the lenders to change the allocation of debt among the
credit facilities and the increasing rate loan facility, as well as adjust the
interest rate spreads applicable to the debt. If the lenders allocate debt
from a less expensive to a more expensive facility, or if the lenders increase
the interest rate applicable to the debt, Wyndham will incur higher interest
expense.
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<TABLE>
<CAPTION>
Face Fair
1999 2000 2001 2002 2003 Thereafter Value Value
---------- ---------- -------- ------- -------- ---------- ---------- ----------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt
Long-term Debt
obligations including
Current Portion
Fixed Rate............. $ 8,169 $ 18,767 $ 8,881 $48,163 $ 8,393 $ 301,531 $ 393,904 $ 393,904
Average Interest Rate.. 9.38% 8.60% 9.13% 9.01% 9.02% 8.26%
Variable Rate.......... $1,266,749 $1,348,500 $134,603 $17,300 $652,431 $ 44,034 $3,463,617 $3,463,617
Average Interest Rate.. 7.27% 7.29% 7.29% 7.56% 7.24% 6.39%
Debt Commitment
Variable Rate.......... -- -- $ 10,000 $10,000 $ 10,000 $2,420,000 $2,450,000 $2,450,000
Average Interest Rate.. 8.61% 8.86% 8.90% 8.90% 8.90% 8.84%
Interest Rate Derivative
Financial Instruments
Related to Debt and
Equities
Interest Rate Swaps
Pay Fixed/Receive
Variable.............. -- $ 72,000 -- $50,000 $250,000 -- $ 822,000 $ (24,836)
Average Pay Rate....... 5.93% 5.93% 5.94% 5.94% 5.84% --
Avg. Receive Rate...... 5.08% 5.08% 5.09% 5.09% 5.12% --
Interest Rate Caps
Notional Amount........ $ 313,750 -- $ 38,000 -- -- $ 29,125 $ 380,875 $ 144
Strike Rate............ 6.92% 8.12% 8.12% 8.50% 8.50% 8.50%
Forward Rate........... 4.98% 4.95% 5.18% 5.24% 5.36% 5.45%
Forward Equity Contracts
Notional Amount........ $ 313,300 -- -- -- -- -- $ 313,300 $ 313,300
Average Interest Rate.. 10.06% -- -- -- -- --
Financial Instrument
Related to Equity
Forward Equity Contracts
Notional Amount........ $ 313,300 -- -- -- -- -- $ 313,300 $ 313,300
Stock Price per share.. $ 6.00 -- -- -- -- --
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditors' reports, financial statements and financial
statement schedules listed in the accompanying index are filed as part of this
report. See Index to Financial Statements and Financial Statement Schedules on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are the principal executive officers of Wyndham
and Patriot:
James D. Carreker has served as the Chairman of the Board of Directors and
Chief Executive Officer of Wyndham as well as a director of Patriot since
January 1998. In February 1999, Mr. Carreker was also named Chief Executive
Officer of Patriot. Prior to the merger of Wyndham Hotel Corporation with the
companies in January 1998, Mr. Carreker had served as President and Chief
Executive Officer of Wyndham Hotel Corporation from May 1988 to January 1998
and as a director of Wyndham Hotel Corporation from February 1996 to January
1998. He also served as Chief Executive Officer of Trammell Crow Company, a
national real estate company, from August 1994 to December 1995. Prior to
1988, Mr. Carreker served as President of Burdine's, the Miami based division
of Federated Department Stores. Mr. Carreker also serves as a director of
Trammell Crow Company and of Carreker-Antinori, Inc., a computer service
company that completed its initial public offering in May 1998. Mr. Carreker
holds a B.S. and a Master of Business Administration from Oklahoma State
University. Mr. Carreker is 51 years old.
William W. Evans III currently serves as the President and Chief Operating
Officer and a director of Patriot. He also serves as an Executive Vice
President of Wyndham. Mr. Evans has been an executive officer of the companies
since March 1997, and a director since July 1997. Prior to joining the
companies, Mr. Evans was a Managing Director in PaineWebber's Real Estate
Group. He joined PaineWebber as a result of the firm's acquisition of Kidder,
Peabody and Co. Incorporated in December 1994. Prior to joining Kidder,
Peabody in 1992, Mr. Evans was a First Vice President and head of the Real
Estate Financing Division of Swiss Bank Corporation. Mr. Evans is a graduate
of the University of Virginia. Mr. Evans is 48 years old.
Richard Mahoney became Chief Financial Officer of Wyndham in May 1999.
Before joining Wyndham, Mr. Mahoney served as Executive Vice President and
Chief Operating Officer of Starwood Hotels & Resorts' gaming division. From
1995 to 1998, Mr. Mahoney served as Executive Vice President and Chief
Financial Officer of Westin Hotels & Resorts. From 1988 to 1993, he served as
Vice President and Controller of Carnival Hotels and Casinos. Mr. Mahoney
holds an M.S. in Finance from Boston College. Mr. Mahoney is 46 years old.
Anne L. Raymond became Chief Investment Officer of Wyndham in May 1999. Ms.
Raymond became an Executive Vice President of Patriot in January 1998 in
connection with the closing of the Wyndham merger. In addition, Ms. Raymond
served as Chief Financial Officer of Patriot from the closing of the Wyndham
merger in January 1998 until May 1999. Ms. Raymond also served as Treasurer of
Patriot from January 1998 to March 1998. Ms. Raymond joined Wyndham Hotel
Corporation in 1983 as Controller and served in that and other financial
capacities through September 1987. From September 1987 to July 1994, she
served as Investment Manager for Crow Family Holdings, where her
responsibilities included managing and overseeing Crow Family Holdings'
interest in the Trammell Crow Company and Wyndham Hotel Corporation. Upon the
formation of the Crow Investment Trust in August 1994, Ms. Raymond was named
Director--Capital Markets and had responsibility for developing and
maintaining investment relationships with real estate capital sources. In
March 1995, Ms. Raymond rejoined Wyndham Hotel Corporation as Executive Vice
President and Chief Financial Officer, and was elected a director of Wyndham
Hotel Corporation in April 1996. Ms. Raymond holds a B.S. in Business
Administration from the University of Missouri. Ms. Raymond is 41 years old.
Leslie V. Bentley became an Executive Vice President of Wyndham in January
1998. He was employed by Wyndham Hotel Corporation since March 1985, served as
Executive Vice President and President of the Wyndham Garden Division since
May 1990 and was elected a director of Wyndham Hotel Corporation in January
1997. From January 1987 to June 1988, Mr. Bentley served as Regional Vice
President of Wyndham Hotel Corporation. From June 1988 to December 1988, Mr.
Bentley served as Vice President of Operations of Wyndham Hotel Corporation
and from December 1988 to May 1990, he served as Senior Vice President of
Operations of Wyndham Hotel Corporation. Prior to joining Wyndham Hotel
Corporation, Mr. Bentley was
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employed by Marriott International Hotels for eight years. Mr. Bentley holds a
B.S. in Hotel and Restaurant Administration from Pennsylvania State
University. Mr. Bentley is 47 years old.
Robert R.A. Breare serves as Executive Vice President of Wyndham and is the
divisional President of the Companies European division, which includes
Arcadian and Malmaison. Mr. Breare founded Arcadian International PLC in April
1990 with an initial focus on leisure resort development and served as its
chief executive officer until the acquisition of Arcadian by the companies.
Previously, Mr. Breare served in the publishing industry and joined Parkdale
Holdings PLC in 1987 as CEO. He was educated at Eton before completing an MA
in law at Cambridge University. Mr. Breare is 46 years old.
Michael A. Grossman serves as Executive Vice President of Wyndham and
divisional president of the management services division of the Companies.
From 1977 to 1993, Mr. Grossman owned and operated Grossman and Associates, a
hotel management company. Mr. Grossman joined Patriot American in August 1993
as a Senior Vice President heading up its hotel division. Mr. Grossman was
subsequently appointed Chief Operating Officer of Gencom American Hospitality
(GAH), which initially served as a third party manager for Old Patriot and was
subsequently acquired by Patriot. Mr. Grossman holds a B.B.A. from the
University of Texas and a J.D. from Southern Methodist University.
Mr. Grossman is 46 years old.
Richard A. Holtzman serves as Executive Vice President of Wyndham and is the
divisional President of Grand Bay Hotels and Resorts which is a division of
Wyndham International, Inc. in January 1997. Mr. Holtzman served as president
and chief operating officer with Westcor Resorts from July 1998. Mr. Holtzman
is a graduate of Cornell University with a B.A. in hotel administration.
Mr. Holtzman is 45 years old.
Lawrence S. Jones was named Executive Vice President and Treasurer of
Patriot and Wyndham in March 1998. Mr. Jones joined Coopers & Lybrand in 1972
and continued there as a partner until March 1998 where he served as Chairman
of the firm's REIT industry practice. Mr. Jones holds a B.S. from the
University of Berkeley and an M.S. from UCLA. Mr. Jones is a certified public
accountant. Mr. Jones is 52 years old.
Stanley M. Koonce, Jr. became Executive Vice President--Marketing and
Strategic Planning of Wyndham in January 1998. He served as Executive Vice
President--Marketing, Planning and Technical Services of Wyndham Hotel
Corporation since October 1994, was elected a director of Wyndham Hotel
Corporation in January 1997 and served as Senior Vice President of Sales and
Marketing of Wyndham Hotel Corporation from October 1989 to October 1994. Mr.
Koonce served as President of CUC Travel Services, a division of CUC
International, in Stamford, Connecticut from 1986 to 1989, as Vice President
of the Marketing Department with American Express from 1979 to 1986 and as a
Director of Finance and Planning for American Airlines from 1976 to 1979. Mr.
Koonce holds a B.S. in Mathematics and an M.B.A. from the University of North
Carolina. Mr. Koonce is 50 years old.
Thomas W. Lattin became an Executive Vice President of Wyndham Hotel
Corporation in October 1997. He became President and Chief Operating Officer
of Patriot American Hospitality, Inc., a Virginia corporation, in April 1995
and continued in such capacity for Patriot American Hospitality Operating
Company from July 1997. From 1987 through 1994, he served as the National
Partner of the hospitality industry consulting practice of Laventhol &
Horwarth and subsequently as a partner in the national hospitality consulting
group of Coopers & Lybrand L.L.P. In 1994, he joined the Hospitality Group of
Kidder, Peabody & Co. Incorporated as a Senior Vice President and later served
as a Senior Vice President with PaineWebber Incorporated. Mr. Lattin holds a
B.S. and M.S. in Hotel Management from the Cornell School of Hotel
Administration. He is a certified public accountant. Mr. Lattin is 54 years
old.
Carla S. Moreland was named Executive Vice President-General Counsel of
Wyndham in April 1999. She served as Senior Vice President-General Counsel of
Wyndham since January 1998. Ms. Moreland served as general counsel of Wyndham
Hotel Corporation since April 1994. From 1987 to 1994 she practiced law with
the
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firm of Weil Gotshol and Manges. Ms. Moreland holds a B.A. and J.D. from The
College of William and Mary. Ms. Moreland is 39 years old.
Paul Novak was named Executive Vice President--Acquisitions and Development
of Patriot in January 1998. From June 1997 through January 1998, Mr. Novak
served as Executive Vice President--Acquisitions and Development of Wyndham.
From 1994 through June 1997, Mr. Novak was President and Chief Executive
Officer of Bedrock Partners, a private investment group established in 1994 to
acquire hotel properties and convert them to Wyndham Hotels or Wyndham Garden
Hotels. From 1992 through 1994, Mr. Novak was a principal in his own
consulting firm where he directed real estate development, marketing and
acquisition assignments for numerous clients. Prior thereto, he served as a
Senior Vice President of Marriott International from 1981 until 1992 with
responsibility for developing more than 400 properties. Mr. Novak is a member
of the Urban Land Institute, The National Realty Committee and the Travel and
Tourism Research Association. He holds a B.A. from Michigan State University.
Mr. Novak is 52 years old. Mr. Novak's employment with the companies
terminated effective May 1999.
Current Directors of Wyndham
The following is a biographical summary of the experience of the directors
of Wyndham:
Karim Alibhai served as the President and Chief Operating Officer of Wyndham
until his resignation on May 21, 1999. He has served as a director of Wyndham
since October 1997. Prior to joining Wyndham in October 1997, Mr. Alibhai was
the President and Chief Executive Officer of the Gencom Group, an affiliated
group of companies that acquired, developed, renovated, leased and managed
hotel properties in the United States and Canada through Gencom American
Hospitality. He holds a B.A. from Rice University. Mr. Alibhai is 34 years
old.
Leonard Boxer has served as a director of Wyndham since July 1997. He had
served as a director of Patriot and its predecessor from September 1995 to
July 1997. He has been a partner and chairman of the real estate department of
the law firm of Stroock & Stroock & Lavan in New York, New York since 1987.
Previously, he was a founder and managing partner and head of the real estate
department of Olnick Boxer Blumberg Lane & Troy, a real estate law firm in New
York. Mr. Boxer is a member of the Board of Trustees of New York University
Law School. He is a member of the New York Regional Cabinet of the United
States Holocaust Memorial Museum. Mr. Boxer holds a B.A. and an LL.B. from New
York University. Mr. Boxer is 60 years old.
James D. Carreker has served as Chairman of the Board of Directors of
Wyndham since January 1998. For biographical information on Mr. Carreker, see
"--Principal Executive Officers of Wyndham and Patriot."
Burton C. Einspruch, M.D. has served as a director of Wyndham since July
1997. Dr. Einspruch is a physician and corporate medical consultant and has
practiced medicine since 1960. He holds a B.A. and Sc.B. from Southern
Methodist University and an M.D. from Southwestern Medical School of the
University of Texas. Dr. Einspruch is the Medical Director of First Southwest
Company, a national brokerage firm, and also currently serves as a director of
Dallas National Bank. He has served as a board member and advisor to numerous
corporations and philanthropies and is currently Chairman of the Holocaust
Studies Program Advisory Board at the University of Texas at Dallas, as well
as the Executive Board of the Libraries of Southern Methodist University. Dr.
Einspruch has attained the academic rank of Clinical Professor of Psychiatry
of Southwestern Medical School and Clinical Associate Professor of Psychiatry
at New York University Medical Center. Dr. Einspruch is 64 years old.
Susan T. Groenteman has served as a director of Wyndham since January 1998.
Ms. Groenteman had served as a director of Wyndham Hotel Corporation from
April 1996 to January 1998. Ms. Groenteman is a Director and chief operating
officer of Crow Family Holdings, an investment company managing investments in
a variety of real estate related businesses, along with other industries, a
position she has held since 1988. In
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any given year within the past five years, Ms. Groenteman has served as an
executive officer or director in over 1,000 partnerships (or affiliates of
partnerships) or corporations. In the past five years, Ms. Groenteman has
served as an executive officer or director of approximately 57 partnerships or
corporations, or for affiliates of such entities, that filed for protection
under federal bankruptcy laws. In addition, in the past five years, Ms.
Groenteman served as an executive officer or director in approximately 15
partnerships or corporations, or affiliates of such partnerships or
corporations, that were placed in receivership. Ms. Groenteman holds a
Bachelor of Business Administration from the University of Texas at Arlington.
Ms. Groenteman is 45 years old.
Arch K. Jacobson has served as a director of Wyndham since July 1997. He has
served as President of Jacobson-Berger Capital Group, Inc., a commercial
mortgage banking firm, since 1993. From 1986 to 1993, Mr. Jacobson was
Chairman of Union Pacific Realty Co., a real estate management and development
company. He served in various capacities with the Real Estate Department of
the Prudential Insurance Company from 1955 to 1980 and was President and Chief
Executive Officer of the Prudential Development Company (a subsidiary of the
Prudential Insurance Company) from 1982 to 1986. Mr. Jacobson currently serves
as a director of Walden Residential Properties, Inc., a publicly traded,
multifamily apartment REIT. He was formerly a director of La Quinta Limited
Partners, and chaired the committee of independent directors that negotiated
the tender offer for and purchase of that company in 1994. Mr. Jacobson holds
a B.S. from Texas A&M University. Mr. Jacobson is 71 years old.
James C. Leslie has served as a director of Wyndham since January 1998. He
had served as a director of Wyndham Hotel Corporation from June 1996 to
January 1998. Mr. Leslie has served as President and Chief Operating Officer
of The Staubach Company since March 1996. Mr. Leslie served as Chief Financial
Officer of The Staubach Company from 1982 to 1992 and President-Staubach
Financial Services from January 1992 to March 1996. Mr. Leslie is also
President and a board member of Wolverine Holding Company and serves on the
board of Columbus Realty Trust, FM Properties, Inc., Forum Retirement
Partners, L.P. and The Staubach Company, as well as other private corporations
and charitable organizations. Mr. Leslie is a certified public accountant. Mr.
Leslie holds a B.S. from the University of Nebraska and an M.B.A. from the
University of Michigan. Mr. Leslie is 43 years old.
Paul A. Nussbaum has served as a director of Wyndham since January 1998.
Currently, he serves as Chairman Emeritus of the Board of Directors of Wyndham
and Patriot. Prior to his association with Patriot, Mr. Nussbaum practiced
real estate and corporate law in New York for 20 years, the last 12 years of
which he was chairman of the real estate department of Schulte Roth & Zabel.
Mr. Nussbaum serves as a member of the Board of Directors of the Dallas
Symphony and is a member of the Urban Land Institute, the American College of
Real Estate Lawyers and the Advisory Board of the Real Estate Center of the
Wharton School of Business, University of Pennsylvania. Mr. Nussbaum is a
member of the Board of Visitors of the Georgetown University Law Center and a
Trustee of Colby College, Waterville, Maine. He also serves on the Board of
Directors of Mack-Cali Realty Corporation. He holds a B.A. from the State
University of New York at Buffalo and a J.D. from the Georgetown University
Law Center. Mr. Nussbaum is 51 years old.
Rolf E. Ruhfus became a director of Wyndham in June 1998. Mr. Ruhfus served
as Chairman of the Board of Directors and Chief Executive Officer of
Summerfield Hotel Corporation from 1987 through June 1998 when Summerfield was
acquired by Wyndham. Prior to founding Summerfield, Mr. Ruhfus served as
President of Residence Inn Corporation from 1983 until the franchise and
management system assets were sold to Marriott Corporation. Mr. Ruhfus holds a
B.A. from Western Michigan University, an M.B.A. from the Wharton School of
Business and a Ph.D. in Marketing from the University of Munster, Germany. Mr.
Ruhfus is 54 years old.
Sherwood M. Weiser has served as a director of Wyndham since October 1997.
Currently, Mr. Weiser is the Chairman and Chief Executive Officer of Carnival
Hotels & Casinos, a hotel and gaming management and development firm. In 1970,
Mr. Weiser founded The Continental Companies. Carnival Hotels & Casinos was a
successor to The Continental Companies. In June 1998, Wyndham acquired the
hospitality-related businesses of CHCI, the parent corporation of Carnival
Hotels & Casino. Mr. Weiser is a director of Carnival Corporation,
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United National Bank and Winsloew Furniture Group. He is a graduate of the
Ohio State University School of Business and holds a J.D. from the Case
Western Reserve University School of Law. Mr. Weiser is 68 years old.
Current Directors of Patriot
The following is a biographical summary of the experience of the directors
of Patriot:
James D. Carreker has served as a director of Patriot since January 1998.
For biographical information on Mr. Carreker, see "--Principal Executive
Officers of Wyndham and Patriot."
John H. Daniels has served as a director of Patriot and its predecessor
since September 1995. He has served as President of The Daniels Group Inc., a
real estate development and management company, since 1984. Prior to forming
The Daniels Group Inc., Mr. Daniels served as Chairman and Chief Executive
Officer of Cadillac Fairview Corporation, a publicly held real estate
development and management company. Mr. Daniels is also a director of
Cineplex-Odeon Corporation, Consolidated H.C.I. Corporation, Samoth Capital
Corporation and Anitech Enterprises Inc. Mr. Daniels holds a B.S. in
Architecture from the University of Toronto. Mr. Daniels is 73 years old.
John C. Deterding has served as a director of Patriot and its predecessor
since September 1995. He has been the owner of Deterding Associates, a real
estate consulting company, since June 1993. From 1975 until June 1993, he
served as Senior Vice President and General Manager of the Commercial Real
Estate division of General Electric Capital Corporation. From November 1989 to
June 1993, Mr. Deterding served as Chairman of the General Electric Real
Estate Investment Company, a privately held REIT. He served as Director of
GECC Financial Corporation from 1986 to 1993. He holds B.S. from the
University of Illinois. Mr. Deterding is 67 years old.
Gregory R. Dillon has served as a director of Patriot and its predecessor
since September 1995. He has been Vice Chairman Emeritus of Hilton Hotels
Corporation since 1993. He has been a director of Hilton since 1977 and was
elected Vice Chairman in 1990. Mr. Dillon served as an Executive Vice
President of Hilton from 1980 until 1993. Mr. Dillon was also Executive Vice
President of Hilton's franchise company, Hilton Inns, Inc., from 1971 to 1986.
He is a director of the Conrad N. Hilton Foundation and is a founding member
of the American Hotel Association's Industry Real Estate Financing Advisory
Council and the National Association of Corporate Real Estate Executives. In
addition to his undergraduate degree, Mr. Dillon holds an LL.B. from DePaul
University. Mr. Dillon is 76 years old.
William W. Evans III has served as a director of Patriot since July 1997.
For biographical information on Mr. Evans, see "--Principal Executive Officers
of Wyndham and Patriot."
Milton Fine became a director of Patriot in June 1998. Mr. Fine co-founded
Interstate Hotels Company in 1961 and was Chairman of the Board of Interstate
prior to Wyndham's acquisition of Interstate in June 1998. Mr. Fine also
served as the Chief Executive Officer of Interstate through March 1996. He is
a life trustee of the Carnegie Institute and Chairman of the Board of Trustees
of the University of Pittsburgh and a member of the Board of Directors of the
Andy Warhol Museum in Pittsburgh, Pennsylvania. Mr. Fine completed his
undergraduate studies magna cum laude, and also holds a J.D., from the
University of Pittsburgh. Mr. Fine is 72 years old.
Arch K. Jacobson has served as a director of Patriot and its predecessor
since September 1995. For biographical information on Mr. Jacobson, see "--
Directors of Wyndham."
Paul A. Nussbaum founded Patriot in 1991 and served as its Chief Executive
Officer and Chairman of its Board until February 1999. For biographical
information on Mr. Nussbaum, see "--Directors of Wyndham."
Philip J. Ward has served as a director of Patriot since January 1998. Prior
to such time, he had served as a director of Wyndham Hotel Corporation since
June 1996. Mr. Ward is the Senior Managing Director in charge
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of the Real Estate Investment Division of CIGNA Investments, Inc., a division
of CIGNA Corporation, a position he has held since December 1985. Mr. Ward
joined Connecticut General's Mortgage and Real Estate Department (a
predecessor of CIGNA) in 1971 and became an officer in 1987. Mr. Ward is also
a director of the Simon DeBartolo Group, Inc., and a director of the
Connecticut Housing Investment Fund. Mr. Ward holds a Bachelor of Arts from
Amherst College. Mr. Ward is 50 years old.
Information Regarding the Board of Directors of Wyndham and Its Committees
Meetings. The Board of Directors of Wyndham held 20 meetings during 1998. No
director attended less than 75% of the aggregate number of meetings held
during 1998 of the board of directors and any board committee of which he was
a member.
Audit Committee. The audit committee consists of two independent directors:
Messrs. Boxer and Einspruch. An "independent director" is a director who is
not an officer or employee of Wyndham, any affiliate of an officer or employee
or any affiliate of (1) any advisor to Wyndham under an advisory agreement,
(2) any lessee of any property of Wyndham, (3) any subsidiary of Wyndham or
(4) any partnership which is an affiliate of Wyndham. The audit committee
makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees and reviews the adequacy of Wyndham's internal accounting controls. The
audit committee held 4 meetings during 1998.
Compensation Committee. The compensation committee consists of two
independent directors: Messrs. Leslie and Jacobson. The compensation committee
determines compensation of Wyndham's executive officers and administers the
Wyndham International 1997 Incentive Plan. The compensation committee held
more than 20 meetings during 1998.
Coordinating Committee. The coordinating committee consists of three
independent directors: Messrs. Boxer and Weiser and Ms. Groenteman. The
coordinating committee reviews and evaluates various proposals received from
potential investors. The coordinating committee held more than 50 meetings
during 1998.
Information Regarding the Board of Directors of Patriot and Its Committees
Meetings. The Board of Directors of Patriot held 20 meetings during 1998. No
director of Patriot attended less than 75% of the aggregate number of meetings
held during 1998 of the board of directors and any board committee of which he
was a member.
Audit Committee. Currently, the audit committee consists of two independent
directors: Messrs. Deterding and Dillon. An "independent director" is a
director who is not an officer or employee of Patriot, any affiliate of an
officer or employee or any affiliate of (1) any advisor to Patriot under an
advisory agreement, (2) any lessee of any property of Patriot, (3) any
subsidiary of Patriot or (4) any partnership which is an affiliate of Patriot.
The audit committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of Patriot's internal
accounting controls. The audit committee held 4 meetings during 1998.
Compensation Committee. The compensation committee consists of three
independent directors: Messrs. Deterding, Dillon and Jacobson. The
compensation committee determines compensation of Patriot's executive
officers, and administers the Patriot American Hospitality, Inc. 1997
Incentive Plan. The compensation committee held more than 20 meetings during
1998.
Coordinating Committee. The coordinating committee consists of three
independent directors: Messrs. Deterding, Fine and Ward. The coordinating
committee reviews and evaluates various proposals received from potential
investors. The coordinating committee held more than 50 meetings during 1998.
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Director Compensation for Wyndham and Patriot
Currently, any director who is not an employee of Wyndham or Patriot is paid
an annual retainer fee of $25,000. The retainer fee is paid in quarterly
installments of $6,250 each. In addition, each director is paid $1,250 for
attendance at each meeting of Wyndham's or Patriot's Board of Directors,
$1,000 for participating in a telephonic board meeting and $750 for
attendance, whether in person or telephonic, at each meeting of a committee of
Wyndham's or Patriot's Board of which such director is a member. Both the
annual retainer fee and meeting fees are payable in cash, but each director
may elect in advance to defer the receipt of all or part of their fees and to
receive such deferred fees at a later date in the form of paired shares. In
addition, Wyndham and Patriot reimburse directors for their out-of-pocket
expenses incurred in connection with their service on the Boards of Directors.
Directors who are employees of Wyndham or Patriot do not receive any fees for
their service on the Boards of Directors or a committee thereof.
Under the Wyndham 1997 Incentive Plan or the Patriot 1997 Incentive Plan, as
the case may be, on the date of each annual meeting of stockholders, each non-
employee director then in office will receive a grant of non-qualified options
to purchase an additional 10,000 paired shares at the then current market
price. All options granted to non-employee directors vest immediately upon the
date of grant. At the 1998 Annual Meeting of Stockholders, Messrs. Boxer,
Crow, Daniels, Deterding, Dillon, Leslie, Lyon, Ward and Weiser, Dr. Einspruch
and Ms. Groenteman each were granted a non-qualified option to acquire 10,000
paired shares at an exercise price of $24.125. Mr. Jacobson was granted a non-
qualified option to acquire 20,000 paired shares at an exercise price of
$24.125 at the 1998 Annual Meeting of Stockholders since he serves on both the
Wyndham and Patriot Boards.
The Wyndham and Patriot Boards of Directors held numerous board meetings to
consider strategic alternatives for the companies, including the negotiations
with the investors and the Identified Party and the approval of the
investment. A special coordinating committee of the Boards of Directors was
also established and met numerous times during the last two months of 1998 and
the first two months of 1999. The compensation committee also met several
times to discuss special compensation issues. One director, Ms. Groenteman,
who served as co-point person of the coordinating committee, worked full-time
on these matters. In light of their extraordinary effort, in lieu of the
normal meeting fees for the last two months of 1998 and the first two months
of 1999, each director not serving on either the compensation committee or the
coordinating committee received $20,000 in fees; members of the compensation
committees, other than Mr. Deterding, received $40,000 in fees; members of the
coordinating committee, other than Mr. Deterding and Ms. Groenteman, received
$65,000 in fees; Mr. Deterding, who served on both the coordinating committee
and the compensation committee, received $85,000 in fees; and Ms. Groenteman
received $200,000 in fees. These fees were payable in 1999 in either cash or
deferred paired shares, at the election of each director. Messrs. Crow,
Daniels, Deterding, Dillon, Ward and Weiser and Ms. Groenteman elected to
receive their fees in cash. Messrs. Boxer and Jacobson and Dr. Einspruch
elected to receive their fees in deferred paired shares. Messrs. Fine, Leslie
and Ruhfus are finalizing their elections as of the date hereof.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the base compensation that Patriot paid in
1998, 1997 and 1996 to its Chairman and Chief Executive Officer and to five
executive officers other than the Chief Executive Officer of Patriot
(collectively, the "Patriot Named Executive Officers") whose base salary and
bonus exceeded $100,000 during the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation(a) Compensation Awards
----------------------------- ------------------------
Securities
Name and Restricted Underlying
Principal Stock Options All Other
Position Year Salary($) Bonus($)(b) Awards($) (#)(c) Compensation($)
- --------- ---- --------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul A.
Nussbaum (d).... 1998 $555,425 -- -- -- $ 1,630(e)
Chief Executive
Officer 1997 $407,500 $529,478 $6,930,124(f) 2,790,703(g) $45,869(h)
and Chairman of
the Board 1996 $247,500 $200,000 -- 161,002(i) --
William W. Evans
III............. 1998 $374,461 -- $ 999,996(j) -- $ 289(h)
President and
Chief 1997 $275,440(k) $303,373 $4,525,068(l) 601,074(m) $ 148(h)
Operating Officer
Anne L.
Raymond (n)..... 1998 $286,992 $ 50,000 -- 117,928(o) $ 252(p)
Executive Vice
President 1997 $208,300 $168,000 -- -- --
and Chief
Financial
Officer
Paul Novak (q)... 1998 $280,416 -- -- 25,641(r) $ 155(h)
Executive Vice
President 1997 $131,252 $179,573 $1,286,250(s) 107,335(r) $ 92(h)
Lawrence S.
Jones........... 1998 (t) (t) (t) (t) (t)
Executive Vice
President
and Treasurer
Rex E.
Stewart (u)..... 1998 $206,556 -- -- -- $ 75(h)
Chief Financial
Officer 1997 $207,375 $ 97,961 -- -- $ 201(h)
and Treasurer 1996 $174,250 $ 75,000 $ 847,500(v) 42,933(w) --
</TABLE>
- --------
(a) No Patriot Named Executive Officer received personal benefits or
perquisites in excess of the lesser of $50,000 or 10% of their aggregate
salary and bonus in 1997 or 1996.
(b) In accordance with the Patriot 1997 Incentive Plan, executive officers of
Patriot were allowed to elect to receive all or a portion of their bonus
either in cash or in paired shares. For 1997, if an executive officer
chose to receive their bonus all or in part in paired shares, they
received a 15% discount off of the fair market value of the paired shares
as of January 6, 1998. The amounts included in the table above represent
the fair market value of the paired shares received. For 1997,
Mr. Nussbaum elected to receive his entire bonus in paired shares; Mr.
Evans elected to receive $81,000 in cash and $222,373 in the form of
paired shares; Mr. Novak elected to receive $82,500 in cash and $97,073 in
the form of paired shares; Mr. Stewart elected to receive $45,000 in cash
and $52,961 in the form of paired shares.
(c) Share amounts reflect the stock dividend distributed on January 25, 1999
to stockholders of record on December 30, 1998.
(d) Mr. Nussbaum resigned as an officer of Patriot on February 26, 1999.
(e) Such amount includes $360 of term life insurance premiums paid by Patriot
for the benefit of Mr. Nussbaum and $1,270 contributed by Patriot to Mr.
Nussbaum's 401(k) account.
(f) On March 18, 1997, Patriot awarded the equivalent of 280,005 restricted
paired shares to Mr. Nussbaum. Taking into account the various stock
splits which occurred in 1997, the equivalent to the market value of
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the paired shares on the date of grant was $24.75 and the market value of
such paired shares on December 31, 1998 was $1,680,030. The restrictions on
these shares lapsed with respect to one-third of the shares on March 18,
1998. The restrictions with respect to the balance of the shares lapsed on
February 26, 1999 in connection with Mr. Nussbaum's resignation.
(g) On April 1, 1997, Patriot granted non-qualified options to purchase the
equivalent of 2,790,703 paired shares to Mr. Nussbaum. These options were
intended to vest five years from the date of grant, on April 1, 2002, but
became fully vested and exercisable on February 26, 1999 in connection
with Mr. Nussbaum's resignation.
(h) Such amount represents term life insurance premiums paid by Patriot for
the benefit of the named executive officer.
(i) On April 19, 1996, Patriot's predecessor granted non-qualified options to
purchase the equivalent of 161,002 paired shares to Mr. Nussbaum. These
options were intended to vest in seven equal annual installments beginning
April 19, 1997, but became fully vested and exercisable on February 26,
1999 in connection with Mr. Nussbaum's resignation.
(j) On December 31, 1998, Patriot awarded the equivalent of 166,666 restricted
paired shares to Mr. Evans. The equivalent to the market value of the
paired shares on the date of grant was $999,996. One-third of the award
will become payable upon the closing of the investment and the related
transactions and one-third on each of the first and second anniversary
thereof.
(k) Such amount includes $940 paid to Mr. Evans to cover commuting expenses.
(l) On February 14, 1997, Patriot awarded the equivalent of 200,003 restricted
paired shares to Mr. Evans. Taking into account the various stock splits
which occurred in 1997, the equivalent to the market value of the paired
shares on the date of grant was $22.625 and the market value of such
paired shares on December 31, 1998 was $1,200,018. The restrictions lapsed
with respect to 25% of the shares on March 1, 1998 and with respect to the
balance of the shares on December 31, 1998.
(m) On February 14, 1997, Patriot granted non-qualified options to purchase
the equivalent of 601,074 paired shares to Mr. Evans. These options were
to vest in 12 equal quarterly installments beginning on April 1, 1997, but
became fully vested and exercisable on November 27, 1998.
(n) Ms. Raymond returned from a leave of absence to the position of Executive
Vice President, Chief Investment Officer and interim Chief Financial
Officer on April 19, 1999.
(o) On February 2, 1998, Patriot granted Ms. Raymond: 1) non-qualified options
to purchase the equivalent of 10,733 paired shares which options vest on
the anniversary of February 2, 1998 at the following rates: year 1: 30%;
year 2: 30% and year 3: 40% and 2) non-qualified options to purchase the
equivalent of 88,925 paired shares which options vest on the anniversary
of February 2, 1998 at the following rates: year 1: 20%; year 2: 20%; year
3: 30% and year 4: 30%. On November 13, 1998, pursuant to an option
repricing program, the non-qualified options to purchase the equivalent of
10,733 paired shares were surrendered and exchanged for non-qualified
options to purchase the equivalent of 1,967 paired shares and the non-
qualified options to purchase the equivalent of 88,925 paired shares were
surrendered and exchanged for non-qualified options to purchase the
equivalent of 16,303 paired shares. See "Patriot Option Repricing
Program".
(p) Such amount includes $90 of term life insurance premiums paid by Patriot
for the benefit of Ms. Raymond and $162 contributed by Patriot to Ms.
Raymond's 401(k) account.
(q) Mr. Novak's employment with Patriot terminated in May 1999.
(r) On June 24, 1997, Patriot granted non-qualified options to purchase the
equivalent of 107,335 paired shares to Mr. Novak which options vest in
seven equal annual installments on the anniversary of June 24, 1997. On
November 13, 1998, pursuant to an option repricing program, such non-
qualified options were surrendered and exchanged for non-qualified options
to purchase the equivalent of 25,641 paired shares. See "Patriot Option
Repricing Program".
(s) On June 24, 1997, Patriot awarded the equivalent of 60,000 restricted
paired shares to Mr. Novak. The equivalent to the market price of the
paired shares on the date of grant was $21.4375 and the market value of
such paired shares on December 31, 1998 was $360,000. The restrictions on
the shares were to lapse in five equal annual installments beginning on
June 24, 1998 and ending on June 24, 2002, but in connection with Mr.
Novak's termination, all restrictions lapsed in May 1999.
66
<PAGE>
(t) Mr. Jones commenced as an officer in March 1998 and was paid by Wyndham
for his services as an officer of both Patriot and Wyndham. See the
"Wyndham Summary Compensation Table."
(u) Mr. Stewart resigned as an officer of Patriot on March 31, 1998.
(v) On July 25, 1996, Patriot's predecessor awarded the equivalent of 60,000
restricted paired shares to Mr. Stewart. Taking into account the various
stock splits which occurred in 1997, the equivalent to the market value of
the paired shares on the date of grant was $14.125 and the market value of
such paired shares on December 31, 1998 was $360,000. The restrictions
lapse in four equal annual installments beginning on July 25, 1997.
(w) On April 19, 1996, Patriot's predecessor granted non-qualified options to
purchase the equivalent of 42,933 paired shares to Mr. Stewart. These
options were to vest in seven equal annual installments beginning
April 19, 1997 but became fully vested and exercisable on October 2, 1998
in connection with Mr. Stewart's resignation.
The Patriot Named Executive Officers have used the companies' facilities,
including the companies' hotel properties and the companies' corporate jet
services, for personal and business purposes.
Option Grants in Fiscal Year 1998 for Patriot
The following table sets forth the options granted with respect to the
fiscal year ended December 31, 1998 to the Patriot Named Executive Officers.
All amounts reported in the following table have been adjusted to reflect the
stock dividend declared in the fourth quarter of 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Share Price
Appreciation For
Individual Grants Option Term
--------------------------------------------------------------- ------------------------
Number of Percent of Total
Shares Underlying Options Granted
Options to Employees Exercise or Base Expiration
Name Granted(#) in Fiscal Year Price($/SH) Date 5%($) 10%($)
- ---- ----------------- ---------------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Anne L. Raymond......... 88,925(a)(d) 32.2% $24.224 2/2/2008 $ 0(d) $ 0(d)
10,733(b)(d) 3.9% $24.224 2/2/2008 $ 0(d) $ 0(d)
16,303(a)(e) 25.4% $ 7.547 2/2/2008 $ 77,378 $ 196,092
1,967(b)(e) 3.1% $ 7.547 2/2/2008 $ 9,336 $ 23,659
Paul Novak.............. 25,641(c)(e) 39.9% $ 7.547 6/24/2007 $ 121,699 $ 308,409
</TABLE>
- --------
(a) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 20%; year 2: 20%; year 3: 30% and year
4: 30%.
(b) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 30%; year 2: 30% and year 3: 40%.
(c) Such non-qualified options vest in seven equal annual installments on the
anniversary of June 24, 1997.
(d) Such non-qualified options were surrendered and canceled pursuant to the
stock option repricing program and are therefore no longer outstanding.
See "Patriot Stock Option Repricing Program."
(e) Such non-qualified options were granted pursuant to the stock option
repricing program. See "Patriot Stock Option Repricing Program."
67
<PAGE>
Option Exercises and Year-End Holdings for Patriot
The following table sets forth the number of paired shares acquired upon the
exercise of options during 1998 and the value of options held at the end of
1998 by the Patriot Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Value Unexercised In-The-Money Options at
Acquired on Realized Options at December 31, 1998 (#) December 31, 1998 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ---------- -------------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul A. Nussbaum........ 449,818 $5,036,234 37,271/2,968,304 (a)
William W. Evans........ -- -- 601,074/0 (a)
Anne L. Raymond......... 109,760 $ 904,258 0/18,270 (a)
Paul Novak.............. -- -- 3,663/21,978 (a)
Rex E. Stewart.......... -- -- 225,403/0 (a)
</TABLE>
- --------
(a) None of the unexercised options are in-the-money.
Patriot Stock Option Repricing Program
Patriot commenced an option repricing program for certain optionees holding
stock options with an exercise price per share in excess of $7.547 on November
13, 1998. The new exercise price was based on the average stock price for the
five-day period beginning November 9, 1998 and ending November 13, 1998.
The following table sets forth information with respect to the executive
officers of Patriot relating to the repricing of certain options previously
awarded to employees during fiscal years 1997 and 1998. All optionees, other
than the directors and the top two executive officers, were given the
opportunity to surrender certain options in exchange for new options which
have a Black-Scholes value equal to the old options, but were for fewer
shares, at an exercise price of $7.547 per share. The new options retain the
original vesting and expiration dates of the old options. The options set
forth below were the only options repriced for the executive officers in the
last ten years. Pursuant to the anti-dilution provision of the Patriot 1997
Incentive Plan, the numbers of securities, stock prices and exercise prices
reported in the following table have been adjusted to reflect the stock
dividend declared for the fourth quarter of 1998.
10 Year Option Repricings
<TABLE>
<CAPTION>
Length of
Number of Market Number of Original
Securities Price of Securities Option Term
Underlying Stock at New Underlying Remaining at
Date of Options Time of Exercise Price at Exercise Options Date of
Name Repricing Repriced Repricing Time of Repricing Price After Repricing Repricing
---- --------- ---------- --------- ----------------- -------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anne L. Raymond......... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President and Chief
Financial Officer
Paul Novak.............. 11/13/98 107,335 $7.279 $21.079 $7.547 25,641 8 years 8 months
Executive Vice
President
John P. Bohlmann........ 11/13/98 32,220 $7.279 $24.224 $7.547 5,903 8 years 8 months
Senior Vice President 11/13/98 6,977 $7.279 $24.224 $7.547 1,279 9 years 3 months
and General Counsel
</TABLE>
68
<PAGE>
Compensation Committee Report on Repricing of Options
During fiscal 1998, the compensation committees determined that the
significant drop in the price of the paired shares made it necessary for
Wyndham and Patriot to implement an option repricing program. The drop in
price of the paired shares was caused by a number of factors, including the
enactment of federal legislation affecting the paired share REIT structure,
the restricted availability of credit in the financial markets caused in part
by the Russian debt crisis in late summer, and Wyndham's and Patriot's
liquidity issues caused by the maturity of the forward equity contracts. Under
this program, all optionees, other than the directors and the top two
executive officers of Wyndham and the top two executive officers of Patriot,
were given the opportunity to surrender options granted on or after January
15, 1997 in exchange for new options which have a Black-Scholes value equal to
the old options, but were for fewer shares, at the average stock price for the
five-day period beginning November 9, 1998 and ending November 13, 1998. The
new options retain the original vesting and expiration dates of the old
options.
The objective of the Wyndham and Patriot stock option plans is to align the
efforts of all employees toward the success of Wyndham and Patriot and to
reward employees for their contributions to that success. The goals of the
repricing program were to protect the interests of outside stockholders while
maintaining the aggregate economic "value" of the stock options before and
after the option repricing. The compensation committees determined that this
option repricing program was necessary because equity incentives are an
important component of the total compensation of each employee and play a
substantial role in Wyndham's and Patriot's ability to retain the services of
individuals essential to Wyndham's and Patriot's long-term financial success.
Prior to implementation of the program, the market price of the paired shares
had fallen and Wyndham and Patriot had begun to experience high staff
turnover. The compensation committees felt that the effectiveness of the stock
option program and Wyndham's and Patriot's ability to retain key employees
would be significantly impaired unless value was restored to previously
granted stock options in the form of repriced options for paired shares at
prices more closely related to the current market price. Non-employee
directors and the top two executive officers of Wyndham and the top two
executive officers of Patriot were not eligible for participation in the
option repricing program. All other executive officers, including Mr. Novak
were eligible to participate in the option repricing program because the
compensation committees concluded that these executives were not responsible
for the decrease in the stock price.
Accordingly, during 1998, the compensation committees approved offering all
current employees and officers, other than the top two executive officers of
Wyndham and the top two executive officers of Patriot, an opportunity to
surrender stock options issued between January 15, 1997 and November 13, 1998
with exercise prices above $8.10 for new options with an exercise price of
$8.10 per share, the average market price of the paired shares for the five-
day period beginning November 9, 1998 and ending November 13, 1998. Each
optionee holding such options had the opportunity to elect to retain the old
option or to accept new options for a significantly reduced number of shares
that have an equivalent Black-Scholes value. Wyndham and Patriot engaged a
compensation consultant to assist in the implementation of the repricing
program and the Black-Scholes valuation of the previously-granted stock
options. The new repriced stock options have the same Black-Scholes value as
the old options, but cover much fewer shares. For most optionees, the shares
underlying the repriced options represent approximately 18% of the number of
shares covered by the old options. By reducing both the option price and the
number of shares, the compensation committees believe this repricing program
is more fair to the stockholders than the traditional repricing method which
simply reduced the option price without a corresponding reduction in the
number of option shares. The compensation committees did not accelerate the
vesting of any regranted options, nor did they extend the time for exercise of
any regranted options.
For the fourth quarter of 1998, Wyndham and Patriot declared a stock
dividend. Under the anti-dilution provisions of Wyndham's and Patriot's 1997
Incentive Plans, the compensation committees are given the discretion to take
such action as they determine to be equitable in the event of stock dividends,
stock split-up or similar occurrence. Accordingly, all options are further
adjusted (both exercise prices and the number of option shares) to reflect the
stock dividend. Therefore, the exercise price of the repriced options is
further reduced to $7.547.
69
<PAGE>
The compensation committees believe that the stock option repricing program,
which reflects both a reduction in the number of shares issuable upon exercise
and a reduction in the per share exercise price but preserves the original
vesting schedule and expiration dates of the original options, strikes an
appropriate balance between the interests of Wyndham and Patriot, their
stockholders and option holders. The lower exercise prices in effect under the
repriced options make those options valuable once again to the option holders
who are critical to Wyndham's and Patriot's future success and financial
performance.
Mr. Nussbaum was not initially eligible for the 1998 stock option repricing
program. However, as part of his resignation, the compensation committee
allowed Mr. Nussbaum to file an election, between June 30, 1999 and December
31, 1999, to exchange his outstanding options for new options of equal "Black-
Scholes" value at the then current market price. It is expected that the new
options will be for significantly fewer shares. Because of Mr. Nussbaum's
continued involvement with the companies as both a director and a consultant,
the compensation committees believe that Mr. Nussbaum's separation package
should have a large equity component. In this way, Mr. Nussbaum's economic
interests would be aligned with the stockholders'. Mr. Nussbaum will benefit
from the repriced options only if the share price increases.
Submitted by the Wyndham Compensation Committee
Arch K. Jacobson
James C. Leslie
Submitted by the Patriot Compensation Committee
John C. Deterding
Gregory R. Dillon
Arch K. Jacobson
70
<PAGE>
Executive Compensation for Wyndham
The following table sets forth the base compensation that Wyndham paid to
its Chief Executive Officer and to five executive officers other than the
Chief Executive Officer of Wyndham (collectively, the "Wyndham Named Executive
Officers") whose base salary and bonus exceeded $100,000 during the fiscal
year ending December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation(a) Compensation Awards
----------------------- ------------------------
Securities
Restricted Underlying
Name and Principal Stock Options All Other
Position Year Salary($) Bonus($) Awards($) (#) (b) Compensation($)
- ------------------ ---- --------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James D. Carreker (c)... 1998 $571,036 -- -- -- $ 648(d)
Chief Executive Officer
and Chairman of the
Board
Karim Alibhai........... 1998 $353,886 $140,000 -- 300,532(e) $1,466(d)
President and Chief 1997 $ 72,916 -- -- 300,532(f) --
Operating Officer
Leslie V. Bentley....... 1998 $320,192 $120,000 -- 117,928(g) $2,308(d)
Executive Vice
President
Stanley M. Koonce, Jr... 1998 $310,920 $120,000 -- 117,928(g) $ 792(d)
Executive Vice
President
Richard A. Holtzman..... 1998 $348,070 $200,000 $ 930,000(h) 16,511(i)
Executive Vice
President
Lawrence S. Jones....... 1998 $242,308 $150,000 $ 742,500(j) 115,919(k) $ 120(d)
Executive Vice
President
and Treasurer
</TABLE>
- -------
(a) No Wyndham Named Executive Officer received personal benefits or
perquisites in excess of the lesser of $50,000 or 10% of their aggregate
salary and bonus.
(b) Share amounts reflect the stock dividend distributed on January 25, 1999
to stockholders of record on December 30, 1998.
(c) Mr. Carreker became Chief Executive Officer of Wyndham in January 1998.
(d) For Mr. Carreker, such amount includes $360 of term life insurance
premiums paid by Wyndham for the benefit of Mr. Carreker and $288
contributed by Wyndham to Mr. Carreker's 401(k) account. For Mr. Alibhai,
such amount includes $113 of term life insurance premiums paid by Wyndham
for the benefit of Mr. Alibhai and $1,353 contributed by Wyndham to Mr.
Alibhai's 401(k) account. For Mr. Bentley, such amount includes $139 of
term life insurance premiums paid by Wyndham for the benefit of Mr.
Bentley and $2,169 contributed by Wyndham to Mr. Bentley's 401(k) account.
For Mr. Koonce, such amount includes $146 of term life insurance premiums
paid by Wyndham for the benefit of Mr. Koonce and $646 contributed by
Wyndham to Mr. Koonce's 401(k) account. For Mr. Jones, such amount
represents term life insurance premiums paid by Wyndham for the benefit of
Mr. Jones.
(e) On June 12, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 300,532 paired shares to Mr. Alibhai. These options vest in
12 equal installments at the beginning of each calendar quarter starting
on January 1, 1998 and ending on December 31, 2000.
(f) On October 1, 1997, Wyndham granted non-qualified options to purchase the
equivalent of 300,532 paired shares to Mr. Alibhai. These options vest in
12 equal installments at the beginning of each calendar quarter starting
on January 1, 1997 and ending on December 31, 2000.
71
<PAGE>
(g) On February 2, 1998, Wyndham granted the named executive: 1) non-qualified
options to purchase the equivalent of 10,733 paired shares which options
vest on the anniversary of February 2, 1998 at the following rates: year
1: 30%; year 2: 30% and year 3: 40% and 2) non-qualified options to
purchase the equivalent of 88,925 paired shares which options vest on the
anniversary of February 2, 1998 at the following rates: year 1: 20%; year
2: 20%; year 3: 30% and year 4: 30%. On November 13, 1998, pursuant to an
option repricing program, the non-qualified options to purchase the
equivalent of 10,733 paired shares were surrendered and exchanged for non-
qualified options to purchase the equivalent of 1,967 paired shares and
the non-qualified options to purchase the equivalent of 88,925 paired
shares were surrendered and exchanged for non-qualified options to
purchase the equivalent of 16,303 paired shares. See "Wyndham Option
Repricing Program".
(h) On June 19, 1998, Wyndham awarded the equivalent of 40,000 restricted
paired shares to Mr. Holtzman. The equivalent to the market price of the
paired shares on the date of grant was $23.25 and the market value of such
paired shares on December 31, 1998 was $240,000. The restrictions on the
award will lapse on the anniversary of the date of grant at the following
rates: year 1: 20%; year 2: 20%; year 3: 30% and year 4: 30%. Mr. Holtzman
is entitled to receive dividends on the total award during the vesting
period.
(i) On February 2, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 13,953 paired shares to Mr. Holtzman which options vest on
the anniversary of February 2, 1998 at the following rates: year 1: 30%;
year 2: 30% and year 3: 40%. On November 13, 1998, pursuant to an option
repricing program, such non-qualified options were surrendered and
exchanged for non-qualified options to purchase the equivalent of 2,558
paired shares. See "Wyndham Option Repricing Program".
(j) On March 9, 1998, Wyndham awarded the equivalent of 30,000 restricted
paired shares to Mr. Jones. The equivalent to the market price of the
paired shares on the date of grant was $24.75 and the market value of such
paired shares on December 31, 1998 was $180,000. The restrictions on the
award will lapse on the anniversary of the date of grant at the following
rates: year 1: 25%; year 2: 50%; year 3: 75% and year 4: 100%. Mr. Jones
is entitled to receive dividends on the total award during the vesting
period.
(k) On March 9, 1998, Wyndham granted non-qualified options to purchase the
equivalent of 10,733 paired shares to Mr. Jones which options vest on the
anniversary of March 9, 1998 at the following rates: year 1: 30%; year 2:
30% and year 3: 40%. On April 1, 1998, Wyndham granted non-qualified
options to purchase the equivalent of 85,866 paired shares to Mr. Jones
which options vest in 12 equal quarterly installments beginning on April
1, 1998. On November 13, 1998, pursuant to an option repricing program,
the non-qualified options to purchase the equivalent of 10,733 paired
shares were surrendered and exchanged for non-qualified options to
purchase the equivalent of 2,147 paired shares and the non-qualified
options to purchase the equivalent of 85,866 paired shares were
surrendered and exchanged for non-qualified options to purchase the
equivalent of 17,173 paired shares. See "Wyndham Option Repricing
Program".
72
<PAGE>
Option Grants in Fiscal Year 1998 for Wyndham
The following table sets forth the options granted with respect to the
fiscal year ended December 31, 1998 to the Wyndham Named Executive Officers.
All amounts reported in the following table have been adjusted to reflect the
stock dividend declared in the fourth quarter of 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Share Price
Appreciation For
Individual Grants Option Term
---------------------------------------------------------- ------------------------
Number of Percent of Total
Shares Underlying Options Granted Exercise
Options to Employees or Base Expiration
Name Granted(#) in Fiscal Year Price($/SH) Date 5%($) 10%($)
- ---- ----------------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Karim Alibhai........... 300,532(a) 11.5% $19.449 6/12/2008 $3,675,919 $9,315,499
Leslie V. Bentley....... 10,733(b)(d) 0.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
88,925(c)(d) 3.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
1,967(e) 0.6% $ 7.547 2/2/2008 $ 9,336 $ 23,659
16,303(e) 4.9% $ 7.547 2/2/2008 $ 77,378 $ 196,092
Stanley M. Koonce,
Jr. ................... 10,733(b)(d) 0.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
88,925(c)(d) 3.4% $24.224 2/2/2008 $ 0(d) $ 0(d)
1,967(e) 0.6% $ 7.547 2/2/2008 $ 9,336 $ 23,659
16,303(e) 4.9% $ 7.547 2/2/2008 $ 77,378 $ 196,092
Richard A. Holtzman..... 13,953(b)(d) 0.5% $24.224 2/2/2008 $ 0(d) $ 0(d)
2,558(e) 0.8% $ 7.547 2/2/2008 $ 12,141 $ 30,768
Lawrence S. Jones....... 85,866(f)(d) 3.3% $23.059 3/9/2008 $ 0(d) $ 0(d)
10,733(g)(d) 0.4% $23.059 3/9/2008 $ 0(d) $ 0(d)
17,173(e) 5.2% $ 7.547 3/9/2008 $ 81,508 $ 206,556
2,147(e) 0.6% $ 7.547 3/9/2008 $ 10,190 $ 25,824
</TABLE>
- --------
(a) Such non-qualified options vest in 12 equal installments at the beginning
of each calendar quarter starting on January 1, 1998 and ending on
December 31, 2000.
(b) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 30%; year 2: 30% and year 3: 40%.
(c) Such non-qualified options vest on the anniversary of February 2, 1998 at
the following rates: year 1: 20%; year 2: 20%; year 3: 30% and year 4:
30%.
(d) Such non-qualified options were surrendered and canceled pursuant to the
stock option repricing program and are therefore no longer outstanding.
See "Wyndham Stock Option Repricing Program."
(e) Such non-qualified options were granted pursuant to the stock option
repricing program. See "Wyndham Stock Option Repricing Program."
(f) Such options vest in 12 quarterly installments beginning on April 1, 1998.
(g) Such options vest on the anniversary of March 9, 1998 at the following
rates: year 1: 30%; year 2: 30% and year 3: 40%.
73
<PAGE>
Option Exercises and Year-End Holdings for Wyndham
The following table sets forth the number of paired shares acquired upon the
exercise of options during 1998 and the value of options held at the end of
1998 by the Wyndham Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Value Unexercised In-The-Money Options at
Acquired on Realized Options at December 31, 1998 (#) December 31, 1998 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ---------- -------------------------------- -------------------------
<S> <C> <C> <C> <C>
James D. Carreker....... 178,360 $2,200,606 78,048/0 (a)
Leslie V. Bentley....... 82,320 $1,082,549 29,452/18,720 (a)
Stanley M. Koonce, Jr... 82,320 $1,118,564 29,452/18,720 (a)
Lawrence S. Jones....... -- -- 3,220/16,100 (a)
</TABLE>
- --------
(a) None of the unexercised options are in-the-money.
74
<PAGE>
Wyndham Stock Option Repricing Program
Wyndham commenced an option repricing program for certain optionees holding
stock options with an exercise price per share in excess of $7.547 on November
13, 1998. The new exercise price was based on the average stock price for the
five-day period beginning November 9, 1998 and ending November 13, 1998.
The following table sets forth information with respect to the executive
officers of Wyndham relating to the repricing of certain options previously
awarded to employees during fiscal years 1997 and 1998. All optionees, other
than the directors and the top two executive officers, were given the
opportunity to surrender certain options in exchange for new options which
have a Black-Scholes value equal to the old options, but were for fewer
shares, at an exercise price of $7.547 per share. The new options retain the
original vesting and expiration dates of the old options. The options set
forth below were the only options repriced for the executive officers in the
last ten years. Pursuant to the anti-dilution provision of the Wyndham 1997
Incentive Plan, the numbers of securities, stock prices and exercise prices
reported in the following table have been adjusted to reflect the stock
dividend declared for the fourth quarter of 1998.
10 Year Option Repricings
<TABLE>
<CAPTION>
Number of
Number of Market Securities Length of
Securities Price of Exercise Underlying Original Option
Underlying Stock at Price at New Options Term Remaining
Date of Options Time of Time of Exercise After at Date of
Repricing Repriced Repricing Repricing Price Repricing Repricing
Name --------- ---------- --------- --------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie V. Bentley ...... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Stanley M. Koonce, Jr... 11/13/98 88,925 $7.279 $24.224 $7.547 16,303 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Lawrence S. Jones....... 11/13/98 85,866 $7.279 $23.059 $7.547 17,173 9 years 4 months
Executive Vice 11/13/98 10,733 $7.279 $23.059 $7.547 2,147 9 years 4 months
President and Treasurer
Richard A. Holtzman..... 11/13/98 13,953 $7.279 $24.224 $7.547 2,558 9 years 3 months
Executive Vice
President
Thomas W. Lattin........ 11/13/98 33,625 $7.279 $24.224 $7.547 6,617 9 years 3 months
Executive Vice
President
Michael A. Grossman..... 11/13/98 41,806 $7.279 $24.224 $7.547 7,665 9 years 3 months
Executive Vice 11/13/98 10,733 $7.279 $24.224 $7.547 1,967 9 years 3 months
President
Carla S. Moreland....... 11/13/98 32,200 $7.279 $24.224 $7.547 5,903 9 years 3 months
Senior Vice President 11/13/98 6,977 $7.279 $24.224 $7.547 1,279 9 years 3 months
and General Counsel
</TABLE>
For Compensation Committee Report on Repricing of Options, see page 69.
Report of the Compensation Committees of the Boards of Directors of Wyndham
and Patriot on Executive Compensation
This compensation committee report relates to compensation decisions made by
Wyndham's and Patriot's compensation committees. This compensation committee
report shall not be deemed incorporated by reference by any general statement
incorporating by reference this joint proxy statement/prospectus into any
filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that Wyndham or Patriot specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such laws.
75
<PAGE>
Objectives of Executive Compensation. Wyndham's and Patriot's executive
compensation programs are intended to attract, motivate and retain key
executives who are capable of leading Wyndham and Patriot effectively and
continuing their long-term growth. The compensation programs for executives
are comprised of base salary, annual incentives and long-term incentive
awards. Base salary is targeted to be within a reasonable range of
compensation for comparable companies and for comparable levels of expertise
by executives. Annual incentives are based upon the achievement of one or more
performance goals. Wyndham and Patriot use stock options and other equity
based compensation in their long-term incentive programs.
Compensation Committee Procedures. The compensation committees of the Boards
of Directors establish the general compensation policies of Wyndham and
Patriot and implement and monitor the compensation and incentive plans and
policies of Wyndham and Patriot. The Wyndham compensation committee is
composed of two independent directors, none of whom is currently an officer or
employee of Wyndham. The Patriot compensation committee is composed of three
independent directors, none of whom is currently or was formerly an officer or
employee of Patriot. Final compensation determinations for each fiscal year
are generally made after the end of the fiscal year, after audited financial
statements for such year become available. At that time, bonuses, if any, are
determined for the past year's performance, base salaries for the following
fiscal year are set and long-term incentives, if any, are granted.
The compensation committees engage compensation consultants to advise the
committees with respect to executive compensation matters, including
compensation amounts and the relative allocation of compensation among base
salary, annual incentive compensation and long-term incentive compensation.
The compensation committees, working with these compensation consultants,
established quantitative and qualitative performance targets for the year
ending December 31, 1998 for both annual and long-term compensation awards.
The results of this review are reflected in the annual incentive compensation
decisions for the fiscal year ended December 31, 1998 and in the base salary
levels for the fiscal year ending December 31, 1999.
In setting base salary and determining annual incentive and long-term
incentive awards, the compensation committees review compensation levels of
executive officers at other hospitality companies and real estate investment
trusts with revenues comparable to those of Wyndham and Patriot . Some of
these companies are the same companies that comprise the NAREIT Total Return
Equity Index to which Wyndham's and Patriot's stock performances are compared
in this joint proxy statement/prospectus. The compensation committees believe
that the compensation information for these groups is comparable since both
groups contain hospitality companies of similar size and performance.
The compensation committees also review data contained in published surveys
on executive compensation. The compensation committees based their decisions
regarding 1999 base salary and annual cash bonus amounts for the year ended
December 31, 1998, in part, upon their review of such data. In general, the
1999 base salary for most executives is slightly above the median base salary
for comparable companies. The cash bonus for 1998 is generally below the
median for comparable companies.
Members of the compensation committees consult periodically by telephone
prior to their joint meetings at which compensation decisions are made. The
compensation committees exercise their independent discretion in determining
the compensation of the executive officers.
Each element of the executive compensation, as well as the compensation of
the Wyndham Chief Executive Officer and the Patriot Chief Executive Officer,
is discussed separately below.
Base Salary. Base salaries are a fixed component of total compensation and
do not relate to the performance of the companies. Base salaries are
determined by the compensation committees after reviewing salaries paid by
hospitality companies of similar size and performance. For 1999, most
executives received a base salary increase of about 5 percent.
Annual Incentives. Annual incentives are provided in the form of cash
bonuses. Annual incentives are designed to reward executives and management
for the annual growth and achievement of Wyndham and Patriot
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<PAGE>
and are therefore tied to the performance of the companies. The compensation
committees award cash bonuses to those executives who meet established goals,
with the amount of the award based upon each executive's base salary and the
level to which such executive's performance met and exceeded the established
goal. For the three top senior executives, the goal for bonus is two-fold: FFO
per share growth and individual performance. The FFO per share growth for 1998
was not met, and therefore, the three top senior executives did not receive
any cash bonuses. For executives in hotel operations, the goal for bonus is
three-fold: revenue growth versus competition, EBITDA targets and individual
performance. The revenue growth goals for hotel operations for 1998 were met,
while EBITDA results were mixed. Executives in hotel operations with the title
Executive Vice President and above who received commendable ratings from their
immediate superiors received average bonuses equal to 40 percent of their base
salaries. For executives in corporate operations, the goal for bonus is two-
fold: achievement of key corporate objectives such as merger integrations and
corporate procurement program and individual performance. Some of the
corporate objectives were met and executives in corporate operations who
received commendable ratings from their immediate superiors received average
bonuses equal to 40 percent of their base salaries. In some instances, bonuses
have been awarded pursuant to requirements in the employment agreements.
Long-term Incentives. Long-term incentives are provided through the grant of
restricted stock awards and stock options. These grants are designed to align
executives' interests with the long-term goals of Wyndham and Patriot and the
interests of Wyndham's and Patriot's stockholders and encourage high levels of
stock ownership among executives. Wyndham and Patriot have a broad-based stock
option award program that is granted annually to generally all employees with
the title "General Manager" and up. These annual option grants vest over three
years. New executives are eligible to receive a one-time initial option grant
that vests over four years. In addition, executives who are marked as high
potential and key to the long-term growth of Wyndham and Patriot may receive a
Chairman's award which entitles them to receive a special option award that
vests over five years. Both the one-time initial option grants and the
Chairman's awards are more generous in size than the annual option grants.
Executives who are parties to employment agreements and other selected
executives may receive restricted stock grants that vest over four years. It
is intended that only a select group of executives will receive restricted
stock grants.
Termination Agreement with Mr. Stewart. On March 31, 1998, Mr. Stewart's
employment with Patriot terminated. In consideration of Mr. Stewart's
agreement to provide consulting services, the compensation committee approved
certain severance arrangements which are described in more detail in the
section captioned "Wyndham and Patriot Employment Agreement and Termination
Agreements."
Compensation of Chief Executive Officers. The compensation committees set
Mr. Carreker's and Mr. Nussbaum's base salaries for the year ended December
31, 1998 at or around the median base salary for chief executive officers of
comparable companies. Mr. Carreker's 1998 base salary was $571,036. Mr.
Nussbaum's 1998 base salary was $555,425, an amount that represents an
increase of 11% over his 1997 base salary of $500,000.
In light of Wyndham's and Patriot's financial difficulties in 1998, the
compensation committees did not award Mr. Carreker or Mr. Nussbaum a bonus for
1998. Except for the award made pursuant to the special retention plan
described below, neither Mr. Carreker nor Mr. Nussbaum received any equity
award in 1998.
The compensation committees considered that it was very important to keep
the top executives focused on facilitating a strategic transaction or
investment that would be in the best interests of the stockholders. Towards
this end, the compensation committees engaged a compensation consultant to
assist them in designing a special retention and incentive plan for the top
executives that would motivate the executives to support the best possible
transactions for Wyndham and Patriot and that would be fair and reasonable to
stockholders. The consultant advised the compensation committees that market
practice would support the adoption of a special retention plan for those
selected executives whose continued employment and active role in supporting a
strategic transaction was critical. After careful review of the compensation
consultant's report and consultation with counsel, the compensation committees
approved a special retention plan. Payments would be made under the special
retention
77
<PAGE>
plan upon the execution of, and in some instances, the closing of a strategic
transaction. The compensation committees considered the purchase agreement to
be a strategic transaction that would entitle executives to receive payments
under the special retention plan. Pursuant to the special retention plan, in
February, 1999, Mr. Carreker received a paired share award in the amount of
216,666 paired shares. The first installment of 72,222 paired shares will
become payable upon the closing of the investment and the related
transactions, and 72,222 paired shares will become payable on each of the
first and second anniversaries thereof. Pursuant to the special retention
plan, in February, 1999, Mr. Nussbaum received a paired share award in the
amount of 250,000 paired shares, payable in three installments. The first
installment of 83,334 paired shares became payable upon the execution of the
purchase agreement, and 83,333 paired shares will become payable on each of
the first and second anniversaries thereof. Pursuant to the special retention
plan, Mr. Evans received a paired share award in the amount of 166,666 paired
shares. The first installment of 55,556 paired shares will become payable upon
the closing of the investment and the related transactions, and 55,555 will
become payable on each of the first and second anniversaries thereof. No other
executive is eligible to receive an award under the special retention plan.
Neither Mr. Carreker nor Mr. Nussbaum was eligible for the 1998 stock option
repricing program described above. However, as part of his resignation, the
Patriot compensation committee allowed Mr. Nussbaum to file an election,
between June 30, 1999 and December 31, 1999, to exchange his outstanding
options for new options of equal "Black-Scholes" value for fewer shares at the
then current market price.
Tax Considerations. The compensation committees' executive compensation
strategies are designed to be cost- and tax-effective. Therefore, the
compensation committees' policies are, where possible and considered
appropriate, to preserve corporate tax deductions, including the deductibility
of compensation paid to the Wyndham Named Officers and the Patriot Named
Officers pursuant to Section 162(m) of the Internal Revenue Code, while
maintaining the flexibility to approve compensation arrangements which they
deem to be in the best interests of Wyndham and Patriot and their
stockholders, but which may not always qualify for full tax deductibility.
Submitted by the Wyndham Compensation Committee
Arch K. Jacobson
James C. Leslie
Submitted by the Patriot Compensation Committee
John C. Deterding
Gregory R. Dillon
Arch K. Jacobson
Compensation Committee Interlocks and Insider Participation for Wyndham and
Patriot
With respect to Wyndham, during 1998 Mr. Carreker served on the compensation
committee of Crow Family Holdings and Ms. Groenteman is a director of Wyndham
and the chief operating officer of Crow Family Holdings.
Wyndham and Patriot Employment Agreements and Termination Agreements
Patriot entered into an employment agreement as of April 14, 1997 with Mr.
Carreker, pursuant to which Mr. Carreker serves as Chief Executive Officer and
as Chairman of the Board of Wyndham for a term of five years beginning on
January 5, 1998. Mr. Carreker's base salary is $571,036. This agreement is
automatically extended for an additional two-year term unless either party
elects to terminate it by notice in writing at least 90 days prior to the
second anniversary of the agreement or even-numbered anniversary date
thereafter. Mr. Carreker is eligible to receive incentive compensation to be
determined by the compensation committee of an amount up to 100% of his base
compensation.
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<PAGE>
Patriot entered into an employment agreement as of April 14, 1997 with Mr.
Nussbaum, pursuant to which Mr. Nussbaum serves as Chief Executive Officer and
Chairman of the Board of Patriot from July 1, 1997 until January 5, 2003, the
fifth anniversary of the effective date of the Wyndham merger. Mr. Nussbaum's
employment with Patriot terminated as of February 26, 1999, for reasons other
than for cause. Pursuant to the terms of his separation agreement, which was
based in part on the provisions of Mr. Nussbaum's employment agreement,
Patriot has agreed to pay Mr. Nussbaum severance in the amount of $3.2
million, to provide for certain benefits for two years and an office and
secretarial support for three years. In addition, all of Mr. Nussbaum's
outstanding stock options vested and became exercisable and all of
Mr. Nussbaum's restricted stock became fully vested and nonforfeitable. In
accordance with the separation agreement, the stock options will remain
outstanding for their remaining terms and at Mr. Nussbaum's election, which
must be made between June 1, 1999 and December 31, 1999, Mr. Nussbaum's
existing stock options will be exchanged on a Black-Scholes neutral basis for
new options with an exercise price equal to the fair market value of the
common stock at the time of the exchange. Pursuant to the separation
agreement, Patriot also agrees to guarantee the repayment of Mr. Nussbaum's
outstanding indebtedness to NationsBank, and upon the earlier of the closing
of the investment and related transactions or December 31, 1999, Patriot will
assume the NationsBank loan in exchange for a personal recourse note of
Mr. Nussbaum which will become payable at the end of six years and will carry
an interest rate of 5.5% per annum. Further, Mr. Nussbaum received a new grant
of 250,000 shares of restricted stock, payable in three installments over two
years. Finally, Mr. Nussbaum agreed to provide consulting services to Patriot
for two years, for which he will receive a fee of $75,000 per month for the
first 12 months and $50,000 per month for the next 12 months.
Wyndham entered into an employment agreement as of October 1, 1997 with Mr.
Alibhai, pursuant to which Mr. Alibhai serves as President and Chief Operating
Officer of Wyndham for a term of three years beginning on September 30, 1997,
with a base salary of $350,000. This agreement is automatically extended for
an additional two-year term unless either party elects to terminate it by
notice in writing at least 45 days prior the second anniversary of the
agreement or even-numbered anniversary date thereof, to expiration of the
agreement. Additionally, Mr. Alibhai is eligible to receive incentive
compensation to be determined by the compensation committee of an amount up to
80% of his annual base compensation, but in no event less than $75,000.
Upon termination of employment due to the death or disability of Messrs.
Carreker, Nussbaum or Alibhai, all unexercisable stock options and non-vested
stock-based grants will immediately vest and will be exercisable for one year.
Additionally, Wyndham or Patriot as applicable, will pay health insurance
premiums for one year.
If employment is terminated by Messrs. Carreker, Nussbaum or Alibhai for
"good reason," or if Wyndham or Patriot, as applicable, terminates his
employment without "cause," Wyndham or Patriot, as applicable, will pay such
executive a severance payment in accordance with Wyndham's or Patriot's, as
applicable, then current severance policies. At a minimum, Messrs. Carreker
and Nussbaum would be entitled to a severance payment equal to three times the
sum of his average base compensation, (determined in accordance with Mr.
Nussbaum's or Mr. Carreker's employment agreement, respectively, and average
incentive compensation, determined in accordance with Mr. Nussbaum's or Mr.
Carreker's employment agreement, respectively. Mr. Alibhai would be entitled
to a minimum severance payment equal to the sum of his average base
compensation and average incentive compensation for the remaining term of his
agreement or 24 months, whichever is higher, subject to certain offsets.
Additionally, for a period of three years, Wyndham or Patriot, as applicable,
will provide Messrs. Carreker and Nussbaum with an office and related
facilities and an assistant at a location of their respective choosing. For a
period of one year, Wyndham or Patriot, as applicable, would pay for Messrs.
Carreker and Nussbaum the cost of executive placement services. Certain stock
options and stock-based grants held by the Messrs. Carreker, Nussbaum or
Alibhai will also become exercisable or nonforfeitable.
If a "change in control", as defined in the employment agreements, occurs
and the executive's employment is terminated for any reason other than death,
disability or voluntary resignation within 18 months of such change in
control, Wyndham or Patriot, as applicable, must pay the executive a lump sum
amount equal to the severance payment (as defined in the employement
agreements) and all stock options and other stock-based awards will
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<PAGE>
become immediately exercisable or non-forfeitable. In addition, Patriot will
provide the executive with a tax gross-up payment to cover any excise tax due.
In June 1997, Patriot entered into an employment agreement with Mr. Novak,
pursuant to which Mr. Novak serves as Executive Vice President--Acquisitions
and Development for a three-year term beginning June 1997, with a base salary
of $275,000.
Mr. Novak's employment with Patriot terminated May, 1999, for reasons other
than for cause. Pursuant to the terms of Mr. Novak's employment agreement, he
is entitled to receive severance in the amount of $705,500 plus health
insurance for two years. In addition, all of Mr. Novak's outstanding stock
options vested and became exercisable and all of Mr. Novak's restricted stock
became fully vested and nonforfeitable. Mr. Novak will also be reimbursed for
executive outplacement and legal fees.
In February 1997, Patriot entered into an employment agreement with William
W. Evans III for a three- year term beginning March 1, 1997, with an initial
base salary of $300,000. Pursuant to the agreement, Mr. Evans initially served
in the Office of the Chairman of Patriot. In the event Mr. Evans' employment
is terminated due to death or disability: (1) Mr. Evans' beneficiaries will
receive the proceeds under applicable insurance policies, (2) all stock
options and other stock-based awards will become immediately exercisable or
nonforfeitable and (3) for a period of one year, Mr. Evans' spouse and
dependents will receive medical and related health benefits under Patriot's
existing plans.
In the event Mr. Evans' employment is terminated for cause or Mr. Evans
voluntarily terminates his employment, he will be entitled to receive any
accrued but unpaid cash compensation and benefits through the date of
termination and all vested options will continue to be exercisable for their
exercise term, as if his employment had not been terminated. If Patriot
terminates Mr. Evans without cause or if Mr. Evans terminates his employment
due to a constructive termination (as defined in his employment agreement):
(i.) all stock option and other stock-based awards will become immediately
exercisable or nonforfeitable, (2) for the longer of one year or the remaining
length of the term of the agreement, Mr. Evans and his spouse and dependents
will receive medical and related health benefits under Patriot's existing
plans and (3) Patriot will pay Mr. Evans within 30 days after the date of
termination, a lump sum equal to his average base salary and average incentive
compensation for the remaining length of the term of the agreement, or 12
months, whichever is greater. Mr. Evans is entitled to the same benefits as
Messrs. Carreker and Nussbaum in the event of a change in control as defined
in the employment agreement.
Mr. Evans' employment agreement was amended in late 1998 to increase his
base salary to $450,000, effective November, 1998, and provide for an
incentive performance bonus payable upon successful completion of certain
goals established by the compensation committee. Further, the employment
agreement was amended to provide for a grant of 166,666 restricted paired
shares, payable in three installments over two years, contingent upon the
closing of the investment and the related transactions. In addition,
Mr. Evans' outstanding stock options all became vested and exercisable and all
his restricted stock grants became fully vested and non-forfeitable. Finally,
Patriot provided Mr. Evans with a loan pursuant to his amended employment
agreement to assist him with the payment of income taxes on paired shares that
vested in February 1998.
As of April 14, 1997, Patriot entered into an employment agreement with
Ms. Raymond and Wyndham entered into employment agreements with
Messrs. Bentley and Koonce, with base salaries of $315,000, $350,000 and
$315,000, respectively. These employment agreements became effective on
January 5, 1998. These employment agreements have a term of three years and
have substantially similar provisions as Mr. Novak's employment agreement
except that the severance payment is equal to the sum of the average base and
incentive compensation payable for the remaining length of the three-year
term, or 18 months, whichever is greater. Ms. Raymond's position is that of
Executive Vice President and Chief Financial Officer of Patriot. Mr. Bentley's
position is that of Executive Vice President of Wyndham, and Mr. Koonce's
position is that of Executive Vice President, Marketing and Strategic Planning
of Wyndham.
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<PAGE>
On March 9, 1998, Mr. Jones entered into employment agreements with both
Wyndham and Patriot for a three-year term with a base salary of $300,000.
Mr. Jones's position is that of Executive Vice President and Treasurer of both
Wyndham and Patriot. Mr. Jones's employment agreements have provisions that
are substantially similar to the employment agreements for Messrs. Bentley and
Koonce, except that Mr. Jones's employment agreements provide for a minimum
guarantee of incentive compensation equal to 50% of his base salary. Mr. Jones
is also entitled to borrow up to $750,000 from Wyndham and Patriot. Upon
Mr. Jones's termination of employment, if his total compensation earned while
employed at Wyndham and Patriot, including stock-based compensation, is less
than $3,000,000, a portion of the loan will be forgiven.
On June 19, 1998, Wyndham entered into an employment agreement with
Mr. Holtzman for a three-year term with a base salary of $315,500.
Mr. Holtzman's position is that of Executive Vice President of Wyndham and
President of Grand Bay Hotels and Resorts. Under Mr. Holtzman's employment
agreement, he is entitled to receive a guaranteed bonus of $200,000 in his
initial year of employment. If Mr. Holtzman's employment is terminated by
Wyndham without "cause" or Mr. Holtzman resigns for a "good reason," he will
be entitled to a severance payment equal to the sum of 50% of his average base
pay and bonus and the amount payable under the Wyndham's then current
severance policy. Certain stock options and stock-based grants held by
Mr. Holtzman will become exercisable or nonforfeitable. For a period of six
months, Wyndham would pay Mr. Holtzman the cost of executive placement
services. Upon a "change in control," all of Mr. Holtzman's stock options and
stock-based grants will become exercisable and nonforfeitable.
On March 31, 1998, Mr. Stewart's employment with Patriot terminated.
Pursuant to the terms of Mr. Stewart's separation agreement, Mr. Stewart
continued to receive his base salary through October 2, 1998. In addition, all
of Mr. Stewart's outstanding stock options vested and became exercisable on
October 2, 1998 and will remain outstanding until October 2, 2000.
Mr. Stewart's restricted stock will continue to vest in accordance to its
original vesting schedule and will not be forfeited as a result of
Mr. Stewart's termination. In consideration for the foregoing severance
arrangements, Mr. Stewart provided consulting services to Patriot for 60 days.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise noted, the following table sets forth certain
information as of May 21, 1999 as to the security ownership of those persons
owning of record or known to Wyndham and Patriot to be the beneficial owner of
more than five percent of the paired shares and the security ownership of
Wyndham preferred stock, Patriot preferred stock and paired shares by each of
the directors of Wyndham and Patriot, each of the executive officers of
Wyndham and Patriot, and all directors and executive officers of Wyndham and
Patriot as a group. All information with respect to beneficial ownership has
been furnished by the respective director, executive officer or five percent
beneficial owner, as the case may be. Unless otherwise indicated, the persons
named below have sole voting and investment power with respect to the number
of shares set forth opposite their names. Beneficial ownership of the Wyndham
preferred stock, Patriot preferred stock and paired shares has been determined
for this purpose in accordance with applicable rules and regulations
promulgated under the Exchange Act. The number of shares of Wyndham preferred
stock, Patriot preferred stock or paired shares also includes the number of
shares that the person could receive if he redeemed his partnership units
under certain circumstances.
As of May 21, 1999, there were 239,901,410 paired shares; 4,860,876 shares
of Patriot series A preferred stock; 558,656 shares of Patriot series B
preferred stock; 1,781,173 shares of Wyndham series A preferred stock;
1,781,181 shares of Wyndham series B preferred stock; 8,651,569 options to
purchase a like number of paired shares; 13,709,531 paired common partnership
units (excluding paired common partnership units held by subsidiaries of the
company) 1,324,804 preferred B paired partnership units, 655,892 preferred A
Wyndham partnership units, and 586,814 preferred C Wyndham partnership units
outstanding.
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares
and Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class(a)
- ------------------------ ------------------------ ----------
<S> <C> <C>
Karim Alibhai............................ 5,347,240(b) 2.18%
Karim Alibhai............................ 171,200(w)*** 4.81%***
Leslie V. Bentley........................ 624,432(c) *
John P. Bohlmann......................... 42,428(d) *
Leonard Boxer............................ 59,117(e) *
James D. Carreker........................ 2,028,661(f) *
Harlan R. Crow........................... 12,126,729(g)(v) 4.95%
Harlan R. Crow........................... 4,860,876(h)** 100%**
John H. Daniels.......................... 204,987(e) *
John C. Deterding........................ 54,697(e) *
Gregory R. Dillon........................ 54,697(e) *
Burton C. Einspruch, M.D................. 24,472(i) *
William W. Evans III..................... 773,637(j) *
Milton Fine.............................. 5,066,390 2.11%
Susan T. Groenteman...................... 30,768(v) *
Michael Grossman......................... 13,986(k) *
Richard A. Holtzman...................... 98,353(x) *
Arch K. Jacobson......................... 77,237(l) *
Lawrence S. Jones........................ 25,711(m) *
Stanley M. Koonce, Jr. .................. 613,438(n) *
Thomas W. Lattin......................... 368,663(o) *
James C. Leslie.......................... 15,033(v) *
Carla S. Moreland........................ 70,879(p) *
Paul Novak............................... 96,837(q) *
Paul A. Nussbaum......................... 4,275,499(r) 1.76%
Anne L. Raymond.......................... 609,167(y) *
Rolf E. Ruhfus........................... 1,896,505(z) *
Philip J. Ward........................... 11,790(v) *
Sherwood M. Weiser....................... 1,137,736(i)(s) *
Sherwood M. Weiser....................... 788,795(w)*** 22.14%***
Executive officers and directors as a
group (27 persons)...................... 35,749,089 14.72%
CFHS, L.L.C./Crow Family, Inc............ 11,074,443(t) 4.73%
4,768,874(u)** 98.1%**
</TABLE>
- --------
* Less than 1%.
** Patriot preferred stock
*** Wyndham series A preferred stock and Wyndham series B preferred stock
(a) Assumes that all partnership units and shares of Patriot preferred stock
held by each person are redeemed for a paired share. The total number of
shares outstanding in calculating the percentage assumes that none of the
partnership units or shares of Patriot preferred stock held by other
persons are redeemed for paired shares. Also assumes that all vested
options to purchase paired shares are exercised. The total number of
shares outstanding used in calculating the percentage assumes that no
other vested or unvested options held by other persons are exercised.
(b) Includes options to purchase 300,531 paired shares issued to Mr. Alibhai
which are currently exercisable. The number of shares beneficially held by
Mr. Alibhai includes an aggregate of 441,059 partnership units
beneficially owned by Gencom Interest, Inc., a family corporation for
which he serves as Vice President and of which he owns 30% of the
outstanding capital stock. Mr. Alibhai disclaims beneficial ownership of
these partnership units, except to the extent of his 30% ownership
interest in such corporation.
(c) Includes options to purchase 33,303 paired shares issued to Mr. Bentley
which are currently exercisable.
(d) Includes options to purchase 10,765 paired shares issued to Mr. Bohlmann
which are currently exercisable.
(e) Includes options to purchase 42,933 paired shares, all of which are
currently exercisable.
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<PAGE>
(f) Includes options to purchase 78,088 paired shares issued to Mr. Carreker
which are currently exercisable.
(g) The number of shares beneficially held by Mr. Crow include an aggregate of
7,265,853 paired shares held by various family limited partnerships, in
which Mr. Crow controls the general partner and various family
corporations and trusts in which Mr. Crow exercises control over
investment decisions. Mr. Crow disclaims beneficial ownership of such
paired shares. The number of shares also includes 4,860,876 shares of
Patriot preferred stock held by the same family limited partnerships,
corporations and trusts. Mr. Crow disclaims beneficial ownership of such
Patriot preferred stock. Certain of such paired shares and Patriot
preferred stock are also reported being held by CFHS LLC and Crow Family,
Inc.
(h) Shares of Patriot preferred stock. Mr. Crow disclaims beneficial ownership
of such Patriot preferred stock to the extent such stock exceeds his
pecuniary interest in the limited partnerships that directly hold the
stock. Certain of such shares are also reported as held by CFHS LLC and
Crow and Family, Inc.
(i) Includes options to purchase 21,467 paired shares, all of which are
currently exercisable.
(j) Includes options to purchase 601,074 paired shares issued to Mr. Evans,
all of which are currently exercisable.
(k) Includes options to purchase 2,023 paired shares issued to Mr. Grossman,
which are currently exercisable.
(l) Includes options to purchase 64,400 paired shares issued to Mr. Jacobson,
all of which are currently exercisable.
(m) Includes options to purchase 6,011 paired shares issued to Mr. Jones which
are currently exercisable.
(n) Includes options to purchase 33,303 paired shares issued to Mr. Koonce
which are currently exercisable.
(o) Includes options to purchase 185,392 paired shares issued to Mr. Lattin
which are currently exercisable.
(p) Includes options to purchase 56,788 paired shares issued to Ms. Moreland
which are currently exercisable.
(q) Includes options to purchase 25,641 paired shares issued to Mr. Novak
which are currently exercisable.
(r) Includes options to purchase 3,005,575 paired shares issued to Mr.
Nussbaum which are currently exercisable.
(s) Includes an aggregate of 10,984 paired partnership units held by W L
Tampa, Ltd., and 129,900 paired shares held by CHC International, Inc. Mr.
Weiser disclaims beneficial ownership of such securities to the extent
that they exceed his pecuniary interest in such entities.
(t) Includes 6,305,569 paired shares and 4,768,874 shares of Patriot preferred
stock held by various limited partnerships in which CFHS LLC serves as the
general partner. All of such shares are also reported in Mr. Crow's
beneficial holdings. Beneficial ownership information is based on the
Schedule 13D filed by G-3 Securities, L.P., CFHS, LLC and Crow Family,
Inc. on January 8, 1998.
(u) Shares of Patriot preferred stock. All of such shares are also reported in
Mr. Crow's beneficial holdings above.
(v) Includes options to purchase 10,733 paired shares, all of which are
currently exercisable.
(w) Shares of Wyndham series A preferred stock and shares of Wyndham series B
preferred stock.
(x) Includes options to purchase 95,420 paired shares which are currently
exercisable.
(y) Includes options to purchase 3,851 paired shares which are currently
exercisable.
(z) Includes an aggregate of 1,766,936 of paired partnership units held by
Summerfield Suites Management Corp., Summerfield Development Corp.,
Summerfield Suites Lease Corp., SFHC Lease Corp., Summerfield Investment
Corp., and Witchita Consulting Co.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Title Insurance
Unity Title Company, a corporation wholly-owned by Mr. Nussbaum and members
of his family, receives a portion of the title insurance premiums paid in
connection with substantially all of the hotel acquisitions by the Companies.
In many cases, these premiums are paid by the seller of the hotel, and in
other cases are paid by the Companies. In 1998, Unity Title Company received
in excess of $60,000 in title premiums related to hotel acquisitions by the
companies.
Wyndham Merger
In connection with the merger of Wyndham Hotels Corporation with and into
Patriot in January 1998 (the "Wyndham Merger"), Patriot entered into an
Omnibus Purchase and Sale Agreement, as well as 11 individual purchase and
sale agreements with various descendants of Mr. and Mrs. Trammell Crow, and
various corporations, partnerships, trusts and other entities beneficially
owned or controlled by such persons (collectively, the "Crow Family Members"),
Mr. Carreker, Mr. Bentley and Mr. Koonce, for the acquisition of 11 hotels.
Messrs. Carreker, Bentley and Koonce are referred to herein collectively as
the "Wyndham Senior Executives." In connection with the Wyndham merger, the
Crow Family Members received $52,227,598, 6,427,217 shares of paired common
stock and 4,860,876 shares of Patriot preferred stock. Mr. Carreker received
$7,661,087 and 1,638,988 shares of Paired Common Stock, Mr. Bentley received
$2,189,652 and 468,423 shares of paired common stock and Mr. Koonce received
$2,166,908 and 463,580 shares of paired common stock, and Ms. Groenteman
received $174,530 and 37,337 shares of paired common stock. Additionally,
after payment of outstanding indebtedness and other transactional expenses,
the entities had available for distribution approximately $64,731,000 for the
Crow Family Members, approximately $1,527,000 for Mr. Carreker, and
approximately $462,000 for each of Mr. Bentley and Mr. Koonce. Also, in
connection with the Wyndham Merger, stock option granted to Messrs. Carreker,
Bentley and Koonce and Ms. Moreland became immediately exercisable in
accordance with their terms.
In connection with the Wyndham merger, Crow Family Members and certain
Wyndham senior executives retained the right to receive additional
consideration on April 30, 2000 based on a formula pertaining to the
performance of Wyndham Riverfront New Orleans and Wyndham Garden Laguardia as
set forth in the Omnibus Purchase and Sale Agreement dated April 14, 1997.
Based on the performance of such properties as of December 31, 1998, the
additional consideration would be $9,152,000 and $9,971,000, respectively.
Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries
Patriot loaned $40,500,000 in the form of mortgage notes to PAH Ravinia, a
corporation owned directly and indirectly by Paul Nussbaum Tom Lattin and Rex
Stewart, as part of the financing for PAH Ravinia's acquisitions of the Crowne
Plaza Ravinia Hotel. Patriot recognized $43,000 of interest income in 1998
related to such mortgage notes (excluding $4,268,000 of such interest
eliminated for financial reporting purposes in 1998). Patriot has aggregate
receivable (including mortgage notes) of $42,264,000 due from PAH Ravinia as
of December 31, 1998.
Patriot also loaned $31,400,000 in the form of a mortgage note to PAH
Windwatch, a limited liability company owned directly and indirectly by Paul
Nussbaum, Tom Lattin and Rex Stewart, as part of the financing for PAH
Windwatch's acquisition of the Wyndham WindWatch Hotel. Patriot recognized
$79,000 of interest income in 1998 related to such mortgage notes (excluding
$2,759,000 of such interest eliminated for financial reporting purposes).
Patriot had aggregate receivables (including the mortgage notes) of
$32,830,000 due from PAH Windwatch as of December 31, 1998.
Interstate Merger
In connection with the Companies acquisition of Interstate Hotels Company in
June 1998, Milton Fine and various entities beneficially owned or controlled
by Mr. Fine received cash and 9,706,019 shares of paired common stock.
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<PAGE>
Summerfield Acquisition
In connection with Wyndham's acquisition (the "Summerfield Acquisition") of
SF Hotels Company, L.P. in June 1998, Rolf Ruhfus and entities beneficially
owned or controlled by Mr. Ruhfus (the "Summerfield Entities") received
$40,885,214 in cash and 1,368,009 units (the "Units") of limited partnership
interest in each of the Patriot Partnership and the Wyndham Partnership.
Additionally, pursuant to the terms of Contribution Agreement relating to the
Summerfield Acquisition, the Summerfield Entities received an additional
327,993 Units in January 1999 and have earned the right to receive an
additional estimated $55 million of consideration in January 2000 and January
2001 (payable, at the election of the Summerfield Entities, in either cash or
additional OP Units).
In connection with the Summerfield Acquisition, Rolf Ruhfus retained the
right to a 15% participation with the Company in the appreciation in value of
the Miami Airport Summerfield based on terms set forth in the carried interest
payment agreement included as an exhibit to the Contribution Agreement.
GAH Acquisition--Phase II
In June 1998, in connection with certain transactions with affiliates of
Gencom American Hospitality, Inc. and CHCI to acquire certain real estate and
other assets, Mr. Alibhai received 156,863 partnership units and 85,600 shares
of Wyndham Series A and B preferred stock.
In connection with the company's acquisition of CHCI on June 30, 1998 the
Company may be obligated on September 30, 2000 and September 30, 2002 to pay
Mr. Alibhai and Mr. Weiser additional consideration, in each case based upon
the performance of certain specific assets, based on formulas as set forth in
certain merger and contribution agreements.
Sale of Hotels to Milton Fine
In November 1998, the companies sold the Courtyard by Marriott in
Westborough, Massachusetts and the Residence Inn by Marriott in Pittsburgh,
Pennsylvania, as well as 50% equity interest in each of the Courtyard by
Marriott in Orange, Connecticut and the Courtyard by Marriott in St. Louis,
Missouri to Milton Fine for an aggregate purchase price of $41.5 million.
Loan from Beacon Capital Partners, L.P.
In May 1999, Beacon Capital Partners, L.P. loaned $25 million to the
companies. The loan, which bears interest at LIBOR plus 2.5% is due June 30,
1999. The loan is secured by a first mortgage on the Wyndham Batterymarch
hotel, a property under construction in Boston, Massachusetts. The companies
paid Beacon Capital Partners, L.P. a financing fee of 2.50% of the loan
principal in May and will pay Beacon an additional fee of 0.75% of the loan
principal upon maturity of the loan.
Other Related Party Transactions
The company licenses from Paul Nussbaum the name and trademark of Patriot
American Hospitality, Inc. under a perpetual no-cost license agreement. In
addition, Mr. Nussbaum has outstanding invoices from the companies in the
amount of approximately $152,074 relating to the personal use of the corporate
jet services and hotel facilities.
During 1998, Wyndham received hotel management fees in the aggregate amount
of $8,301,956 from the partnership owning Wyndham hotels ("Hotel
Partnerships") listed below, in which Crow Family Members have an interest.
Some or all of the Wyndham Senior Executive Officers have an ownership
interest in such Hotel Partnerships.
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<PAGE>
During 1998, Wyndham received payments in the aggregate amount of $4,207,325
from the Hotel Partnerships listed below, in which Crow Family Members have an
interest. Some or all of the Wyndham Senior Executive Officers have an
ownership interest in such Hotel Partnerships. The payments were received as
reimbursements for certain administrative, tax legal, accounting, finance,
risk management, sales and marketing services provided by Wyndham to such
entities.
<TABLE>
<CAPTION>
Hotel Partnership Hotel
----------------- -----
<S> <C>
Anatole Hotel Investors, L.P................... Wyndham Anatole
Bristol Hotel Associates, Ltd.................. Wyndham Bristol
Playhouse Square Hotel Limited Partnership..... Wyndham Playhouse Square
MTD Associates................................. Wyndham Milwaukee Center
Hotel and Convention Center Partners I-XI.
Ltd........................................... Wyndham Palm Springs
Amgreen-Heritage Hotel Partnership, Ltd........ Wyndham Garden Hotel-Orange
Waterfront-Hotel Associates, S.E............... Wyndham Old San Juan
</TABLE>
During 1998, Wyndham received hotel management fees in the aggregate of
$14,285,904 from the ownership entity of the hotel listed below in which
Milton Fine, Paul Nussbaum, Karim Alibhai, Rolf Ruhfus, or Sherwood Weiser has
an interest.
<TABLE>
<CAPTION>
1998 Aggregate Management
Milt Fine and Service Fees
--------- -------------------------
<S> <C>
Marriott-Harrisburg, PA $ 265,734
Marriott Reach Resort; Key West, Fla. 201,187
Marriott-Pittsburgh Airport 294,884
Marriott-Albany, NY 340,144
Marriott Mission Valley, San Diego 323,684
Marriott Minnetonka, Minneapolis 273,466
Marriott Courtyard; St. Louis 378,029
Marriott Courtyard-Westborough; Boston 208,065
Marriott Courtyard Orange 210,486
Marriott-Ft. Lauderdale 173,532
Marriott Greentree, Pittsburgh 658,613
Marriott Providence 1,383,983
Marriott Trumbull 1,554,174
Embassy Suites Chicago 377,213
Residence Inn Pittsburgh 46,866
<CAPTION>
Paul Nussbaum
-------------
<S> <C>
Marriott Residence Inn, Houston $ 210,737
Holiday Inn Astrodome 215,020
Days Inn Astrodome 49,350
Sheraton Astrodome 524,190
Radisson Astrodome 94,849
Sheraton Edmonton 216,335
Inn at Maingate dba Doubletree Maingate 204,220
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
1998 Aggregate Management
Karim Alibhai and Service Fees
------------- -------------------------
<S> <C>
Days Inn Astrodome, Houston $ 49,350
Days Inn Greenspoint, Houston 45,530
Hampton Inn Corpus Christi 46,824
Hawthorne Suites, Houston 86,974
Holiday Inn Stevens Point, Portage County, 273,629
Wisconsin
Holiday Inn Astrodome, Houston 161,733
Inn at Maingate dba Doubletree Maingate, 204,220
Kissimmee, FL
Marriott Residence Inn, Houston Medical Center 210,737
Sheraton Astrodome, Houston 524,190
Sheraton Edmonton, Alberta Canada 216,335
Omni Baltimore 916,675
Wyndham Miami-Biscayne Bay 449,110
Radisson Astrodome, Houston 94,849
Holiday Inn-Lenox 221,928
Wyndham Garden Market Center, Dallas 137,813
Days Inn Austin 40,314
Radisson Acapulco 21,639
Wyndham Montreal 256,793
<CAPTION>
Rolf Ruhfus
-----------
<S> <C>
Summerfield Suites-Bridgewater $141,990
Summerfield Suites-Burlington 136,446
Summerfield Suites Chicago Downtown 158,621
Summerfield Suites Charlotte 36,006
Summerfield Suites Gaithersburg 98,982
Summerfield Suites Pleasanton 51,339
Summerfield Suites Scottsdale 4,889
Sierra Suites-Bothell 45,901
Sierra Suites-Chantilly 332
Sierra Suites-Orlando 40,272
Sierra Suites-Lake Buena Vista 36,740
Sierra Suites-Phoenix Metro Center 25,621
Sierra Suites-Piscataway 29,637
Sierra Suites-Pleasanton 23,613
Sierra Suites-Scottsdale 54,871
Sierra Suites-Waltham 32,470
Sierra Suites-Woburn 53,678
<CAPTION>
Sherwood Weiser
---------------
<S> <C>
Holiday Inn Dayton Mall, Ohio 37,161
Sheraton University City, Philadelphia 161,089
Wyndham Miami-Biscayne Bay 449,110
Westin Hotel Providence, RI 143,982
Washington Duke 359,750
</TABLE>
During 1998, the Company made lease payments of $455,414 to an affiliate of
Summerfield Associates L.P., a partnership in which Rolf Ruhfus has an
ownership interest, related to the hotels listed below:
<TABLE>
<S> <C>
Sierra Suites Atlanta Cumberland 82,894
Sierra Suites Phoenix Camelback 181,989
Sierra Suites Westborough 190,531
</TABLE>
87
<PAGE>
During 1996, the Wyndham Senior Executive Officers incurred indebtedness to
Wyndham Finance Limited Partnership ("WFLP"), a partnership owned by the Crow
Family Members. Notes representing such loans were purchased by Wyndham Hotel
Corporation in May of 1996 in connection with its formation for a cash payment
to WFLP in the amount of $18,576,000, which is equivalent to the aggregate
outstanding principal and accrued interest severally owing by the Wyndham
Senior Executive Officers to WFLP. Such promissory notes, which are made
payable to Wyndham, accrue interest at 6% per annum and are secured by the
pledge of certain paired shares held by the note obligors. The outstanding
principal and accrued interest (compounded quarterly) is payable in a single
lump sum in May 2001. The aggregate principal amount of such loans, including
interest are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
James D. Carreker.......................................... $5,770,000
Leslie V. Bentley.......................................... $2,124,000
Stanley M. Koonce, Jr. .................................... $2,163,000
Anne L. Raymond............................................ $5,197,000
</TABLE>
During 1998, the Companies made payments in the aggregate amount of $1.2
million as lease payments for its corporate office space to an entity in which
Crow Family Members have an ownership interest.
In 1998 the Company made payments in the aggregate amounts of $66,000 as
lease payments for the Summerfield divisional offices in Wichita, Kansas to
Summerfield Associates L.P., a partnership in which Rolf Ruhfus has an
ownership interest. The leases terminate in June 2001.
During 1998, Wyndham made payments in the aggregate amount of $3,423,000 to
Wyndham Travel Management Ltd. an entity owned by Lucy Billingsley (the
daughter of Mr. Trammell Crow), for travel services provided to Wyndham.
During 1998, Wyndham received payments in the aggregate amount of $117,900
from Crow-Los Patriots Limited, a senior assisted living facility in which
certain Crow Family Members have an ownership interest. The payments were
received as management fees.
During 1998, Patriot provided William W. Evans, III with a non-recourse loan
of $424,375 to assist Mr. Evans with the payment of income taxes in the
vesting of his shares of Paired Common Stock. This loan is secured by 53,667
shares of Paired Common Stock and bears interest at 7.5% per annum. The loan
is due on November 27, 2003, or 60 days after Mr. Evans' termination of
employment, if earlier.
During 1998, Wyndham provided Lawrence S. Jones with a non-recourse loan of
$300,000. This loan bears interest at 7% per annum and is due on October 5,
2001. As provided in Mr. Jones's employment agreements, a portion of the loan
may be forgiven upon Mr. Jones's termination of employment with the Companies.
Wyndham is a guarantor of the obligations of Playhouse Square Hotel Limited
Partnership (the owners of which include Crow Family Members and the Wyndham
Senior Executive Officers) to fund operating deficits relating to such Hotel
Partnership. The guarantee requires the guarantors (including Wyndham) to
advance up to $600,000 per year to the extent the Hotel Partnership
experiences operating deficits, with maximum required advances of $2.3 million
over the term of the guarantee extending from 1995 to 2000. Playhouse Square
Hotel Limited Partnership has caused to be deposited the sum of $1,000,000 as
reserve to secure the payment of the guaranteed obligations and to fund
operating deficits. Wyndham has not to date been required to make any advance
under the guarantee.
Pursuant to the terms of its management agreement relating to the Wyndham
Hotel at Los Angeles Airport (the "LAX"), Wyndham agreed to loan $4,560,000 to
be applied to costs of refurbishment of the LAX. The refurbishment loan is
evidenced by a promissory note (the "Note Receivable"), which has been
partially funded in the amount of $4,237,000 as of December 31, 1998.
Wyndham's obligation to make the remaining advances
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<PAGE>
under the refurbishment loan is secured by a letter of credit, which, in turn,
is collateralized by $440,241 (in cash) as of December 31, 1998. Prior to the
formation of Wyndham, WHC LAX Associates, L.P. ("WHC LAX"), a limited
partnership owned by Crow Family Members and the Wyndham Senior Executive
Officers, paid Wyndham $4,560,000 in return for Wyndham's agreement to pay to
WHC LAX all payments that Wyndham receives under the Note Receivable. Wyndham
also agreed that, insofar as the WHC LAX's $4,560,000 payment to Wyndham
exceeds advances that Wyndham is obligated to make, but has not yet made,
under the Note Receivable, it would pay to WHC LAX interest at a variable rate
that has ranged from 5.25% to 5.81% per annum on the unfunded amounts. As of
December 31, 1998, Wyndham has accrued such interest in the amount of $71,226.
In 1996, Wyndham entered into a five year service agreement with ISIS 2000,
an entity owned by Crow Family Members and the Wyndham Senior Executive
Officers, whereby ISIS 2000 will provide centralized reservations and property
management services to all Wyndham brand hotels. The services will be provided
for a fee comprised of an initial link-up charge plus a per reservation fee
and a per hotel charge for the property management system. The service fee
incurred by Wyndham totaled $4,368,000 in 1998. Wyndham has entered into an
asset management agreement with ISIS 2000 providing for human resource,
finance, accounting, payroll, legal and tax services. In addition, Wyndham had
guaranteed operating leases on behalf of ISIS 2000 in the approximate amount
of $1.8 million as of December 31, 1998. In connection with the Wyndham
Merger, each of the owners of ISIS 2000 granted an option (collectively, the
"ISIS Options") to Patriot to purchase their ownership interests in ISIS 2000.
The exercise price of the ISIS Options is equal to an amount that would yield
an internal rate of return equal to 12.5% on total capital contribution by the
owners of ISIS 2000 as of the date of exercise. On May 7, 1999, Patriot
exercised the ISIS options for an aggregate exercise price of $3,073,000.
In 1998 the Company made payments in the aggregate amount of $5,467,000 to
Kinetic Group Limited Partnership, an entity 50% owned by Trammell Crow
Company and 50% owned by an entity owned by Crow Family Members and certain
Senior Executive Officers. The payments were made under the terms of a service
agreement whereby Kinetic Group Limited Partnership provides management
information services to the Companies. In connection with the Wyndham merger,
the 50% entity owned by Crow Family Members and certain Senior Executive
Officers granted options to Patriot to purchase their ownership interests in
the 50% owner of Kinetic Group Limited Partnership. The exercise price of such
options is $100.00.
In 1997, Wyndham entered into a construction loan agreement with the Wyndham
Anatole Hotel (the "Anatole Hotel"), in which Crow Family Members have an
ownership interest. Under the agreement, Wyndham made a loan in the amount of
$10,000,000 for the construction costs of the hotel.
Crow Family Members retained the right to receive additional consideration
in an aggregate amount of up to $3,000,000 related to Wyndham Greenspoint-
Houston and Wyndham-Midtown Atlanta based on contingencies related to target
returns on invested capital as set forth in certain purchase and sale
agreements prior to the Wyndham merger and which survive the applicable
termination agreement.
In 1998 the Company managed Wyndham branded hotels for certain affiliates of
Hampstead Group L.L.C. An entity owned by Crow Family Members and certain
Senior Executive Officers (Hamcontinpay) may be entitled to a contingent
payment at such time as all such hotels achieve an investment return target of
15% on all equity capital invested through such program plus certain overhead
costs. The amount of such contingent payment is 10% of all cash proceeds
realized in excess of the investment return target.
Wyndham has made insurance premium payments to Wynright Insurance
("Wynright"), an entity owned by Crow Family Members and the Wyndham Senior
Executive Officers, with respect to certain insurance policies maintained for
the benefit of Wyndham and hotels owned or leased by Wyndham. Such payments
totaled $730,000 in 1998.
In 1996, a subsidiary of Wyndham entered into a master management agreement
with Homegate, an entity in which Crow Family Members have an interest. On
October 31, 1997, the management agreement with
89
<PAGE>
Homegate was terminated and Wyndham received $8,000,000 in cash and a
promissory note in the amount of $3,000,000 in exchange for the termination.
The promissory note was collected on January 9, 1998.
Leonard Boxer, a director of Wyndham, is a partner is Stroock & Stroock &
Lavan, a law firm that has advised Patriot on certain matters relating to the
acquisition of certain real property.
In 1998 the Company paid Rolf Ruhfus in excess of $598,393 in consulting
fees under terms set forth in a consulting agreement entered into in
connection with the Summerfield Acquisition. The Consulting Agreement expires
in June 1999.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act, requires the companies'
officers, directors and persons who beneficially own more than ten percent of
the paired shares to file reports of securities ownership and changes in such
ownership with the SEC. Officers, directors and greater than ten percent
beneficial owners also are required by rules promulgated by the SEC to furnish
the companies with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
companies, or written representations that no Form 5 filings were required,
Wyndham and Patriot believe that during 1998 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with except that: (1) Mr. Lyon
inadvertently failed to file a Form 4 with the SEC on a timely basis with
respect to the redemption and distribution of certain paired partnership
units; (2) Mr. Lyon inadvertently failed to file a Form 4 with the SEC on a
timely basis to report several sales of paired shares; (3) Mr. Weiser
inadvertently failed to file a Form 5 with the SEC on a timely basis with
respect to the redemption and distribution of certain paired partnership units
and the sale of certain paired shares; (4) Mr. Holtzman inadvertently failed
to file a Form 4 with the SEC on a timely basis with respect to certain
employee stock options and he and Ms. Priest both inadvertently failed to file
a Form 3 with the SEC on a timely basis when they became reporting persons;
(5) Mr. Alibhai inadvertently failed to file a Form 4 with the SEC on a timely
basis to report the disposition of certain preferred C Wyndham partnership
units; (6) Mr. Grossman inadvertently failed to file a Form 4 with the SEC on
a timely basis to report the grant of certain paired shares as a bonus; (7)
Mr. Novak inadvertently failed to file a Form 4 with the SEC on a timely basis
to report the acquisition of certain paired shares acquired in the Wyndham
merger;(8) Mr. Weiser inadvertently failed to file a Form 4 with the SEC on a
timely basis with respect to the redemption of certain paired partnership
units and a Form 4 with respect to the redemption of certain paired
partnership units and the sale of certain paired shares; (9) Mr. Bohlmann
inadvertently failed to file a Form 4 with the SEC on a timely basis with
respect to the repricing of certain employee stock options and with respect to
the purchase of certain paired shares; and (10) Mr. Lattin inadvertently
failed to file a Form 4 with the SEC on a timely basis with respect to the
repricing of certain employee stock options.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(a) The index to the audited financial statements and financial statement
schedules is included on page F-1 of this report. The financial statements are
included herein at pages F-2 through F-59. The following financial statement
schedules are included herein at pages F-60 through F-71:
Schedule III--Real Estate and Accumulated Depreciation for Patriot
American Hospitality, Inc.
Schedule IV--Mortgage Loans on Real Estate for Patriot American
Hospitality, Inc.
All other schedules for which provision is made in Regulation S-X are
either not required to be included herein under the related instructions or
are inapplicable or the related information is included in the footnotes to
the applicable financial statement and, therefore, have been omitted.
(b) Reports on Form 8-K for the quarter ended December 31, 1998:
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated November 9, 1998 (Nos. 001-09319 and
001-09320 filed November 9, 1998), as amended November 10, 1998, reporting
under Item 5 current developments regarding combined liquidity and capital
resources, the forward contracts the treasury rate lock agreements,
Hurricane Georges and third quarter 1998 earnings.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated November 27, 1998 (Nos. 001-09319 and
001-09320 filed December 3, 1998) reporting under Item 5 current
developments regarding combined funds from operations for the three months
ending December 31, 1998.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated December 16, 1998 (Nos. 001-09319 and
001-09320 filed December 16, 1998) reporting under Item 5 current
developments regarding a letter of intent with a group of investors for a
$1 billion equity investment.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated December 16, 1998 (Nos. 001-09319 and
001-09320 filed December 18, 1998) reporting under Item 5 current
developments regarding potential asset sales, the forward contracts and
fourth quarter 1998 earnings.
Joint Current Report on Form 8-K, of Patriot American Hospitality, Inc.
and Wyndham International, Inc. dated December 20, 1998 (Nos. 001-09319 and
001-09320 filed December 22, 1998) reporting under Item 5 the adoption by
the Boards of Directors of a Shareholder Rights Agreement.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------------------------------------
<C> <S>
Statement regarding computation of ratios (filed
12.1 herewith).
Significant Subsidiaries of Patriot and Wyndham
21.1 (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
24.1 Powers of Attorney (included on signature pages).
Financial Data Schedule of Patriot (filed
27.1 herewith).
Financial Data Schedule of Wyndham (filed
27.2 herewith).
99. 1 Letter dated February 28, 1999 by and among
Patriot American Hospitality, Inc., Wyndham
International, Inc. and UBS, AG, London Branch
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------------------------------------
<C> <S>
99.2 Letter dated February 28, 1999 by and among
Patriot American Hospitality, Inc., Wyndham
International, Inc. and PaineWebber Financial
Products, Inc.
99.3 Letter dated February 28, 1999 by and among
Patriot American Hospitality, Inc., Wyndham
International, Inc. and NationsBanc Mortgage
99.4 Executive employment agreement dated December 11,
1998 between Carla Moreland and Wyndham
International, Inc.
99.5 Letter agreement dated April 1, 1998 between Rex
E. Stewart and Wyndham International, Inc.
</TABLE>
92
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants has duly caused this Annual
Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, May 28, 1999.
PATRIOT AMERICAN HOSPITALITY, INC.
/s/ James D. Carreker
By: _________________________________
James D. Carreker
Chief Executive Officer
93
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants has duly caused the Annual Report
on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, May 28, 1999.
WYNDHAM INTERNATIONAL, INC.
/s/ James D. Carreker
By: _________________________________
James D. Carreker
Chairman of the Board and Chief
Executive Officer
94
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
HISTORICAL FINANCIAL INFORMATION
Combined Patriot American Hospitality, Inc. and Wyndham International,
Inc.:
Report of Independent Auditors--Ernst & Young LLP....................... F-2
Combined Balance Sheets as of December 31, 1998 and 1997................ F-3
Combined Statements of Operations for the years ended December 31, 1998,
1997 and 1996.......................................................... F-4
Combined Statements of Shareholders' Equity for the years ended December
31, 1998, 1997 and 1996................................................ F-5
Combined Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996.......................................................... F-6
Patriot American Hospitality, Inc.:
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-7
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.................................................. F-8
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996..................................... F-9
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997and 1996................................................... F-10
Wyndham International, Inc.:
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-11
Consolidated Statements of Operations for the year ended December 31,
1998 and the six months ended December 31, 1997...................... F-12
Consolidated Statements of Shareholders' Equity for the year ended
December 31, 1998 and the six months ended December 31, 1997......... F-13
Consolidated Statements of Cash Flows for the year ended December 31,
1998 and the six months ended December 31, 1997...................... F-14
Notes to Financial Statements........................................... F-15
Financial Statement Schedules:
Schedule III--Real Estate and Accumulated Depreciation.................. F-60
Schedule IV--Mortgage Loans on Real Estate.............................. F-71
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Patriot American Hospitality, Inc. and
Wyndham International, Inc.
We have audited (i) the accompanying consolidated balance sheets of Patriot
American Hospitality, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998; (ii) the
accompanying consolidated balance sheets of Wyndham International, Inc.
(formerly known as Patriot American Hospitality Operating Company) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December
31, 1998 and the six months ended December 31, 1997; and (iii) the
accompanying combined balance sheets of Patriot American Hospitality, Inc. and
Wyndham International, Inc. (the "Companies") as of December 31, 1998 and
1997, and the related combined statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedules listed in the
Index at Item 14(a). These consolidated financial statements and schedules are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, (i) the consolidated financial position of Patriot
American Hospitality, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998; (ii) the consolidated financial position
of Wyndham International, Inc. at December 31, 1998 and 1997 and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1998 and the six months ended December 31, 1997; and (iii) the
combined financial position of the Companies at December 31, 1998 and 1997,
and the combined results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Dallas, Texas
March 1, 1999
F-2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Investment in real estate and related improvements
and land held for development, net of accumulated
depreciation of $252,580 in 1998 and $68,805 in
1997................................................ $5,585,616 $2,044,649
Cash and cash equivalents............................ 123,085 42,431
Restricted cash...................................... 35,869 5,005
Accounts and lease revenue receivable................ 194,583 57,046
Investment in unconsolidated subsidiaries............ 146,912 11,802
Mortgage notes and other receivables from
unconsolidated subsidiaries......................... 78,403 76,419
Mortgage notes and other receivables................. 41,334 12,983
Management contracts, net of accumulated amortization
of $11,258 in 1998 and $1,574 in 1997............... 194,014 20,879
Leaseholds, net of accumulated amortization of $5,989
in 1998............................................. 179,922 --
Trade names and franchise costs, net of accumulated
amortization of $6,670 in 1998 and $122 in 1997..... 125,974 11,166
Goodwill and intangibles, net of accumulated
amortization of $20,895 in 1998 and $1,851 in 1997.. 553,889 126,007
Deferred expenses, net of accumulated amortization of
$29,136 in 1998 and $2,097 in 1997.................. 37,998 21,417
Deferred acquisition costs........................... 16,144 52,500
Inventories.......................................... 23,583 10,450
Other assets......................................... 78,344 15,099
---------- ----------
Total assets........................................ $7,415,670 $2,507,853
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under credit facility, term loans,
mortgage notes and capital leases................... $3,857,521 $1,112,709
Accounts payable and accrued expenses................ 313,831 78,468
Dividends and distributions payable.................. -- 27,636
Deposits............................................. 26,392 12,423
Due to unconsolidated subsidiaries................... 7,919 7,304
Deferred income taxes................................ 123,463 9,550
Minority interest in the Operating Partnerships...... 253,970 220,177
Minority interest in consolidated subsidiaries....... 229,537 49,694
Commitment and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value, authorized:
100,000,000 shares each; shares issued and
outstanding: 8,981,886 shares in 1998.............. 90 --
Excess stock (paired shares), $0.01 par value,
authorized: 750,000,000 shares each; no shares
issued and outstanding............................. -- --
Common stock (paired shares), $0.01 par value,
authorized: 650,000,000 shares each; issued and
outstanding: 213,521,647 shares in 1998 and
73,276,716 shares in 1997.......................... 4,270 1,466
Additional paid in capital.......................... 3,024,540 1,070,973
Notes receivable from shareholders and affiliates... (16,364) --
Unearned stock compensation, net of accumulated
amortization of $13,447 in 1998 and $5,825
in 1997............................................ (5,494) (13,116)
Unrealized loss on securities available for sale.... (1,245) --
Unrealized foreign exchange gain.................... 2,749 --
Accumulated deficit and dividend distributions...... (405,509) (69,431)
---------- ----------
Total shareholders' equity.......................... 2,603,037 989,892
---------- ----------
Total liabilities and shareholders' equity.......... $7,415,670 $2,507,853
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1998 1997 1996
---------- -------- -------
<S> <C> <C> <C>
Revenue:
Hotel revenue................................. $1,842,682 $167,727 $ --
Participating lease revenue................... 58,440 127,033 75,893
Racecourse facility and land lease revenue.... 51,259 26,511 --
Management fee and service fee income......... 89,067 7,088 --
Interest and other income..................... 14,893 6,676 600
---------- -------- -------
Total revenue............................... 2,056,341 335,035 76,493
---------- -------- -------
Expenses:
Hotel expenses................................ 1,173,756 118,317 --
Racing facility operations.................... 43,198 21,620 --
Real estate and personal property taxes and
casualty insurance........................... 68,008 17,958 7,150
General and administrative.................... 117,666 17,181 4,500
Ground lease expense.......................... 110,108 4,117 1,075
Interest expense.............................. 260,103 50,531 7,380
Cost of acquiring leaseholds and license
agreements................................... 64,407 54,499 --
Treasury lock settlement...................... 49,334 -- --
Loss on sale of assets........................ 9,453 -- --
Impairment loss on assets held for sale....... 51,081 -- --
Depreciation and amortization................. 231,233 52,685 17,420
---------- -------- -------
Total expenses.............................. 2,178,347 336,908 37,525
---------- -------- -------
Operating (loss) income......................... (122,006) (1,873) 38,968
Equity in earnings of unconsolidated
subsidiaries................................. 9,498 6,015 5,845
---------- -------- -------
(Loss) income before income tax provision,
minority interests and extraordinary item...... (112,508) 4,142 44,813
Income tax provision.......................... (17,122) (481) --
---------- -------- -------
(Loss) income before minority interests and
extraordinary item............................. (129,630) 3,661 44,813
Minority interest in the Operating
Partnerships................................. 12,651 (1,684) (6,767)
Minority interest in consolidated
subsidiaries................................. (9,427) (1,615) (55)
---------- -------- -------
(Loss) income before extraordinary item......... (126,406) 362 37,991
Extraordinary loss from early extinguishment
of debt, net of minority interest and income
taxes........................................ (31,817) (2,534) --
---------- -------- -------
Net (loss) income............................... $ (158,223) $ (2,172) $37,991
========== ======== =======
Basic (loss) income (attributable) available to
common shareholders:
Net (loss) income............................. $ (158,223) $ (2,172) $37,991
Adjustment for equity forwards................ (21,151) -- --
Preferred stock dividends..................... (7,956) -- --
---------- -------- -------
Basic net (loss) income....................... $ (187,330) $ (2,172) $37,991
========== ======== =======
Basic (loss) earnings per common paired share:
(Loss) income before extraordinary item....... $ (1.13) $ 0.01 $ 0.84
Extraordinary loss............................ (0.23) (0.04) --
---------- -------- -------
Net (loss) income per common paired share... $ (1.36) $ (0.03) $ 0.84
========== ======== =======
Diluted (loss) income (attributable) available
to common shareholders:
Net (loss) income............................. $ (158,223) $ (2,172) $37,991
Adjustment for equity forwards................ (188,392) -- --
Preferred stock dividends..................... (7,956) -- --
---------- -------- -------
Diluted net (loss) income..................... $ (354,571) $ (2,172) $37,991
========== ======== =======
Diluted (loss) earnings per common paired share:
(Loss) income before extraordinary item....... $ (2.34) $ 0.01 $ 0.83
Extraordinary loss............................ (0.23) (0.04) $ --
---------- -------- -------
Net (loss) income per common paired share... $ (2.57) $ (0.03) $ 0.83
========== ======== =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Notes
--------------- -------------------------------- Receivable Unearned Accumulated
Patriot Wyndham Additional From Share- Stock Deficit and
Number Par Number Number Par Paid in holders and Compen- Dividend
of Shares Value of Shares of Shares Value Capital affiliates sation Distributions
--------- ----- ----------- ----------- ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... -- $ -- 29,331,870 -- $ 293 $ 264,515 $ -- $(1,351) $ (1,679)
Issuance of
shares, net of
offering
expenses........ -- -- 13,916,186 -- 139 181,253 -- -- --
Issuance of
shares to
employees and
directors....... -- -- 365,440 -- 4 5,177 -- (5,144) --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- -- (8,841) - -- --
Net income...... -- -- -- -- -- -- -- -- 37,991
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- -- 1,068 --
Cash dividends.. -- -- -- -- -- -- -- -- (36,386)
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Balance, December
31, 1996......... -- -- 43,613,496 -- 436 442,104 -- (5,427) (74)
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 12,824,433 57,135,658 699 231,247 -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 15,830,033 15,830,033 318 386,417 -- -- --
Issuance of
shares to
employees and
directors....... -- -- 547,867 4,167 5 12,896 -- (12,839) --
Forfeiture of
unvested
employee stock
grants.......... -- -- (42,900) (42,900) -- (464) -- 464 --
Issuance of
shares for
exercise of
options......... -- -- 314,967 310,938 6 2,301 -- -- --
Issuance of
shares to redeem
OP units........ -- -- 188,820 38,820 2 2,554 -- -- --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- -- (6,082) -- -- --
Net loss........ -- -- -- -- -- -- -- -- (2,172)
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- -- 4,686 --
Cash dividends -- -- -- -- -- -- -- -- (67,185)
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Balance, December
31, 1997......... -- -- 73,276,716 73,276,716 1,466 1,070,973 -- (13,116) (69,431)
Issuance of
shares for
mergers and
acquisition of
properties...... 8,423,230 85 59,491,863 59,491,863 1,190 1,607,050 -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 64,084,627 64,084,627 1,282 257,439 -- -- --
Return of
capital......... -- -- -- -- -- (52,873) -- -- --
Issuance of
shares to
employees and
directors....... -- -- 39,790 39,790 -- 928 -- -- --
Issuance of
shares for
exercise of
options......... -- -- 1,210,737 1,210,737 24 15,250 -- -- --
Issuance of
shares to redeem
OP units........ -- -- 1,362,316 1,362,316 28 27,868 -- -- --
Issuance of
notes receivable
from
shareholders and
affiliates for
mergers and
acquisitions.... -- -- -- -- -- -- (18,617) -- --
Accrued interest
on notes
receivable from
shareholders and
affiliates...... -- -- -- -- -- -- (863) -- 863
Collections on
notes receivable
from
shareholders and
affiliates...... -- -- -- -- -- -- 3,116 -- --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- -- 7,622 --
Net loss........ -- -- -- -- -- -- -- -- (158,223)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- --
Unrealized loss
on securities
held for sale... -- -- -- -- -- -- -- -- --
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Comprehensive
loss.............
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Cash dividends.. -- -- -- -- -- -- -- -- (87,390)
Stock dividends
declared........ 558,656 5 14,055,598 14,055,598 280 97,905 -- -- (91,328)
--------- ----- ----------- ----------- ------ ---------- -------- ------- ---------
Balance, December
31, 1998......... 8,981,886 $ 90 213,521,647 213,521,647 $4,270 $3,024,540 $(16,364) $(5,494) $(405,509)
========= ===== =========== =========== ====== ========== ======== ======= =========
<CAPTION>
Accumulated
Other
Comprehensive
Income
-------------------
Unrealized
Loss on
Foreign Securities
Currency Held for
Exchange Sale Total
-------- ---------- -----------
<S> <C> <C> <C>
Balance, December
31, 1995......... $ -- $ -- $ 261,778
Issuance of
shares, net of
offering
expenses........ -- -- 181,392
Issuance of
shares to
employees and
directors....... -- -- 37
Redemption price
of OP units in
excess of book
value........... -- -- (8,841)
Net income...... -- -- 37,991
Amortization of
unearned stock
compensation.... -- -- 1,068
Cash dividends.. -- (36,386)
-------- ---------- -----------
Balance, December
31, 1996......... -- -- 437,039
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 231,946
Issuance of
shares, net of
offering
expenses........ -- -- 386,735
Issuance of
shares to
employees and
directors....... -- -- 62
Forfeiture of
unvested
employee stock
grants.......... -- -- --
Issuance of
shares for
exercise of
options......... -- -- 2,307
Issuance of
shares to redeem
OP units........ -- -- 2,556
Redemption price
of OP units in
excess of book
value........... -- -- (6,082)
Net loss........ -- -- (2,172)
Amortization of
unearned stock
compensation.... -- -- 4,686
Cash dividends -- -- (67,185)
-------- ---------- -----------
Balance, December
31, 1997......... -- -- 989,892
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 1,608,325
Issuance of
shares, net of
offering
expenses........ -- -- 258,721
Return of
capital......... -- -- (52,873)
Issuance of
shares to
employees and
directors....... -- -- 928
Issuance of
shares for
exercise of
options......... -- -- 15,274
Issuance of
shares to redeem
OP units........ -- -- 27,896
Issuance of
notes receivable
from
shareholders and
affiliates for
mergers and
acquisitions.... -- -- (18,617)
Accrued interest
on notes
receivable from
shareholders and
affiliates...... -- -- --
Collections on
notes receivable
from
shareholders and
affiliates...... -- -- 3,116
Amortization of
unearned stock
compensation.... -- -- 7,622
Net loss........ -- -- (158,223)
Foreign currency
translation
adjustment...... 2,749 -- 2,749
Unrealized loss
on securities
held for sale... -- (1,245) (1,245)
-------- ---------- -----------
Comprehensive
loss............. (156,719)
-------- ---------- -----------
Cash dividends.. -- -- (87,390)
Stock dividends
declared........ -- -- 6,862
-------- ---------- -----------
Balance, December
31, 1998......... $2,749 $(1,245) $2,603,037
======== ========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $ (158,223) $ (2,172) $ 37,991
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.............. 231,233 52,787 17,536
Amortization of unearned stock
compensation.............................. 7,622 4,686 1,068
Amortization of deferred loan costs........ 26,914 2,630 431
Loss on sale of assets..................... 9,453 -- --
Impairment loss on assets held for sale.... 51,081 -- --
Cost of acquiring leaseholds............... 64,407 54,499 --
Payment of interest on notes receivable
from unconsolidated subsidiaries.......... -- 5,001 4,833
Treasury lock settlement................... 49,225 -- --
Award of unearned stock compensation and
other..................................... 928 61 37
Equity in earnings of unconsolidated
subsidiaries.............................. (9,498) (6,015) (5,845)
Minority interest in Operating
Partnerships.............................. (12,652) 1,684 6,767
Minority interest in consolidated
subsidiaries.............................. 9,427 1,615 55
Deferred income tax benefits............... (14,665) -- --
Extraordinary items........................ 31,817 2,534 --
Changes in assets and liabilities:
Accounts receivable....................... (65,927) (19,494) --
Prepaid expenses and other assets......... 47,020 (5,965) (1,003)
Lease revenue receivable.................. 924 (4,359) (3,091)
Due to/from affiliates.................... -- (421) (324)
Accounts payable and accrued expenses..... (24,593) 21,039 2,741
---------- ---------- ---------
Net cash provided by operating
activities.............................. 244,493 108,110 61,196
---------- ---------- ---------
Cash flows from investing activities:
Acquisition of hotel properties and related
working capital assets, net of cash
acquired (1,946,227) (933,948) (353,217)
Improvements and additions to hotel
properties................................ (189,885) (82,269) (21,889)
Proceeds from sale of assets............... 77,325 -- --
Changes in other assets.................... 880 -- 1,219
Collections on other notes receivable...... 12,009 -- 399
Deferred acquisition costs................. (19,926) (67,743) (14,797)
Investment in unconsolidated subsidiaries.. (24,557) (1,574) --
Principal payments received on mortgage and
other notes receivable.................... -- (500) (31,400)
Investment in mortgage notes and other
receivables............................... 14,022 (116,090) --
---------- ---------- ---------
Net cash used in investing activities.... (2,076,359) (1,202,124) (419,685)
---------- ---------- ---------
Cash flows from financing activities:
Borrowings under credit facility, term
loans and mortgage notes.................. 2,883,719 1,865,634 396,302
Repayments of borrowings under credit
facility and other debt................... (997,436) (1,001,236) (191,463)
Payment of deferred loan costs............. (39,923) (24,471) (1,189)
Proceeds from issuance of common stock..... 273,995 388,621 199,261
Contributions received from minority
interest in consolidated subsidiarries.... 5,952 35,829 11,656
Distribution made to minority interest in
other partnerships........................ (11,081) -- --
Collections on notes receivable from
shareholders.............................. 3,116 -- --
Payments to redeem OP units................ -- (63,826) (16,584)
Dividends and distributions paid........... (124,834) (65,705) (37,659)
Forward equity settlements................. (52,873) -- --
Foreign currency translation adjustment.... 2,749 -- --
---------- ---------- ---------
Net cash provided by financing
activities.............................. 1,943,384 1,134,846 360,324
---------- ---------- ---------
Net increase in cash and cash equivalents... 111,518 40,832 1,835
Cash and cash equivalents at beginning of
year....................................... 47,436 6,604 4,769
---------- ---------- ---------
Cash and cash equivalents at end of year.... $ 158,954 $ 47,436 $ 6,604
========== ========== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest during the year...... $ 224,444 $ 48,254 $ 6,938
========== ========== =========
Cash paid for income taxes during the year.. $ 26,729 $ 325 --
========== ========== =========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Investment in real estate and related improvements
and land held for development, net of accumulated
depreciation of $216,548 in 1998 and $67,501 in
1997................................................ $4,960,429 $2,016,267
Cash and cash equivalents............................ 72,360 15,355
Restricted cash...................................... 17,525 5,005
Accounts receivable.................................. 8,589 14,458
Investment in unconsolidated subsidiaries............ 975,591 11,802
Mortgage notes and other receivables from
unconsolidated subsidiaries......................... 78,403 76,419
Subscription Notes receivable from Wyndham........... 133,669 --
Notes and other amounts receivable from Wyndham...... 180,152 42,946
Other notes receivable............................... 20,079 --
Leaseholds, net of accumulated amortization of
$3,301.............................................. 102,088 --
Goodwill and intangibles, net of accumulated
amortization of $5,287 in 1998 and $1,257 in 1997... 139,240 87,999
Deferred expenses, net of accumulated amortization of
$27,426 in 1998 and $2,097 in 1997.................. 36,900 21,417
Deferred acquisition costs........................... 1,587 21,374
Inventories.......................................... -- 1,306
Other assets......................................... 22,594 6,757
---------- ----------
Total assets........................................ $6,749,206 $2,321,105
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under credit facility, term loans,
mortgage notes and capital leases................... $3,612,076 $1,112,709
Subscription Notes payable to Wyndham................ 91,020 12,875
Notes and other amounts payable to Wyndham........... 19,109 --
Accounts payable and accrued expenses................ 63,850 28,151
Dividends and distributions payable.................. -- 27,185
Deferred income taxes................................ 38,912 --
Due to unconsolidated subsidiaries................... 7,919 7,304
Minority interest in Patriot Partnership............. 217,924 174,640
Minority interest in consolidated subsidiaries....... 229,537 49,214
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
100,000,000 shares; shares issued and outstanding:
5,419,532 in 1998.................................. 54 --
Excess stock, $0.01 par value; authorized:
750,000,000 shares; no shares issued and
outstanding........................................ -- --
Common stock, $0.01 par value; authorized:
650,000,000 shares; shares issued and outstanding:
213,521,647 shares in 1998 and 73,276,716 shares in
1997............................................... 2,135 733
Additional paid in capital.......................... 2,775,722 990,821
Notes receivable from shareholders.................. (15,254) --
Unearned stock compensation, net of accumulated
amortization of $13,447 in 1998 and $5,825
in 1997............................................ (5,494) (13,116)
Unrealized foreign exchange gain.................... 1,142 --
Accumulated deficit and dividend distributions ..... (289,446) (69,411)
---------- ----------
Total shareholders' equity......................... 2,468,859 909,027
---------- ----------
Total liabilities and shareholders' equity......... $6,749,206 $2,321,105
========== ==========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Revenue:
Participating lease revenue.................... $ 578,029 $180,451 $75,893
Interest and other income...................... 17,381 5,103 600
--------- -------- -------
Total revenue................................ 595,410 185,554 76,493
--------- -------- -------
Expenses:
Real estate and personal property taxes and
casualty insurance............................ 55,352 17,958 7,150
General and administrative..................... 29,784 11,157 4,500
Ground lease expense........................... 44,972 4,117 1,075
Interest expense............................... 245,205 51,000 7,380
Cost of acquiring leaseholds and license
agreements.................................... 11,686 54,499 --
Treasury lock settlement....................... 49,334 -- --
Loss on sale of assets......................... 9,453 -- --
Impairment loss on assets held for sale........ 27,897 -- --
Depreciation and amortization.................. 161,857 49,069 17,420
--------- -------- -------
Total expenses............................... 635,540 187,800 37,525
--------- -------- -------
Operating (loss) income........................ (40,130) (2,246) 38,968
Equity in earnings of unconsolidated
subsidiaries.................................. 36,726 6,015 5,845
--------- -------- -------
(Loss) income before income tax, minority
interest and extraordinary item............... (3,404) 3,769 44,813
Income tax provision........................... (2,742) -- --
--------- -------- -------
(Loss) income before minority interests and
extraordinary item............................ (6,146) 3,769 44,813
Minority interest in the Patriot Partnership... (98) (1,713) (6,767)
Minority interest in consolidated
subsidiaries.................................. (8,084) (1,674) (55)
--------- -------- -------
(Loss) income before extraordinary item........ (14,328) 382 37,991
Extraordinary loss from early extinguishment of
debt, net of minority interest................ (30,560) (2,534) --
--------- -------- -------
Net (loss) income................................ $ (44,888) $ (2,152) $37,991
========= ======== =======
Basic (loss) income (attributable) available to
common shareholders:
Net (loss) income.............................. $ (44,888) $ (2,152) $37,991
Adjustment for equity forwards................. (21,151) -- --
Preferred stock dividends...................... (5,249) -- --
--------- -------- -------
Basic net (loss) income...................... $ (71,288) $ (2,152) $37,991
========= ======== =======
Basic (loss) earnings per common share:
(Loss) income before extraordinary item........ $ (0.30) $ 0.01 $ 0.84
Extraordinary loss............................. (0.22) (0.04) --
--------- -------- -------
Net (loss) income per common share........... $ (0.52) $ (0.03) $ 0.84
========= ======== =======
Diluted (loss) income (attributable) available to
common share:
Net (loss) income.............................. $ (44,888) $ (2,152) $37,991
Adjustment for equity forwards................. (188,392) -- --
Preferred stock dividends...................... (5,249) -- --
--------- -------- -------
Diluted net (loss) income.................... $(238,529) $ (2,152) $37,991
========= ======== =======
Diluted (loss) earnings per common share:
(Loss) income before extraordinary item........ $ (1.51) $ 0.01 $ 0.83
Extraordinary loss............................. (0.22) (0.04) --
--------- -------- -------
Net (loss) income per common share........... $ (1.73) $ (0.03) $ 0.83
========= ======== =======
</TABLE>
See notes to financial statements.
F-8
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income Item
-------------
Preferred Stock Common Stock
------------------- ---------------------- Notes Accumulated
Additional Receivable Unearned Deficit and Foreign
Number of Par Value Number of Par Value Paid in from Stock Dividend Currency
Shares Stock Shares Stock Capital Shareholders Compensation Distributions Translation
--------- --------- ----------- --------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... -- $ -- 29,331,870 $ 293 $ 264,515 $ -- $(1,351) $ (1,679) $ --
Issuance of
shares, net of
offering
expenses........ -- -- 13,916,186 139 181,253 -- -- -- --
Issuance of
shares to
employees and
directors....... -- -- 365,440 4 5,177 -- (5,144) -- --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- (8,841) -- -- -- --
Net income...... -- -- -- -- -- -- -- 37,991 --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- 1,068 -- --
Cash dividends.. -- -- -- -- -- -- -- (36,386) --
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Balance, December
31, 1996......... -- -- 43,613,496 436 442,104 -- (5,427) (74) --
Issuance of
shares for
mergers and
acquisition of
properties...... -- -- 12,824,433 128 170,222 -- -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 15,830,033 159 367,076 -- -- -- --
Issuance of
shares to
employees and
directors....... -- -- 547,867 5 12,896 -- (12,839) -- --
Forfeiture of
unvested
employee stock
grants.......... -- -- (42,900) -- (464) -- 464 -- --
Issuance of
shares for
exercise of
options......... -- -- 314,967 3 2,192 -- -- -- --
Issuance of
shares to redeem
OP units........ -- -- 188,820 2 2,494 -- -- -- --
Redemption price
of OP units in
excess of book
value........... -- -- -- -- (5,699) -- -- -- --
Net loss........ -- -- -- -- -- -- -- (2,152) --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- 4,686 -- --
Cash dividends.. -- -- -- -- -- -- -- (67,185) --
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Balance, December
31, 1997......... -- -- 73,276,716 733 990,821 -- (13,116) (69,411) --
Issuance of
shares for
mergers and
acquisition of
properties...... 4,860,876 49 59,491,863 595 1,454,845 -- -- -- --
Issuance of
shares, net of
offering
expenses........ -- -- 64,084,627 641 245,068 -- -- -- --
Return of
capital......... -- -- -- -- (52,460) -- -- -- --
Issuance of
shares to
employees and
directors....... -- -- 39,790 -- 882 -- -- -- --
Issuance of
shares for
exercise of
options......... -- -- 1,210,737 12 14,498 -- -- -- --
Issuance of
shares to redeem
OP units........ -- -- 1,362,316 14 26,337 -- -- -- --
Issuance of
notes receivable
from
shareholders for
mergers......... -- -- -- -- -- (17,389) -- -- --
Accrued interest
on notes
receivable from
shareholders.... -- -- -- -- -- (863) -- 863 --
Collections on
notes receivable
from
shareholders.... -- -- -- -- -- 2,998 -- -- --
Amortization of
unearned stock
compensation.... -- -- -- -- -- -- 7,622 -- --
Net loss........ -- -- -- -- -- -- -- (44,888) --
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- 1,142
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Comprehensive
loss.............
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Cash dividends.. -- -- -- -- -- -- -- (86,250) --
Stock dividends
declared........ 558,656 5 14,055,598 140 95,731 -- -- (89,760) --
--------- ----- ----------- ------ ---------- -------- ------- --------- ------
Balance, December
31, 1998......... 5,419,532 $ 54 213,521,647 $2,135 $2,775,722 $(15,254) $(5,494) $(289,446) $1,142
========= ===== =========== ====== ========== ======== ======= ========= ======
<CAPTION>
Total
-----------
<S> <C>
Balance, December
31, 1995......... $ 261,778
Issuance of
shares, net of
offering
expenses........ 181,392
Issuance of
shares to
employees and
directors....... 37
Redemption price
of OP units in
excess of book
value........... (8,841)
Net income...... 37,991
Amortization of
unearned stock
compensation.... 1,068
Cash dividends.. (36,386)
-----------
Balance, December
31, 1996......... 437,039
Issuance of
shares for
mergers and
acquisition of
properties...... 170,350
Issuance of
shares, net of
offering
expenses........ 367,235
Issuance of
shares to
employees and
directors....... 62
Forfeiture of
unvested
employee stock
grants.......... --
Issuance of
shares for
exercise of
options......... 2,195
Issuance of
shares to redeem
OP units........ 2,496
Redemption price
of OP units in
excess of book
value........... (5,699)
Net loss........ (2,152)
Amortization of
unearned stock
compensation.... 4,686
Cash dividends.. (67,185)
-----------
Balance, December
31, 1997......... 909,027
Issuance of
shares for
mergers and
acquisition of
properties...... 1,455,489
Issuance of
shares, net of
offering
expenses........ 245,709
Return of
capital......... (52,460)
Issuance of
shares to
employees and
directors....... 882
Issuance of
shares for
exercise of
options......... 14,510
Issuance of
shares to redeem
OP units........ 26,351
Issuance of
notes receivable
from
shareholders for
mergers......... (17,389)
Accrued interest
on notes
receivable from
shareholders.... --
Collections on
notes receivable
from
shareholders.... 2,998
Amortization of
unearned stock
compensation.... 7,622
Net loss........ (44,888)
Foreign currency
translation
adjustment...... 1,142
-----------
Comprehensive
loss............. (43,746)
-----------
Cash dividends.. (86,250)
Stock dividends
declared........ 6,116
-----------
Balance, December
31, 1998......... $2,468,859
===========
</TABLE>
See notes to financial statements.
F-9
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................ $ (44,888) $ (2,152) $ 37,991
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............ 161,857 49,171 17,536
Amortization of unearned stock
compensation............................ 7,622 4,686 1,068
Amortization of deferred loan costs...... 25,210 2,630 431
Loss on sale of assets................... 9,453 -- --
Impairment loss on assets held for
sale.................................... 27,897 -- --
Cost of acquiring leaseholds............. 11,686 54,499 --
Payment of interest on notes receivable
from unconsolidated subsidiaries........ -- 5,001 4,833
Treasury lock settlement................. 49,225 -- --
Award of unearned stock compensation and
other................................... 882 61 37
Equity in earnings of unconsolidated
subsidiaries............................ (36,726) (6,015) (5,845)
Minority interest in Patriot
Partnership............................. 98 1,713 6,767
Minority interest in consolidated
subsidiaries............................ 8,084 1,674 55
Extraordinary items...................... 30,560 2,534 --
Changes in assets and liabilities:
Accounts receivable..................... (7,549) (550) --
Lease revenue receivable................ -- (6,754) (3,091)
Prepaid expenses and other assets....... 28,438 (2,407) (1,003)
Participating lease payments receivable
....................................... (14,549) -- --
Due to/from affiliates.................. 35,879 85 (324)
Accounts payable and accrued expenses... (25,082) 10,657 2,741
----------- ----------- ---------
Net cash provided by operating
activities............................ 268,097 114,833 61,196
----------- ----------- ---------
Cash flows from investing activities:
Acquisition of hotel properties and
related working capital assets, net of
cash acquired........................... (1,987,429) (937,135) (353,217)
Improvements and additions to hotel
properties.............................. (161,674) (82,269) (21,889)
Proceeds from sale of assets............. 69,266 -- --
Changes in other assets.................. -- (38,921) 1,618
Collections on other notes receivable.... 6,998 -- --
Deferred acquisition costs............... (6,507) (36,617) (14,797)
Investment and receivables from
unconsolidated subsidiaries............. (24,979) (2,074) (31,400)
Investment in mortgage notes and other
receivables............................. (6,925) (103,875) --
----------- ----------- ---------
Net cash used in investing activities.. (2,111,250) (1,200,891) (419,685)
----------- ----------- ---------
Cash flows from financing activities:
Borrowings under credit facility, term
loans and mortgage notes................ 2,696,381 1,865,634 396,302
Payments on subscription notes........... (12,875) -- --
Repayments of borrowings under credit
facility and other debt................. (825,013) (1,017,447) (191,463)
Payment of deferred loan costs........... (34,759) (24,471) (1,189)
Proceeds from issuance of common stock... 260,219 369,430 199,261
Contributions received from minority
interest in consolidated subsidiaries... 5,952 35,829 11,656
Distribution made to minority interest in
consolidated subsidiaries............... (7,587) -- --
Collections on notes receivable from
shareholders 2,998 -- --
Payments to redeem OP units.............. -- (63,826) (16,584)
Dividends and distributions paid......... (121,320) (65,335) (37,659)
Forward equity settlements............... (52,460) -- --
Other.................................... 1,142 -- --
----------- ----------- ---------
Net cash provided by financing
activities............................ 1,912,678 1,099,814 360,324
----------- ----------- ---------
Net increase in cash and cash
equivalents.............................. 69,525 13,756 1,835
Cash and cash equivalents at beginning of
year..................................... 20,360 6,604 4,769
----------- ----------- ---------
Cash and cash equivalents at end of year.. $ 89,885 $ 20,360 $ 6,604
=========== =========== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest during the year.... $ 207,716 $ 48,254 $ 6,938
=========== =========== =========
</TABLE>
See notes to financial statements.
F-10
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 50,725 $ 27,076
Restricted cash..................................... 18,344 --
Accounts receivable................................. 185,994 46,340
Notes and other receivables from Patriot............ 19,109 12,875
Inventories......................................... 23,583 9,144
Prepaid expenses and other current assets........... 28,195 5,227
---------- --------
Total current assets................................ 325,950 100,662
Investment in real estate and related improvements,
net of accumulated depreciation of $36,032 in 1998
and $1,304 in 1997.................................. 626,103 28,382
Investments in unconsolidated subsidiaries........... 86,812 --
Subscription Notes receivable from Patriot........... 91,020 --
Mortgage notes and other receivables................. 21,255 12,983
Management contract costs, net of accumulated
amortization of $11,258 in 1998 and $1,574 in 1997.. 194,014 20,879
Leaseholds, net of accumulated amortization of
$2,688.............................................. 77,834 --
Trade names and franchise costs, net of accumulated
amortization of $6,198 in 1998 and $122 in 1997..... 125,974 11,166
Deferred acquisition costs........................... 14,557 31,126
Goodwill, net of accumulated amortization of $15,608
in 1998 and $594 in 1997............................ 414,649 38,008
Deferred expenses, net of accumulated amortization of
$1,710.............................................. 1,098 --
Other assets......................................... 27,555 8,882
---------- --------
Total assets........................................ $2,006,821 $252,088
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 249,981 $ 50,317
Dividends and distributions payable................. -- 451
Participating lease payments payable to Patriot..... 40,996 9,519
Deposits............................................ 26,392 12,423
Notes and other amounts payable to Patriot.......... 139,156 42,946
Current portion of mortgage notes and capital lease
obligations........................................ 145,969 --
---------- --------
Total current liabilities........................... 602,494 115,656
Subscription notes payable to Patriot................ 133,669 --
Mortgage notes payable and capital lease
obligations......................................... 99,476 --
Deferred income taxes................................ 84,551 9,550
Minority interest in Wyndham Partnership............. 36,046 45,537
Minority interest in consolidated subsidiaries....... 915,491 480
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
100,000,000 shares; shares issued and outstanding:
3,562,354 in 1998.................................. 36 --
Excess stock, $0.01 par value; authorized:
750,000,000 shares; no shares issued and
outstanding........................................ -- --
Common stock, $0.01 par value; authorized:
650,000,000 shares; issued and outstanding:
213,521,647 shares in 1998 and 73,276,716 shares in
1997............................................... 2,135 733
Additional paid in capital.......................... 248,818 80,152
Notes receivable from affiliates.................... (1,110) --
Unrealized loss on securities held for sale......... (1,245) --
Unrealized foreign exchange gain.................... 1,607 --
Accumulated deficit and dividend distributions...... (115,147) (20)
---------- --------
Total shareholders' equity.......................... 135,094 80,865
---------- --------
Total liabilities and shareholders' equity......... $2,006,821 $252,088
========== ========
</TABLE>
See notes to financial statements.
F-11
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Six
Year Ended Months Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Hotel revenue...................................... $1,842,682 $167,727
Racecourse facility revenue........................ 51,259 26,344
Management fee and service fee income.............. 89,983 7,088
Interest and other income.......................... 18,303 2,975
---------- --------
Total revenue.................................... 2,002,227 204,134
---------- --------
Expenses:
Hotel expenses..................................... 1,251,548 118,317
Racecourse facility operations..................... 43,198 24,245
General and administrative......................... 87,882 6,024
Cost of acquiring leaseholds....................... 52,721 --
Impairment loss on assets held for sale............ 23,184 --
Depreciation and amortization...................... 69,375 3,616
Participating lease payments....................... 519,589 50,626
Interest expense................................... 35,690 933
---------- --------
Total expenses................................... 2,083,187 203,761
---------- --------
Operating (loss) income............................ (80,960) 373
Equity in earnings of unconsolidated subsidiaries.. 3,134 --
---------- --------
(Loss) income before income tax provision, minority
interests and extraordinary item.................. (77,826) 373
Income tax provision............................... (14,381) (481)
---------- --------
Loss before minority interests and extraordinary
item.............................................. (92,207) (108)
Minority interest in Wyndham Partnership........... 12,750 29
Minority interest in consolidated subsidiaries..... (31,705) 59
---------- --------
Loss before extraordinary item..................... (111,162) (20)
Extraordinary loss from early extinguishment of
debt, net of applicable taxes..................... (1,257) --
---------- --------
Net loss......................................... $ (112,419) $ (20)
========== ========
Basic (loss) income (attributable) available to
common shareholders:
Net (loss) income.................................. $ (112,419) $ (20)
Preferred stock dividends.......................... (2,707) --
---------- --------
Basic net loss..................................... $ (115,126) $ (20)
========== ========
Basic loss per common share:
Loss before extraordinary item..................... $ (0.83) $ --
Extraordinary loss................................. (0.01) --
---------- --------
Loss per common share............................ $ (0.84) $ --
========== ========
Diluted (loss) income (attributable) available to
common shareholders:
Net (loss) income.................................. $ (112,419) $ (20)
Preferred stock dividends.......................... (2,707) --
---------- --------
Diluted net loss................................. $ (115,126) $ (20)
========== ========
Diluted loss per common share:
Loss before extraordinary item..................... $ (0.83) $ --
Extraordinary loss................................. (0.01) --
---------- --------
Loss per common share............................ $ (0.84) $ --
========== ========
</TABLE>
See notes to financial statements.
F-12
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income Items
----------------------
Preferred Stock Common Stock Unrealized
--------------- ------------------- Notes Accumulated Loss on
Additional Receivable Deficit and Securities Foreign
Number of Par Number of Par Paid in from Dividend Held for Currency
Shares Value Shares Value Capital Affiliates Distributions Sale Translation Total
--------- ----- ----------- ------ ---------- ---------- ------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
shares for
mergers and
acquisition of
properties...... -- $-- 57,135,658 $ 571 $ 61,025 $ -- $ -- $ -- $ -- $ 61,596
Issuance of
shares, net of
offering
expenses........ -- -- 15,830,033 159 19,341 -- -- -- -- 19,500
Issuance of
shares to
employees and
directors....... -- -- 4,167 -- -- -- -- -- -- --
Forfeiture of
unvested
employee stock
grants.......... -- -- (42,900) -- -- -- -- -- -- --
Issuance of
shares for
exercise of
options......... -- -- 310,938 3 109 -- -- -- -- 112
Issuance of
shares to redeem
OP units........ -- -- 38,820 -- 60 -- -- -- -- 60
Redemption price
of OP units in
excess of book
value........... -- -- -- -- (383) -- -- -- -- (383)
Net loss........ -- -- -- -- -- -- (20) -- (20)
--------- ---- ----------- ------ --------- ------- --------- ------- ------ --------
Balance, December
31, 1997......... -- -- 73,276,716 733 80,152 -- (20) -- -- 80,865
Issuance of
shares for
mergers and
acquisition of
properties...... 3,562,354 36 59,491,863 595 152,205 -- -- -- -- 152,836
Issuance of
shares, net of
offering
expenses........ -- -- 64,084,627 641 12,371 -- -- -- -- 13,012
Return of
capital......... -- -- -- -- (413) -- -- -- -- (413)
Issuance of
shares to
employees and
directors....... -- -- 39,790 -- 46 -- -- -- -- 46
Note receivable
from
affiliates...... -- -- -- -- -- (1,228) -- -- -- (1,228)
Collections on
note receivable
from affiliate.. -- -- -- -- -- 118 -- -- -- 118
Issuance of
shares for
exercise of
options......... -- -- 1,210,737 12 752 -- -- -- -- 764
Issuance of
shares to redeem
OP units........ -- -- 1,362,316 14 1,531 -- -- -- -- 1,545
Net loss........ -- -- -- -- -- -- (112,419) -- -- (112,419)
Unrealized loss
on securities
held for sale... -- -- -- -- -- -- -- (1,245) -- (1,245)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- 1,607 1,607
--------- ---- ----------- ------ --------- ------- --------- ------- ------ --------
Comprehensive
loss............. (112,057)
--------- ---- ----------- ------ --------- ------- --------- ------- ------ --------
Cash dividend... -- -- -- -- -- -- (1,140) -- -- (1,140)
Stock dividend
declared........ -- -- 14,055,598 140 2,174 -- (1,568) -- -- 746
--------- ---- ----------- ------ --------- ------- --------- ------- ------ --------
Balance, December
31, 1998......... 3,562,354 $ 36 213,521,647 $2,135 $ 248,818 $(1,110) $(115,147) $(1,245) $1,607 $135,094
========= ==== =========== ====== ========= ======= ========= ======= ====== ========
</TABLE>
See notes to financial statements.
F-13
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six
Year Ended Months Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(112,419) $ (20)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 69,375 3,616
Amortization of deferred loan costs.............. 1,705 --
Impairment loss on assets held for sale.......... 23,184 --
Cost of acquiring leaseholds..................... 52,721 --
Award of unearned stock compensation............. 46 --
Equity in earnings of unconsolidated
subsidiaries.................................... (3,134) --
Minority interest in Wyndham Partnership......... (12,750) (29)
Minority interest in consolidated subsidiaries... 31,705 (59)
Deferred income tax benefit...................... (14,665) --
Extraordinary items.............................. 1,257 --
Changes in assets and liabilities:
Accounts receivable............................ (39,758) (18,944)
Prepaid expenses and other assets.............. 19,582 (1,204)
Participating lease payments
payable/receivable............................ 15,473 2,395
Due to/from affiliates......................... (42,624) (506)
Accounts payable and accrued expenses.......... 489 8,028
--------- -------
Net cash used in operating activities........ (9,813) (6,723)
--------- -------
Cash flows from investing activities:
Acquisition of hotel properties and related working
capital assets.................................... (44,494) 5,147
Cash received upon acquisition of hotel assets..... 85,696 --
Improvements and additions to hotel properties..... (29,127) (2,099)
Proceeds from sale of assets....................... 8,059 --
Changes in other assets............................ 880 --
Collections on other notes receivable.............. 5,011 --
Deferred acquisition costs......................... (13,419) --
Investment in unconsolidated subsidiaries.......... 422 --
Due to/from affiliates............................. (20,676) --
Investment in mortgage notes and other
receivables....................................... 20,947 (4,281)
--------- -------
Net cash provided by (used in) investing
activities.................................. 13,299 (1,233)
--------- -------
Cash flows from financing activities:
Borrowings under credit facility, term loans and
mortgage notes.................................... 187,338 --
Payments on subscription notes..................... 12,875 --
Repayments of borrowings under credit facility, and
other debt........................................ (172,423) 141
Payment of deferred loan costs..................... (5,164) --
Proceeds from issuance of common stock............. 13,776 19,191
Distributions made to minority interest in other
partnerships...................................... (3,494) --
Collections on notes receivable from shareholders.. 118 16,070
Dividends and distributions paid................... (3,514) (370)
Forward equity settlements......................... (413) --
Due to/from affiliates............................. 7,801 --
Foreign currency translation adjustment............ 1,607 --
--------- -------
Net cash provided by financing activities.... 38,507 35,032
--------- -------
Net increase in cash and cash equivalents............ 41,993 27,076
Cash and cash equivalents at beginning of period..... 27,076 --
--------- -------
Cash and cash equivalents at end of period........... $ 69,069 $27,076
========= =======
Supplemental disclosure of cash flow information:
Cash paid for interest during the period............. $ 16,728 $ --
========= =======
Cash paid for taxes during the period................ $ 26,729 $ 325
========= =======
</TABLE>
See notes to financial statements.
F-14
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
1. Organization:
Patriot American Hospitality, Inc. ("Old Patriot") was formed April 17, 1995
as a self-administered real estate investment trust ("REIT"). The Virginia
corporation was formed for the purpose of acquiring equity interests in hotel
properties. On October 2, 1995, Old Patriot completed an initial public
offering of shares of common stock and commenced operations.
On July 1, 1997, Old Patriot merged with and into California Jockey Club,
with Cal Jockey being the surviving legal entity. Cal Jockey's shares of
common stock are paired and trade together with the shares of common stock of
Bay Meadows Operating Company. In connection with the Cal Jockey merger, Cal
Jockey changed its name to "Patriot American Hospitality, Inc" referred
hereinafter as Patriot and Bay Meadows changed its name to "Patriot American
Hospitality Operating Company". As a result of the merger with Wyndham Hotel
Company in January, 1998, the operating company subsequently changed its name
to "Wyndham International, Inc." ("Wyndham"). Patriot and Wyndham are now
collectively referred to as the Companies. Patriot and Wyndham are both
Delaware corporations.
The Cal Jockey merger has been accounted for as a reverse acquisition
whereby, Cal Jockey is considered to be the acquired company for accounting
purposes. Consequently, the historical financial information of Old Patriot
became the historical financial information of Patriot. For accounting
purposes, Wyndham commenced its operations concurrent with the closing of the
Cal Jockey merger on July 1, 1997. The financial statements have been adjusted
for the purchase method of accounting whereby the Bay Meadows Racecourse
facilities and related leasehold improvements owned by Cal Jockey and Bay
Meadows have been adjusted to estimated fair market value.
In connection with the Cal Jockey merger, Bay Meadows formed an operating
partnership, Wyndham International Operating Partnership, L.P. referred to as
the Wyndham Partnership into which Bay Meadows contributed its assets in
exchange for units of limited partnership interest ("OP units") of the Wyndham
Partnership, and Cal Jockey contributed certain of its assets to Patriot
American Hospitality Partnership, L.P. referred to herein after as the Patriot
Partnership, in exchange for OP units. Patriot Partnership (collectively, the
Patriot Partnership and Wyndham Partnership are referred to herein as the
"Operating Partnerships"). Subsequent to the completion of the Cal Jockey
merger, substantially all of the operations of the Companies have been
conducted through the majority owned and controlled Operating Partnerships and
their subsidiaries.
The shares of common stock of Patriot are paired and trade together with the
shares of common stock of Wyndham as a single unit pursuant to a stock pairing
arrangement. The single unit is comprised of one share of common stock of
Patriot and one share of common stock of Wyndham and is referred to as a
paired share.
Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in the
Patriot Partnership. In addition, Patriot, through its wholly-owned
subsidiary, PAH LP, Inc., owns an approximate 88.0% limited partnership
interest in the Patriot Partnership as of December 31, 1998.
Wyndham owns the 1.0% general partnership interest and an approximate 86.8%
limited partnership interest in the Wyndham Partnership as of December 31,
1998.
At December 31, 1998, Patriot and Wyndham, through the Operating
Partnerships and other subsidiaries including hotels owned through
unconsolidated subsidiaries, owned interests in 178 hotels with an aggregate
of over 43,800 guest rooms and leased 121 hotels from third parties with over
15,800 guest rooms. In addition,
F-15
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Wyndham manages 161 hotels for third party owners with over 38,300 guest rooms
and franchises 12 hotels with over 2,900 guest rooms.
Patriot leases 203 of its owned and leased hotels to Wyndham and five of its
hotels are leased to third party lessees. Generally, the participating leases
between Patriot and the hotel lessees provide for the payment of the greater
of base or participating rent, plus certain additional charges, as applicable.
The lessees, in turn, have entered into separate agreements with hotel
management entities to manage the hotels.
The Companies own interests in nine hotels along with 82 leaseholds for
hotels leased from third parties through special purpose entities which are
non-controlled subsidiaries. Patriot owns the non-voting interest and Wyndham
owns the controlling voting interest in each of the non-controlled
subsidiaries. As a result of this ownership, the operating results of the non-
controlled subsidiaries are consolidated with Wyndham for financial reporting
purposes. Patriot accounts for its investment in the non-controlled
subsidiaries using the equity method of accounting.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The separate consolidated financial statements include the accounts of
Patriot and Wyndham, their respective wholly-owned subsidiaries, and the
partnerships, corporations and limited liability companies in which Patriot or
Wyndham own a controlling interest.
Partnerships--control is determined in accordance with 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.
The separate consolidated financial statements of Patriot and Wyndham have
also been combined for purposes of financial statement presentation. All
significant intercompany accounts and transactions have been eliminated.
Investment in Real Estate and Related Improvements
The hotel properties are stated at cost. Depreciation is computed using the
straight-line method based upon estimated useful lives of the assets of 35 to
40 years for the hotel buildings and improvements, 7 years for the Racecourse
facility and 3 to 10 years for furniture, fixtures and equipment. These
estimated useful lives are based on management's knowledge of the properties
and the industry in general.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Companies would record impairment losses on
long-lived assets used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those
assets.
When management identifies an asset as held for sale, the Companies estimate
the fair value of such assets. If in management's opinion the fair value of
the asset is less than the carrying amount of the asset, a reserve for
impairment is established. Fair value is estimated as the amount at which the
asset could be bought or sold less costs to sell. For the year ended December
31, 1998, Patriot and Wyndham recognized approximately $27,897
F-16
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and $2,681, respectively, of impairment losses. Patriot recognized
approximately $9,453 of losses related to other assets sold during the year.
Repairs and maintenance of hotel properties owned by Patriot are paid by the
lessees. Major renewals and betterments are capitalized. Interest associated
with borrowings used to finance substantial hotel renovations is capitalized
and amortized over the estimated useful life of the assets. Interest of
$12,112, $2,562 and $91 was capitalized in 1998, 1997 and 1996, respectively.
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Restricted Cash
Certain debt agreements and the franchise agreements provide that cash from
hotel operations be restricted for the future acquisition or replacement of
property and equipment each year based on a percentage of gross hotel revenues
and premiums for property taxes and insurance. The requirements range from 3%
to 6%.
Investment in Unconsolidated Subsidiaries
The Companies' investments in unconsolidated subsidiaries include
investments in 23 assets ranging from approximately 5% to 99%. These
investments are accounted for using the equity method of accounting.
Generally, Patriot owns an approximate 99% non-voting interest in each
investment. Wyndham owns an approximate 1% voting interest in each investment,
except for PAH Ravinia, Inc. which owns the Crowne Plaza Ravinia Hotel and PAH
Windwatch, L.L.C. which owns the Wyndham Windwatch Hotel for which the 1%
voting interest is held by certain officers of the Companies.
Management contracts, trade names and franchise costs
The costs associated with the acquisition of management contracts, trade
names and franchises have been recorded as deferred costs. Amortization is
computed using the straight-line method over estimated useful lives ranging
from 6 to 30 years. Certain management agreements include repayment provisions
if termination occurs prior to the term of the agreement. During 1998, Wyndham
recorded $2,950 for termination of management contracts that is included in
interest and other income.
Leaseholds
The costs associated with the acquisition of 121 leaseholds for hotel
properties leased from third party owners have been recorded as deferred
costs. Leasehold costs are amortized using the straight-line method over the
terms of the related leasehold agreement.
Goodwill and intangibles
Goodwill and intangibles recognized in connection with the acquisition of
certain businesses are amortized utilizing the straight-line method over a
period of 5 to 40 years. The carrying value of goodwill is reviewed based on
undiscounted cash flows over the remaining amortization period. Should this
review indicate that the goodwill will not be recoverable, a reserve for
impairment is established. For the year ended December 31, 1998, Wyndham
recognized an approximate $20,503 impairment loss on goodwill, related to
assets and businesses held for sale at December 31, 1998.
F-17
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred Expenses
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- -------
<S> <C> <C>
Deferred loan costs....................................... $ 61,708 $22,798
Costs of non-compete agreements........................... 1,479 --
Franchise fees............................................ 616 429
Other..................................................... 3,331 287
-------- -------
67,134 23,514
Less: accumulated amortization............................ (29,136) (2,097)
-------- -------
$ 37,998 $21,417
======== =======
</TABLE>
Deferred loan costs are amortized to interest expense on a straight-line
basis (which approximates the interest method) over the terms of the related
loans, which range from one to ten years. Deferred loan costs include $4,132
of fully-amortized costs associated with Patriot's old credit facility which
was repaid in July 1997. Costs of non-compete agreements are amortized using
the straight-line method over the terms of the related agreement. Franchise
costs are amortized using the straight-line method over the terms of the
related franchise agreements.
Inventories
Inventories consist of food, beverages, china, linen, glassware and
silverware and are stated at cost, which approximates market.
Other Assets
Leasehold improvements and furniture, fixtures and equipment related to the
Companies' corporate offices are carried at cost and amortized over estimated
useful lives of 5 to 7 years. Insurance premiums included in other assets are
expensed on a pro-rata basis over the life of the related policies. Security
deposits paid in connection with certain leasehold agreements of approximately
$42,988 are included in other assets.
Dividends
Patriot has paid sufficient dividends in order to maintain its status as a
REIT under the Internal Revenue Code of 1996 (the "Code"). Payment of such
dividends is dependent upon receipt of distributions from the Patriot
Partnership. Dividends may be paid in cash or securities.
Deposits
Deposits represent cash received from guests for future hotel reservations
at the hotels that Wyndham manages.
Income Taxes
Patriot has qualified to be a REIT under Sections 856 through 860 of the
Code. Under the Code, if certain requirements are met in a given tax year, a
corporation that is treated as a REIT will generally not be subject to federal
income tax with respect to income which it distributes to its shareholders.
Patriot has declared dividends
F-18
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
in excess of its taxable income through 1998. Accordingly, no provision for
federal income taxes has been reflected in the Patriot's financial statements.
For federal income tax purposes, 1998 dividends totaled $2.04 per common
share, of which 1% and 39% were considered capital gain and return of capital,
respectively. In 1997, dividends totaled $1.02 per common share, none of which
was considered return of capital and in 1996, dividends totaled $0.92 per
common share, none of which was considered return of capital.
Wyndham records its provision for income taxes in accordance with SFAS No.
109. Under the liability method of SFAS No. 109, deferred taxes are determined
based on the difference between the carrying amounts of assets and liabilities
for financial reporting purposes and the tax bases of assets and liabilities
using enacted tax rates in effect in the years the differences are expected to
reverse. See Note 15.
Minority Interest in the Operating Partnerships
Minority interest in the Operating Partnerships includes adjustments for the
minority partners' share of the current period net income and certain other
adjustments for the issuance or redemption of OP units.
Minority Interest in Consolidated Subsidiaries
The Companies have entered into a number of joint ventures in which a third
party owns a minority interest. For financial reporting purposes, the
financial position and results of operations for each controlled joint venture
is included in the consolidated financial statements of the Companies.
Forward Equity Transactions Subject to Price Adjustments
The Companies are parties to transactions with three counterparties
involving the sale of paired shares, with related price adjustment mechanisms.
The original agreements and subsequent amendments provide for a settlement
mechanism in either cash or additional paired shares. At each settlement date,
the Companies have and will record an adjustment to equity for the change in
fair market value of the Companies' paired shares until the forward equity
contracts are settled in full. See Note 11 for additional details on the
forward equity transactions.
Stock Splits
On January 30, 1997, the Board of Directors declared a 2-for-1 stock split
on Patriot common stock effected in the form of a stock dividend distributed
on March 18, 1997 to shareholders of record on March 7, 1997.
In addition, on July 10, 1997, the respective Boards of Directors of Patriot
and Wyndham declared a 1.927-for-1 stock split on its shares of common stock
effected in the form of a stock dividend distributed on July 25, 1997 to
shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the combined and consolidated
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock have been
restated to reflect the impact of the conversion of each share of Patriot
common stock into
F-19
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
0.51895 paired shares issued in the Cal Jockey merger and the 1.927-for-1
stock split. In addition, all references in the combined and consolidated
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock related to
periods prior to the 2-for-1 stock split distributed in March 1997 have been
restated to reflect the impact of such stock split.
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey merger
and the 1.927-for-1 stock split in July 1997, the number of OP units
outstanding and the OP unit conversion factor has been adjusted to re-
establish a 1-for-1 exchange ratio of OP units to common shares.
Stock Dividend
On December 22, 1998, Patriot declared a stock dividend of $0.44 per share
of common stock for the fourth quarter ended December 31, 1998 (the
"Dividend"). The Dividend was payable on January 25, 1999 to shareholders of
record on December 30, 1998. Each shareholder received the option to receive
the Dividend in the form of additional paired shares or shares of Series B
Cumulative Perpetual Preferred Stock, par value $0.01 per share of Patriot.
Per share data (including dividends), weighted average shares outstanding
and all stock option activity have been restated to reflect the stock
dividend.
Earnings per Share
The Companies have adopted SFAS No. 128 "Earnings Per Share". SFAS No. 128
specifies the computation, presentation and disclosure requirements for basic
earnings per share and diluted earnings per share. Earnings per share
disclosures for all periods presented have been calculated in accordance with
requirements of SFAS No. 128. Basic earnings per share is computed based upon
the weighted average number of shares of common stock outstanding during the
period presented. Shares of common stock granted to officers and employees of
Patriot and Wyndham are included in the computation only after the shares
become fully vested. Diluted earnings per share is computed based upon the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding during the periods presented. The diluted earnings per
share computations also include the dilutive impact of options to purchase
common stock which were outstanding during the period calculated by the
"treasury stock" method, unvested stock grants and other restricted awards to
officers and employees of Patriot and Wyndham, convertible preferred shares
and collateral shares issued in conjunction with certain forward equity
transactions (see Note 10).
Stock Compensation
The Companies account for their stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", ("APB No. 25"), and intend to continue to do so.
See Note 14 for a discussion of the Companies' stock compensation arrangements
and pro forma disclosure of the effect on income from operations and earnings
per share of such arrangements pursuant to the requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation".
Revenue Recognition
Patriot and the Patriot Partnership lease their hotel properties to Wyndham
and other lessees pursuant to separate participating leases. In addition, the
Patriot Partnership leases the Racecourse facilities to Wyndham pursuant to a
separate lease agreement. Lease income is recognized when earned under the
related leases. Wyndham primarily operates and manages hotel properties. Hotel
revenue, management fees, service and other fees, are recognized when earned.
F-20
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
Financial statements of foreign subsidiaries not maintained using U.S.
dollars are remeasured into the U.S. dollar functional currency for
consolidation and reporting purposes. Assets and liabilities of non-U.S.
operations are translated into U.S. dollars at the exchange rate in effect at
the balance sheet date. Revenues and expenses of non-U.S. operations are
translated at the weighted average exchange rate during the year. Resulting
translation adjustments are reflected in shareholders' equity. Realized
foreign currency gains and losses are included in results of operations.
Advertising Costs
The Companies participate in various advertising and marketing programs. All
costs are expensed in the period in which the advertising first takes place.
The Companies have recognized advertising expenses of $61,468 for 1998.
Self Insurance
The Company is self insured for various levels of general liability,
workers' compensation and employee medical coverage. Accrued expenses include
the estimated cost from unpaid incurred claims.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations
With the exception of its investment in the Racecourse facility, Patriot
currently invests primarily in hotel properties. The hotel industry is highly
competitive and Patriot's hotel investments are subject to competition from
other hotels for guests. Each of Patriot's hotels competes for guests
primarily with other similar hotels in its immediate vicinity and other
similar hotels in its geographic market. Patriot believes that brand
recognition, location, quality of the hotel, services provided and price are
the principal competitive factors affecting its hotel investments.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires that all components of comprehensive income and
the ending accumulated balances for each item, classified by their nature, be
reported in the financial statements in the period in which they are
recognized. The Companies adopted SFAS No. 130 beginning with the interim
financial statements for the quarter ended March 31, 1998.
Business Segments
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and
level of financial information to be disclosed. SFAS No. 131 changes current
practice by establishing a new framework on which to base segment reporting,
including the determination of a segment and the financial
F-21
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
information to be disclosed for each segment, referred to as the "management"
approach. The management approach requires that management identify "operating
segments" based on the way that management reviews the entity for making
internal operating decisions. SFAS No. 131 was adopted by the Companies with
the fiscal year ended December 31, 1998. See Note 18.
Derivative Instruments and Hedging Activities
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. The Companies expect to adopt SFAS No. 133
effective January 1, 2000. SFAS No. 133 will require the Companies to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings,
or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. Management has not yet
determined what the effect of SFAS No. 133 will have on the earnings and
financial position of the Companies.
Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other
hotels in the second and third quarters of a calendar year. Seasonal
variations in revenues at Patriot's hotels may cause quarterly fluctuations in
Patriot's lease revenues.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation.
3. Investments in Real Estate and Related Improvements and Land Held for
Development:
Investment in Real Estate and Related Improvements and Land Held for
Development consists of the following:
<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------------------------
Patriot
---------------------------------
Hotel Racecourse Wyndham
Properties Facility Total International
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Land...................... $ 376,794 $ 2,340 $ 379,134 $114,664
Land held for
development.............. 81,314 -- 81,314 --
Buildings and
improvements............. 4,063,747 21,865 4,085,612 416,427
Furniture, fixtures and
equipment................ 515,224 837 516,061 122,290
Renovations in progress... 142,217 536 142,753 11,435
---------- ------- ---------- --------
5,179,296 25,578 5,204,874 664,816
Less: impairment reserve.. (8,803) (19,094) (27,897) (2,681)
Less: accumulated
depreciation............. (212,800) (3,748) (216,548) (36,032)
---------- ------- ---------- --------
$4,957,693 $ 2,736 $4,960,429 $626,103
========== ======= ========== ========
</TABLE>
F-22
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------------------------
Patriot
---------------------------------
Hotel Racecourse Wyndham
Properties Facility Total International
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Land...................... $ 168,222 $ -- $ 168,222 $ --
Land held for
development.............. 17,980 -- 17,980 --
Buildings and
improvements............. 1,676,551 18,795 1,695,346 --
Furniture, fixtures and
equipment................ 187,705 517 188,222 29,686
Renovations in progress... 13,998 -- 13,998 --
---------- ------- ---------- -------
2,064,456 19,312 2,083,768 29,686
Less: accumulated
depreciation............. (66,122) (1,379) (67,501) (1,304)
---------- ------- ---------- -------
$1,998,334 $17,933 $2,016,267 $28,382
========== ======= ========== =======
</TABLE>
The Companies have approximately $550,315 of assets held for sale which are
included in investments in real estate and related improvements and land held
for development in the accompanying financial statements which are expected to
be sold during 1999. The assets held for sale include approximately $435,906
of non-proprietary branded segment assets, $93,337 of resort segment assets
and $21,072 of other segment assets. See Note 18 for Segment Reporting.
Additionally, the Companies have recorded an impairment reserve of
approximately $30,578 related to these assets held for sale. The impairment
relates in part to six hotels which had a combined net income of $1,323 for
the year ended December 31, 1998. Additionally, the impairment relates to the
Bay Meadows Racecourse which had operating income of $969 for the year ended
December 31, 1998 and was sold in February of 1999. See Note 22.
Investments in Hotel Properties
During 1996, Patriot acquired investments in 23 hotels for approximately
$372,147 (including closing costs and approximately $3,456 related to the
assumption of operating liabilities and acquisition costs). These acquisitions
were financed primarily with funds drawn on Patriot's credit facility and the
issuance of 600,703 OP units valued at approximately $16,391. In addition, the
payment of a portion of the purchase price related to the acquisition of six
of the hotels, in the amount of $2,000, was paid in February 1998. This amount
is included in accounts payable and accrued expenses at December 31, 1997.
During 1997, Patriot, through the Patriot Partnership and its subsidiaries,
invested approximately $1,331,459 in the acquisition of 45 hotels with a total
of approximately 12,000 guest rooms. These acquisitions were financed
primarily with funds drawn on Patriot's Credit Facility, a $350,000 term loan,
new mortgage financing in the amount of $236,892, the issuance of 5,629,172 OP
units valued at approximately $130,137, the issuance of 1,719,535 paired
shares valued at approximately $38,492, like-kind exchange of properties (see
discussion below) and the assumption of mortgage debt in the amount of
approximately $34,263.
During 1998, Patriot, through the Patriot Partnership and its subsidiaries,
invested approximately $234,116 in the acquisition of four hotels with a total
of over 1,700 guest rooms and the Golden Door Spa. These acquisitions were
financed primarily with funds drawn on Patriot's Credit Facility, the issuance
of 53,989 OP units valued at approximately $1,496, the issuance of 390,335
paired shares valued at approximately $10,000 and the assumption of mortgage
debt in the amount of approximately $80,074. In addition, Patriot acquired an
office building that will be converted into a hotel for approximately $33,900.
Cal Jockey Merger
At the closing of the Cal Jockey merger, 11,105,795 paired shares of Cal
Jockey and Bay Meadows were outstanding, resulting in total purchase
consideration for the transaction of approximately $190,188 (of which $130,516
related to Cal Jockey and $59,672 related to Bay Meadows). The estimated value
of the Cal Jockey
F-23
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and Bay Meadows paired shares was $33.00 per paired share based on a
conversion ratio of Patriot common stock into paired shares equal to 0.51895,
and the closing market price of Patriot's common stock on October 30, 1996
(the date the Cal Jockey merger agreement was executed) of $17.125.
Land Leases
PaineWebber, a PaineWebber affiliate and Patriot entered into a ground lease
covering a portion of the land on which the Racecourse is situated for a term
of seven years. The lease provides for quarterly rental payments of $750
through March 1998, $813 through March 1999, $875 through March 2000, $1,000
through March 2002 and $1,250 through July 2004. Patriot has subleased the
Racecourse land and leased the related improvements to a wholly owned
subsidiary of Wyndham in order to permit Wyndham to continue horseracing
operations at the Racecourse through the term of Patriot's lease. The sublease
is for a term of seven years with annual payments based on percentages of
revenue generated. In addition, Patriot has leased certain land adjacent to
the Racecourse to Borders, Inc. for an initial term of 20 years with a fixed
net annual rent of $279 for years 1 through 10, $362 for years 11 through 15
and $416 for years 16 through 20. In connection with the sale, Patriot
assigned all of its rights and benefits under existing leases, contracts,
permits and entitlements relating to the land sold (excluding the Borders
lease) to the PaineWebber affiliate. The PaineWebber affiliate assumed
substantially all of Patriot's development obligations including, but not
limited to, all obligations for on and off-site improvements and all
obligations under existing lease and contracts. Pursuant to the agreement,
Patriot has funded $10,250 of development costs for new stables as of December
31, 1998). The parties have the option to renew such leases upon their
expiration under certain circumstances. See Note 22.
Asset Sales
During 1998, Patriot sold its interest in four hotel assets: Courtyard by
Marriott Hotel in Orange, Connecticut; Courtyard by Marriott Hotel in St.
Louis, Missouri; Residence Inn by Marriott in Pittsburgh, Pennsylvania; and
the Westborough by Marriott in Westborough, Massachusetts, collectively
hereinafter referred to as the Fine Transaction, for a net purchase price of
approximately $32,500. The assets were sold to an affiliate of an independent
member of the Patriot Board of Directors. Patriot recognized no gain or loss
on sale as a result of this transaction.
Additionally in December 1998, Patriot sold its interest in three hotel
assets previously leased to NorthCoast Hotels, LLC (a third party lessee of
Patriot); the WestCoast Roosevelt Hotel, the WestCoast Gateway Hotel located
in Seattle, Washington and the WestCoast Wenatchee Hotel located in Wenatchee,
Washington to an affiliate of NorthCoast. Patriot received net cash proceeds
of approximately $23,700 plus a mortgage note receivable in the amount of
$2,000. Patriot has also contracted with an affiliate of NorthCoast to sell a
fourth hotel; the WestCoast Long Beach Hotel and Marina located in Long Beach,
California for a total purchase price of approximately $7,000. Patriot
recognized a loss on sale of approximately $9,453 as a result of the sale of
these assets.
4. Other Businesses Acquired:
Grand Heritage
In August 1997, Wyndham acquired Grand Heritage Hotels, Inc. a hotel
management and marketing company, and other Grand Heritage subsidiaries
including Grand Heritage Leasing, L.L.C. which leased three hotels from
Patriot for a purchase price of approximately $22,500. The purchase was
financed primarily through the issuance of 931,972 Class A preferred OP units
of Wyndham.
F-24
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Gencom American Hospitality and CHC International, Inc.
On September 1, 1997, Patriot acquired the leasehold interests related to
seven Patriot hotels which were previously leased by CHC Lease Partners and
re-leased such hotels to Wyndham.
On October 1, 1997, Patriot acquired one additional leasehold interest
related to a Patriot hotel previously leased by CHC Lease Partners and re-
leased such hotel to Wyndham. The hotels' management contracts with CHCI
related to these eight leaseholds were terminated prior to the acquisition.
The aggregate purchase price of the eight leasehold interests was
approximately $52,766, which is reflected as a cost of acquiring leaseholds in
the accompanying statements of operations of Patriot for the year ended
December 31, 1997. Concurrently, Wyndham purchased an approximate 50%
managing, controlling ownership interest in GAH-II, L.P. from affiliates of
Gencom American Hospitality for a purchase price of approximately $13,860.
These transactions were financed with approximately $644 of cash, and by
issuing 2,388,932 paired OP units of the Operating Partnerships and 476,682
preferred OP units of the Wyndham Partnership.
On June 30, 1998, pursuant to an Agreement and Plan of Merger dated as of
September 30, 1997 between Patriot, Wyndham and CHCI ("CHCI merger"), the
hospitality-related businesses of CHCI merged with and into Wyndham with
Wyndham being the surviving company. CHCI's gaming operations were transferred
to a new legal entity prior to the CHCI merger and such operations were not a
part of the transaction. As a result of the CHCI merger, Wyndham, through its
subsidiaries, acquired the remaining 50% investment interest in GAH-II, L.P.,
the remaining 17 leases and 16 of the associated management contracts related
to the Patriot hotels leased by CHC Lease Partners, 8 third-party management
contracts, two third-party asset management contracts, the Grand Bay
proprietary brand name and certain other hospitality management assets. The
aggregate purchase price of the 17 leasehold interests was approximately
$52,721, which is reflected as a cost of acquiring leaseholds in the
accompanying statements of operations of Wyndham for the year ended December
31, 1998.
These transactions are collectively referred to as the GAH acquisition.
By operation of the CHCI Merger, all the issued and outstanding shares of
common stock, par value $0.005 per share, of CHCI and certain stock option
rights were exchanged for an aggregate of 1,781,173 shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham
and 1,781,181 shares of Series B Redeemable Convertible Preferred Stock, par
value $0.01 per share, of Wyndham. In addition, Wyndham assumed CHCI's
outstanding debt in the amount of approximately $16,600.
In addition, on September 30, 2000 and September 30, 2002, Wyndham may be
obligated to pay the CHCI stockholders and a subsidiary of Wyndham may be
obligated to pay a Gencom-related entity additional consideration, in each
case based upon the performance of certain specified assets.
Wyndham Hotel Corporation
On January 5, 1998, Wyndham Hotel Corporation ("Old Wyndham") merged with
and into Patriot, with Patriot being the surviving corporation ("Wyndham
merger").
Patriot, as a result of the Wyndham merger, acquired ownership of ten Old
Wyndham hotels and 14 ClubHouse hotels and leased such hotels to Wyndham.
Thirteen of the 14 hotel leases assumed by Patriot were sub-leased to Wyndham.
Wyndham's remaining 52 management and franchise contracts (excluding 16
Patriot hotels that Wyndham managed prior to the merger), the Wyndham and
ClubHouse proprietary brand names, and the Wyndham hotel management company
were transferred to certain non-controlled subsidiaries. The total purchase
consideration for the Wyndham merger was approximately $982,000. The
consideration consisted of: 21,594,137 paired shares; 4,860,876 shares of
Series A Convertible Preferred Stock of Patriot (which are convertible on a
one-for-one basis into paired shares); cash of approximately $339,000 to repay
debt and pay Wyndham shareholders who elected to receive cash (which was
financed with funds drawn on Patriot's Credit Facility); and the assumption of
approximately $59,063 in debt. In connection with the repayment of debt
F-25
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
assumed in the Wyndham merger, Patriot incurred certain prepayment penalties
and wrote off the remaining balance of unamortized deferred financing costs
associated with such debt of approximately $18,716, net of minority interest.
Such amount has been reported as an extraordinary item in Patriot's
consolidated statement of operations.
In connection with the Wyndham merger, which was accounted for using the
purchase method of accounting, goodwill of $323,959 was recognized.
In 1998, the Companies issued an aggregate 261,224 paired shares valued at
approximately $5,847 in settlement of certain purchase price adjustment
arrangements related to Old Wyndham's acquisition of ClubHouse Hotels, Inc.
prior to the merger with Patriot.
WHG Casinos & Resorts, Inc. and related transactions
On January 16, 1998, a subsidiary of Wyndham merged with and into WHG
Casinos & Resorts Inc., with WHG being the surviving corporation, ("WHG
merger"). As a result of the WHG merger, Wyndham acquired the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the partnership that owns the 389-room
El San Juan Hotel & Casino and a 23.3% interest in the partnership that owns
the 751-room El Conquistador Resort & Country Club, all of which are located
in Puerto Rico. In addition, Wyndham acquired a 62% interest in Williams
Hospitality Group, Inc., the management company for the three hotels and the
Las Casitas Village at the El Conquistador. A total of 5,004,690 paired shares
were issued in connection with the WHG merger and approximately $21,300 of
debt was assumed, resulting in total purchase consideration of approximately
$159,400.
In connection with the WHG merger, which was accounted for using the
purchase method of accounting, goodwill of $22,758 was recognized.
Effective March 1, 1998, Patriot acquired from unaffiliated third parties a
40% interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity
interest in the El Conquistador and a 38% interest in Williams Hospitality
Group, Inc. for approximately $31,000 in cash, issuance of 1,818,182 paired
shares valued at approximately $49,227 and assumed approximately $169,572 of
debt.
On July 13, 1998, Patriot acquired the remaining minority interests held by
a third party in entities that own the El Conquistador and the El San Juan
Hotel & Casino for a total purchase price of approximately $3,890. Wyndham
owns the controlling general partner interest in the partnerships that own the
El San Juan Hotel & Casino and the El Conquistador. Wyndham also holds voting
control of Williams Hospitality Group, Inc. Therefore, the operating results
of these entities have been consolidated with those of Wyndham for financial
reporting purposes.
Arcadian International Limited
In April 1998, Patriot announced the completion of its acquisition of all of
the issued and to-be-issued shares of Arcadian International Limited for 60
pence per share referred to hereinafter as the Arcadian acquisition. Including
the exercise of all outstanding options to purchase shares, the assumption of
debt and the acquisition of the remaining shares in the Malmaison Group, the
total transaction cost was approximately (Pounds)185,900 (approximately
$308,700 U.S. based on exchange rates at the time of closing). As a result of
the transaction, Patriot acquired ten owned hotels located throughout England;
one owned hotel in Jersey; five owned and managed Malmaison Hotels; two
resorts under development in Tuscany, Italy and Paris, France; and the
proprietary Malmaison brand name. Patriot also acquired Arcadian's 50%
partnership interest in the redevelopment of the luxury Great Eastern Hotel in
London, to be branded as a flagship Wyndham Hotel and operated by Wyndham once
the development has been completed. The Arcadian acquisition, was financed
through a short-term financing agreement with PaineWebber Real Estate
Securities, Inc. for $160,000, at a rate equal to the borrowing rate on
Patriot's revolving credit facility. In addition, Patriot assumed
approximately $112,600 of debt in connection with the Arcadian acquisition.
See Note 6.
F-26
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In connection with the Arcadian acquisition which was accounted for using
the purchase method of accounting, goodwill of $54,405 was recognized.
Interstate Hotels Company
On June 2, 1998, pursuant to an Agreement and Plan of Merger dated as of
December 2, 1997, as thereafter amended, between Patriot, Wyndham and
Interstate Hotels Company, Interstate merged with and into Patriot with
Patriot being the surviving company ("Interstate merger"). Pursuant to the
Interstate merger agreement, stockholders of Interstate could elect to convert
each of their shares of Interstate common stock into the right to receive
either (i) $37.50 in cash, subject to proration in certain circumstances, or
(ii) a number of paired shares of Patriot and Wyndham common stock based on an
exchange ratio of 1.341 paired shares for each share of Interstate common
stock not exchanged for cash.
As a result of the Interstate merger, Patriot acquired controlling interest
in, or ownership of, 42 hotels representing over 12,000 rooms; leases for 84
hotels representing over 10,100 rooms and management or service agreements for
82 hotels representing over 20,400 rooms located throughout the United States
and in Canada, the Caribbean and Russia.
The total purchase consideration for the Interstate merger of approximately
$2,086,812 consisted of 28,825,875 paired shares, cash of approximately
$525,385 to pay Interstate shareholders who elected to receive cash,
approximately $787,117 in debt assumed or refinanced by Patriot and
approximately $73,351 to pay other transaction-related costs. In addition,
Interstate shareholders received rights to receive a cash distribution of
$0.40 on each share of Interstate common stock that was converted into paired
shares, aggregating approximately $9,138. In connection with the repayment of
debt assumed in the Interstate merger, Patriot incurred certain prepayment
penalties and wrote off the remaining balance of unamortized deferred
financing costs associated with such debt of approximately $11,553, net of
minority interest. Such amount has been reported as an extraordinary item in
Patriot's consolidated financial statement.
In connection with the Interstate merger which was accounted for using the
purchase method of accounting, goodwill of $254 was recognized.
Interstate's Third-Party Hotel Management Business
In May, 1998, the Companies, along with Interstate, entered into a
settlement agreement (as amended, the "Settlement Agreement") with Marriott
International, Inc. ("Marriott") which addressed certain claims asserted by
Marriott in connection with Patriot's then proposed merger with Interstate.
The Settlement Agreement provided for the dismissal of litigation brought by
Marriott, and allowed Patriot's merger with Interstate to close.
. In addition to dismissal of the Marriott litigation, the Settlement
Agreement provides for three principal transactions: (1) the re-
branding of ten Marriott hotels under the Wyndham name, (2) Marriott's
assumption of the management (the "Assumed Management Contracts") of
ten Marriott hotels formerly managed by Interstate for the remaining
term of the Marriott franchise agreement, and (3) the divestiture,
either through a sale or a spin-off of assets, of the third-party
management business which was operated by Interstate (the
"Divestiture").
. For Patriot to sell the third-party management business which was
operated by Interstate to a third party (a "Sale Transaction"),
Patriot must (1) sign a non-binding letter of intent (the "Letter of
Intent") for the Sale Transaction on or before March 31, 1999, (2) sign a
final binding contract (the "Final Binding Contract") for the Sale
Transaction no later than midnight on April 14, 1999, and (3) consummate
the Sale Transaction no later than June 14, 1999. If Patriot does not
complete a Sale Transaction, it must consummate the spin-off of the third-
party management business which was operated by Interstate (the "Spin-
off") no later than the earliest of (1) June 14, 1999, (2) April 30, 1999
(if Patriot does not enter into a Letter of Intent by March 31, 1999), (3)
thirty
F-27
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
days after the date Marriott disapproves the Letter of Intent, (4) May
14, 1999 (if Patriot does not enter into a Final Binding Contract by
April 14, 1999), or (5) thirty days after the date of Marriott
disapproves of the Final Binding Contract. The last date on which
either the Sale Transaction or the Spin-off may be complete pursuant
to the Settlement Agreement is the "Final Divestiture Date."
The assets expected to be included in the spin-off include management
contracts, leaseholds, and other net assets with an approximate carrying value
of approximately $68,000 at December 31, 1998. These assets contributed
approximately $6,655 of net income for the period June 2, 1998 through
December 31, 1998.
If the Companies do not complete the Spin-off or the Sale Transaction by the
Final Divestiture Date, Marriott will be entitled to receive 110% of the fees
otherwise due under the Assumed Management Contracts. The Companies will also
be subject to additional penalties including Marriott's right to purchase,
subject to third-party consents, the hotels to be submanaged by Marriott and
six additional Marriott hotels owned by Patriot at their then appraised
values.
Moreover, subject to any defenses the Companies may have, the Companies
would owe Marriott liquidated damages with respect to the hotels converted to
the Wyndham brand, those to be submanaged by Marriott, and the six additional
Marriott hotels Marriott would have the option to purchase. The Companies also
anticipate that Marriott would require third-party owners of Marriott-branded
hotels that Wyndham manages to replace Wyndham as manager of their hotels. As
a result, each respective hotel would either: (1) lose the Marriott brand, at
which time the Companies would have to compensate Marriott for any lost
franchise fees or (2) terminate the management contract with Wyndham and enter
into a contract with another manager. The Companies would owe liquidated
damages on any third-party Marriott-franchised hotel which chooses to convert
its brand.
SF Hotel Company, L.P.
On June 5, 1998, Patriot, through the Patriot Partnership, acquired all of
the partnership interests in SF Hotel Company, L.P. for approximately $298,915
("Summerfield acquisition"). The total purchase consideration for the
Summerfield acquisition consisted of approximately 3,223,795 OP units,
1,397,281 paired shares, cash of approximately $165,514 and assumption of debt
in the amount of approximately $17,083. In addition, the purchase price is
subject to future adjustment based on (i) the market price of the paired
shares through the end of 1998 (the "1998 Summerfield adjustment") and (ii)
achievement of certain performance criteria through 2000 for 24 managed hotels
which were not open for business (or had recently opened) as of the date of
acquisition, and (iii) fulfillment of the Companies obligation to develop
seven hotels. As a result of the Summerfield acquisition, Patriot acquired
four Summerfield Suites(R) hotels, leasehold and management interests in 24
Summerfield Suites(R), Sierra Suites(R) and Sunrise Suites hotels and
management contracts and franchise interests for 12 additional Summerfield
Suites(R) and Sierra Suites(R) hotels. Patriot has leased or sub-leased 21 of
the 24 hotels to Wyndham. In addition, Patriot acquired the development
contracts for several additional hotels. Estimated obligations related to
these future purchase price adjustments are approximately $55,000 part of
which is payable in 2000 and in part in 2001.
In connection with the Summerfield acquisition which was accounted for using
the purchase method of accounting, goodwill of $45,207 was recognized. In
connection with the repayment of debt assumed in the Summerfield acquisition,
Patriot incurred certain repayment penalties and wrote off the remaining
balance of unamortized deferred financing costs associated with such debt of
approximately $291, net of minority interest. Such amount has been reported as
an extraordinary item in Patriot's consolidated financial statement.
Effective January 15, 1999, an additional 1,311,709 OP units valued at
approximately $8,969 were issued in connection with the Summerfield
acquisition as additional consideration pursuant to the purchase agreement in
satisfaction of the 1998 Summerfield adjustment.
F-28
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Other
In July 1998, Wyndham acquired an approximate 49% limited partnership
interest in a partnership with affiliates of Don Shula's Steakhouse, Inc. for
$1,500 in cash and 156,272 of Preferred OP units of the Wyndham Partnership
which were valued at approximately $3,500.
During 1998, Patriot also re-acquired the leasehold interests for nine of
its hotels from the lessees and purchased certain license agreements for an
aggregate purchase price of approximately $11,686, which is reflected as a
cost of acquiring leaseholds in the accompanying statements of operations of
Patriot. The Companies issued 118,812 paired shares valued at $3,000 and paid
cash of $8,686. Patriot has leased the hotels to Wyndham.
5. Mortgage Notes Receivable and Other Receivables from Unconsolidated
Subsidiaries:
In December 1995, Patriot, through the Patriot Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Ravinia, a Virginia
corporation, for $4,458 and PAH Ravinia acquired the 495-room Crowne Plaza
Ravinia Hotel in Atlanta, Georgia. As part of the financing for the
acquisition of the Crowne Plaza Ravinia Hotel, Patriot, through the Patriot
Partnership, advanced $40,500 to PAH Ravinia, which is evidenced by two
mortgage notes consisting of a $36,000 first mortgage note and a $4,500 second
mortgage note. The principal amount of both notes is due January 1, 2000.
Interest at an annual rate equal to 10.25% and 12.5% on the first and second
mortgage notes, respectively, is payable monthly. All amounts owing under the
mortgage notes will become due upon a sale of the hotel to a third party
purchaser. The mortgage notes are collateralized by deeds of trust on the
Crowne Plaza Ravinia Hotel.
In September 1996, Patriot, through the Patriot Partnership, acquired an
approximate 99% non-voting ownership interest in PAH Windwatch, a Delaware
limited liability company. Patriot's investment in PAH Windwatch of
approximately $6,217 is evidenced by a promissory note. PAH Windwatch acquired
the 362-room Wyndham WindWatch Hotel in Hauppauge (Long Island), New York for
approximately $31,102. As part of the financing for the acquisition of the
Wyndham WindWatch Hotel, Patriot, through the Patriot Partnership, advanced
PAH Windwatch $31,400 which is evidenced by a first lien mortgage note. The
principal amount of the note is due on August 31, 1999. Interest at an annual
rate equal to 9% is payable monthly. All amounts owed under the mortgage note
will become due upon the sale of the hotel to a third party purchaser. The
mortgage note is collateralized by a deed of trust on the Wyndham WindWatch
Hotel.
These acquisitions have been accounted for using the equity method of
accounting. As a result, profits and losses related to these acquisitions are
reflected in equity in earnings of unconsolidated subsidiaries for financial
accounting purposes.
6. Credit Facility, Term Loans, Mortgage and Other Notes and Capital Lease
Obligations:
Outstanding borrowings under Patriot's credit facility, term loans, various
mortgage and other notes and capital lease obligations consist of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Credit Facility...................................... $ 875,587 $ 455,743
Term Loans........................................... 1,799,500 350,000
Paine Webber Mortgage Financing...................... 298,000 138,000
El Conquistador and Condado Financing................ 170,000 --
Royal Bank of Scotland and Coutts Consortium
Financing........................................... 97,140 --
Mortgage notes payable to Metropolitan Life Insurance
Company............................................. 98,892 98,892
Unsecured Financing.................................. 66,753 --
Other mortgage debt.................................. 421,944 69,702
Capital lease obligations............................ 29,705 372
---------- ----------
$3,857,521 $1,112,709
========== ==========
</TABLE>
F- 29
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Credit Facility and Term Loans
In connection with the Interstate merger, the Companies closed on the
commitment from the Chase Manhattan Bank and Chase Securities, Inc. and Paine
Webber Real Estate Securities, Inc. to increase Patriot's existing credit
facilities to an aggregate of $2,700,000 (an increase of $1,450,000 from the
prior $1,250,000 credit package). The increased credit facilities include the
$900,000 revolving credit facility ("Credit Facility") and a series of term
loans in the aggregate amount of up to $1,800,000 (the "Term Loans"). Proceeds
from the increased credit facilities were used to fund the cash portion of the
Interstate merger consideration, as well as to refinance certain outstanding
indebtedness of the Patriot Companies. Interest rates will be based on the
Companies' leverage ratio and may vary from 1.5% to 2.5% over LIBOR. As of
December 31, 1998 the effective rate of interest was 7.314% for all borrowings
under the Credit Facility except for Tranche B which was 7.564%. Patriot
incurred approximately $27,405 in loan fees and other expenses associated with
this financing arrangement.
As of December 31, 1998, the Companies had no additional availability under
the Credit Facility. The weighted average interest rate in effect for the
Credit Facility for the period ended December 31, 1998 was 7.90% per annum. As
of December 31, 1998, there was $875,587 outstanding under the Credit
Facility. Additionally, Patriot had outstanding letters of credit totaling
$24,413 as of December 31, 1998.
The Credit Facility matures July 2000. The Term Loans mature on January 31,
1999 ($350,000); March 31, 1999 ($400,000); March 31, 2000 ($450,000); and
March 31, 2003 ($599,500).
Under the original terms of the Credit Facility, two of the term loans
matured on January 31, 1999 ($350 million) and March 31, 1999 ($400 million),
respectively. All of the lenders under the Credit Facility have agreed to
extend maturity of these two term loans to June 30, 1999, subject to Patriot
and Wyndham consummating the Securities Purchase Agreement by that date (see
Note 22). In addition to the maturity extension dates, the lenders have waived
certain debt covenants to June 30, 1999 which the Companies would have been in
default if not waived. If the Securities Purchase Agreement is not consummated
by June 30, 1999, or the Securities Purchase Agreement otherwise terminates,
the maturity on these two Term Loans will be extended to March 31, 2000, and
require $300,000 of principal amortization by December 31, 1999. Additionally
the Companies will be required to secure the Credit Facility with mortgages
and other security interests. In connection with their agreement to extend the
maturities of the term loans to June 30, 1999, the Companies have paid
approximately $11,700 in fees.
Treasury Rate Lock Agreements
Patriot previously entered into three treasury interest rate lock agreements
to protect the Companies against the possibility of rising interest rates.
Under the rate lock agreements, Patriot receives or makes payments based on
the difference between specified interest rates, 6.06%, 6.07%, and 5.62%, and
the actual 10-year U.S. Treasury interest rate on a principal amount of
$525,000. The Patriot settled the entire $525,000 in treasury interest rate
locks resulting in a $49,334 one-time charge to earnings in 1998.
Interest Rate Swaps and Caps
Patriot 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.
F-30
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Patriot 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 Patriot 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 Patriot 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.
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.
As of December 31, 1998 Patriot has entered into six interest rate swap
arrangements to swap floating rate LIBOR-based interest rates for fixed rate
interest amounts as a hedge against $822,000 of the outstanding balance on the
Credit Facility and related term loans.
The interest rate swaps, cover borrowings under the Credit Facility and Term
Loans as follows:
<TABLE>
<CAPTION>
Amount Rate Maturity
------ ---- --------
<S> <C> <C>
$125,000 6.255% 11/01/02
125,000 6.044% 11/01/02
125,000 6.090% 11/01/02
72,000 5.80% 12/15/00
125,000 5.56% 11/01/02
250,000 5.84% 06/01/03
</TABLE>
Patriot paid $2,331 and $587 of net incremental interest expense related to
the interest rate swap arrangements in 1998 and 1997, respectively.
Additionally, Patriot has four interest rate cap arrangements as follows: an
interest rate cap that limits LIBOR to 6% on up to $105,000 of indebtedness
through June 1999; an interest rate cap that limits LIBOR to 7% on up to
$208,750 of indebtedness through October 1999; an interest rate cap that
limits LIBOR to 8.5% on up to $29,125 of indebtedness through August 2004; and
an interest rate cap that limits LIBOR to 7.83% on up to $38,000 of
indebtedness through October 2001.
Paine Webber Mortgage Financing
In July 1997, Patriot entered into a short-term financing arrangement (the
"Paine Webber Mortgage Financing") with an affiliate of Paine Webber Real
Estate Securities, Inc. ("Paine Webber Real Estate") whereby such affiliate
loaned Patriot $103,000 through April 15, 1998. The loan was amended to
extended the maturity to December 1998 then amended and extended to April 15,
1999, at a rate equal to the greater of 30-day LIBOR plus 1.75% or the
borrowing rate on the Credit Facility. The effective interest rate and
weighted average interest rate incurred under this borrowing was 7.314% and
7.81%, respectively for the period ended December 31, 1998. The proceeds of
the Paine Webber Mortgage Financing were used by Patriot to fund or acquire
four mortgage loans to certain partnerships affiliated with members of CHC
Lease Partners. The Paine Webber Mortgage Financing is secured by a collateral
assignment of the first lien mortgage loans encumbering four hotels (which
have an aggregate net book value as of December 31, 1998 of $122,060).
Patriot, through the Patriot Partnership and certain other subsidiaries, owns
the hotels securing these mortgage notes.
Effective February 15, 1999 the agreement was amended and extended to the
earlier of June 30, 1999 or the closing of the Securities Purchase Agreement
(see Note 22). Additionally, the amendment provides for an increase in the
rate of interest to LIBOR plus 2.75% per annum.
F-31
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In connection with the acquisition of the Wyndham Emerald Plaza Hotel
located in San Diego, California and the Arcadian acquisition, Paine Webber
Real Estate provided loans of $35,000 and $160,000, respectively. The $160,000
loan bears interest at a rate equal to the borrowing rate of Patriot's Credit
Facility and matures December 1998 (amended to April 15, 1999). The $35,000
loan bears interest at a rate of LIBOR plus 1.9% and matures December 1998
(April 15, 1999, as amended). This loan is secured by a first lien mortgage on
the property (which has an aggregate net book value as of December 31, 1998 of
$64,699) and the $160,000 loan is unsecured. The weighted average interest
rate incurred under these borrowings was 7.76% for the period ended December
31, 1998. The effective interest rate as of December 31, 1998 was 6.964% for
the $35,000 mortgage loan and 7.314% for the $160,000 unsecured loan.
Effective February 15, 1999 these agreements were amended and extended to
the earlier of June 30, 1999 or the closing of the Securities Purchase
Agreement (see Note 22). Additionally, the amendments provide for an increase
in the rate of interest to LIBOR plus 2.75% per annum for the $35,000 loan and
to LIBOR plus 5% per annum for the $160,000 loan.
El Conquistador and Condado Hotel & Casino Financing
In August 1998, the Companies refinanced certain debt related to the El
Conquistador and the Condado Hotel & Casino. Proceeds of $145,000 from the
refinancing were used to repay outstanding indebtedness of approximately
$139,350, to pay legal and closing costs and to establish certain reserves,
including interest reserves, required by the loan agreements. In connection
with the refinancing, unamortized deferred financing costs of $1,257, net of
minority interest, was written off. Such amount has been reported as an
extraordinary item in Wyndham's consolidated financial statements. The loans
are secured by mortgages on the properties (which have an aggregate net book
value as of December 31, 1998 of $324,734), bear interest at a rate of LIBOR
plus 2.25% and prior to the extension as described below, matured on November
3, 1998. The effective interest rate at December 31, 1998 was 7.314%.
On October 20, 1998, the El Conquistador Partnership, L.P., which is
beneficially owned 100% by the Companies, filed a Form S-11 with the SEC with
respect to the offering of the undivided interests in a Loan Agreement between
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority ("AFICA") and the El Conquistador
Partnership relating to certain AFICA tourism revenue bonds. It is
contemplated that the AFICA Bonds will be issued in a total principal amount
of $104,000, will consist of serial bonds and term bonds and will be issued in
registered form, without coupons, in denominations which are multiples of $5.
The proceeds from the AFICA Bond offering will be used to repay existing debt
on the property, fund reserve requirements and pay costs and expenses of
issuing the AFICA Bonds.
In November 1998, the Companies entered into agreements to amend and extend
the maturity dates of certain debt related to the El Conquistador and Condado
Hotel and Casino to January 29, 1999. The extension agreements required that
$10,000 be deposited into escrow accounts in installments beginning on the
date of the extension through January 29, 1999 to secure the Companies
obligations to complete the renovations caused by Hurricane Georges.
Additionally the amendments provide for an increase in the rate of interest to
LIBOR plus 2.75%. Upon receipt of all proceeds related to the insurance claims
from Hurricane Georges, the $10,000 will be released from escrow. The
financing has been subsequently extended to June 30, 1999. As a condition of
the extension for the El Conquistador loan, the Companies must obtain a
release from the second lien mortgage holder or repay the outstanding
obligation by March 31, 1999.
Additionally, the Companies have a term loan agreement with the Government
Development Bank for Puerto Rico (GDB). As of December 31, 1998, the loan had
an outstanding balance of $25,000. The loan bears
F-32
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
interest at a rate of LIBOR plus 0.09% and matures February 2006. The
Companies are required to deposit 50% of available cash flow, as defined per
the loan agreement with GDB, to a maximum of $1,667 plus any prior year
requirements. The loan is secured through a second lien mortgage on the
property. The effective interest rate at December 31, 1998 was 5.964%.
The weighted average interest rate incurred under these borrowings was 7.47%
for the period ended December 31, 1998.
Royal Bank of Scotland and Coutts Consortium Debt Obligations
In connection with the Arcadian acquisition, the Companies assumed debt
obligations to the Royal Bank of Scotland and Coutts Consortium which have a
total outstanding balance of $97,140 as of December 31, 1998. The debt
obligations include approximately $70,103 of syndicated debt to the Royal Bank
of Scotland which bear interest ranging from Sterling LIBOR plus 1.25% to
Sterling LIBOR plus 1.75% and UK Base Rate plus 1.25% and matures from 1999
through 2001. As of December 31, 1998 Sterling LIBOR and the UK Base Rate were
6.375% and 6.25% respectively. The Companies have negotiated with the banks to
extend certain of the debt obligations which mature prior to June 30, 1999,
through this date. Additionally, the amendments provide for an increase in the
rate of interest of 50 to 125 basis points. The debt is secured by first lien
mortgages encumbering 11 hotels of Arcadian (which have an aggregate net book
value as of December 31, 1998 of $143,268). The weighted average interest rate
incurred under these borrowings was 9.02% for the period ended December 31,
1998. The Companies also assumed debt obligations which have a total
outstanding balance of approximately $27,037 as of December 31, 1998 to the
Coutts Consortium debt which bear interest at Sterling LIBOR plus 2% and
matures December 2003. The debt is secured by first lien mortgages encumbering
four Malmaison hotels and one Malmaison hotel currently under development
(which have an aggregate net book value as of December 31, 1998 of $77,290).
The weighted average interest rate incurred under these borrowings was 10.8%
for the period ended December 31, 1998. The effective rate for the Royal Bank
of Scotland loans range from 7.5% to 8.0% at December 31, 1998. The effective
rate of the debt obligations with the Coutts Consortium are at 8.375% at
December 31, 1998.
Metropolitan Life Insurance Company Mortgage Notes
In connection with the purchase of four hotels in September 1997, Patriot
obtained $98,892 of mortgage financing with Metropolitan Life Insurance
Company encumbering six hotels (which have an aggregate net book value as of
December 31, 1998 of $196,948). The loans bear interest at 8.08% per annum and
require monthly payments of interest only until October 1999. Thereafter,
monthly payments of principal and interest in the amount of $755 are required
until the October 1, 2007 maturity date.
Unsecured Financing
Patriot, through the Patriot Partnership and other subsidiaries, is
obligated under notes with various banks and financial institutions that as of
December 31, 1998, had an outstanding balance of $66,753. These notes are
unsecured and bear interest at a rate ranging from 5.5% to 10.5% per annum.
The notes mature from June 1999 through 2023. The weighted average interest
rate incurred under these borrowings was 6.58% for the period ended December
31, 1998.
Other Mortgage Debt
Patriot, through the Patriot Partnership and other subsidiaries, is
obligated under other mortgage notes with various banks and financial
institutions that, as of December 31, 1998, had outstanding balances totaling
F-33
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
$421,944. These notes are collateralized by mortgage liens on the property and
equipment of 22 hotels including two hotels under development (which have an
aggregate net book value as of December 31, 1998 of $954,423). The notes bear
interest at rates ranging from 5.56% to 9.75% per annum and maturity dates in
1999 through 2005. The weighted average interest rate incurred by Patriot
under these borrowings during the year ended December 31, 1998 was 8.37%.
Under the terms of the related loan agreements and capital lease
obligations, principal amortization and balloon payment requirements at
December 31, 1998 are as follows for each of the next five years:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999.............................................................. $1,274,918
2000.............................................................. 1,371,266
2001.............................................................. 139,485
2002.............................................................. 65,463
2003.............................................................. 660,824
2004 and thereafter............................................... 345,565
----------
$3,857,521
==========
</TABLE>
7. Subscription Notes:
In order to effect the issuance of the paired shares of common stock and OP
units which were issued in connection with certain of the Companies' mergers,
other acquisition transactions and equity transactions, Patriot and Wyndham
have issued promissory notes to fund the issuance of paired shares and OP
units. These promissory notes are referred to as subscription notes.
As of December 31, 1998, Patriot's obligations to Wyndham under the
subscription notes totaled $91,020. In connection with each issuance of shares
and OP units pursuant to a specific transaction, these subscriptions for
shares and OP units are funded through the issuance of promissory notes
between the Companies. The notes bear interest ranging from 6.06% to 8.7% per
annum and mature from 1999 through 2001. As of December 31, 1998, Wyndham's
obligations to Patriot under a subscription note totaled $133,669. The note
bears interest at 8.7% per annum and mature January 2001.
8. Participating Leases:
As of December 31, 1998 the Patriot Partnership leased all but five of its
hotels to Wyndham. The remaining five hotels were leased to third party
lessees. Subsequent to year end and pursuant to a prior agreement, four of the
leases were terminated effective January 1, 1999. The remaining hotel leased
to a third party is currently under contract to be sold. The leases as of
December 31, 1998 have terms expiring through 2008. Minimum future rental
income under these non-cancelable operating leases for the next five years and
thereafter is as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999................................................................ $246,672
2000................................................................ 197,045
2001................................................................ 163,891
2002................................................................ 123,839
2003................................................................ 51,896
2004 and thereafter................................................. 117,163
--------
$900,506
========
</TABLE>
F-34
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The participating leases obligate Patriot to establish a reserve for capital
improvements for the replacement and refurbishment of furniture, fixtures and
equipment and other capital expenditures. Patriot and the lessees agree on the
use of funds in these reserves, and Patriot has the right to approve the
lessees' annual and long-term capital expenditures budgets. Such reserve
amount is to average 4.0% of total revenues for the hotels.
Generally, Patriot is responsible for the payment of (i) real estate and
personal property taxes on its hotel investments (except to the extent that
personal property associated with the hotels is owned by the lessees), (ii)
casualty insurance on the hotels and (iii) business interruption insurance on
the hotels. The lessees are required to pay for all liability insurance on
Patriot's hotels, with extended coverage, including comprehensive general
public liability, workers' compensation and other insurance appropriate and
customary for properties similar to Patriot's hotels with Patriot as an
additional named insured.
9. Management Services and Related Revenues:
In connection with the Grand Heritage acquisition, the GAH acquisition, the
Wyndham merger, the Interstate merger and other transactions, Wyndham entered
into or acquired management agreements. As of December 31, 1998, Wyndham and
certain unconsolidated subsidiaries manage 185 of the hotels owned and leased
by Patriot and its subsidiaries and 161 hotels owned by third parties.
Management fees and related service fees earned for hotels owned by Patriot
and its subsidiaries were $42,859 in 1998 and $3,626 in 1997. Income and
expense for such fees have been eliminated in the accompanying combined
financial statements of the Companies.
F-35
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Computation of Earnings Per Share:
Basic and diluted earnings per share have been computed as follows:
Combined Basic and Diluted Earnings per Share
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
-------------------- ------------------- ------------------
Basic Diluted Basic Diluted Basic Diluted
--------- --------- -------- --------- -------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
(Loss) income before
extraordinary item..... $(126,406) $(126,406) $ 362 $ 362 $ 37,991 $ 37,991
Adjustment for equity
forwards (1)........... (21,151) (188,392) -- -- -- --
Preferred stock
dividends.............. (7,956) (7,956) -- -- -- --
--------- --------- -------- -------- -------- --------
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item..... (155,513) (322,754) 362 362 37,991 37,991
Extraordinary loss...... (31,817) (31,817) (2,534) (2,534) -- --
--------- --------- -------- -------- -------- --------
Net (loss) income
(attributable)
available to common
shareholders........... $(187,330) $(354,571) $ (2,172) $ (2,172) $ 37,991 $ 37,991
========= ========= ======== ======== ======== ========
Weighted average number
of common shares
outstanding............ 137,764 137,764 64,260 64,260 45,459 45,459
========= ========= ======== ======== ========
Dilutive securities (2):
Effect of unvested
stock grants......... 264
Dilutive options to
purchase paired
shares............... 274
--------
45,997
========
(Loss) earnings per
share:
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item... $ (1.13) $ (2.34) $ 0.01 $ 0.01 $ 0.84 $ 0.83
Extraordinary loss.... (0.23) (0.23) (0.04) (0.04) -- --
--------- --------- -------- -------- -------- --------
Net (loss) income..... $ (1.36) $ (2.57) $ (0.03) $ (0.03) $ 0.84 $ 0.83
========= ========= ======== ======== ======== ========
</TABLE>
- --------
(1) The adjustment relates to the mark-to-market adjustment for the UBS
Transaction and the Nations Transaction (see Note 11), which can be
settled in cash or stock, at the Companies' option. At December 31, 1998,
the PaineWebber Transaction can only be settled in stock; therefore only
the guaranteed return portion is adjusted in the earnings per share
calculation. There is no mark-to-market adjustment for the PaineWebber
Transaction which is accounted for by the Reverse Treasury Method.
(2) For 1998 the dilutive effect of unvested stock grants of 880, the option
to purchase common stock of 753, shares issued in connection with forward
equity contracts of 2,507 and 6,613 of preferred shares were not included
in the computation of diluted earnings per share for the year ended
December 31, 1998 because they are anti-dilutive. For 1997, the dilutive
effect of unvested stock grants of 804 and the option to purchase common
stock of 1,017 were not included in the computation of diluted earnings
per share for the year ended December 31, 1997 because they are anti-
dilutive.
F-36
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Patriot Basic and Diluted Earnings Per Share
<TABLE>
<CAPTION>
Year Ended Year Ended
Year Ended December 31, December 31,
December 31, 1998 1997 1996
------------------- ---------------- ---------------
Basic Diluted Basic Diluted Basic Diluted
-------- --------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
(Loss) income before
extraordinary item..... $(14,328) $ (14,328) $ 382 $ 382 $37,991 $37,991
Adjustment for equity
forwards (1)........... (21,151) (188,392) -- -- -- --
Preferred stock
dividends.............. (5,249) (5,249) -- -- -- --
-------- --------- ------- ------- ------- -------
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item..... (40,728) (207,969) 382 382 37,991 37,991
Extraordinary loss...... (30,560) (30,560) (2,534) (2,534) -- --
-------- --------- ------- ------- ------- -------
Net (loss) income
(attributable)
available to common
shareholders........... $(71,288) $(238,529) $(2,152) $(2,152) $37,991 $37,991
======== ========= ======= ======= ======= =======
Weighted average number
of common shares
outstanding............ 137,764 137,764 64,260 64,260 45,459 45,459
======== ========= ======= ======= =======
Dilutive securities (2):
Effect of unvested
stock grants......... 264
Dilutive options to
purchase common
stock................ 274
-------
45,997
=======
(Loss) earnings per
share:
(Loss) income
(attributable)
available to common
shareholders before
extraordinary item... $ (0.30) $ (1.51) $ 0.01 $ 0.01 $ 0.84 $ 0.83
Extraordinary loss.... (0.22) (0.22) (0.04) (0.04) -- --
-------- --------- ------- ------- ------- -------
Net (loss) income..... $ (0.52) $ (1.73) $ (0.03) $ (0.03) $ 0.84 $ 0.83
======== ========= ======= ======= ======= =======
</TABLE>
- --------
(1) The adjustment relates to the mark-to-market adjustment for the UBS
Transaction and the Nations Transaction (described in Note 11), which can
be settled in cash or stock, at the Companies' option. At December 31,
1998, the PaineWebber Transaction can only be settled in stock; therefore
only the guaranteed return portion is adjusted in the earnings per share
calculation. There is no mark-to-market adjustment for the PaineWebber
Transaction which is accounted for by the Reverse Treasury Method.
(2) For 1998 the dilutive effect of unvested stock grants of 880, the option
to purchase common stock of 753, shares issued in connection with forward
equity contracts of 2,507 and 6,613 of preferred shares were not included
in the computation of diluted earnings per share for the year ended
December 31, 1998 because they are anti-dilutive. For 1997, the dilutive
effect of unvested stock grants of 804 and the option to purchase common
stock of 1,017 were not included in the computation of diluted earnings
per share for the year ended December 31, 1997 because they are anti-
dilutive.
F-37
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Wyndham Basic and Diluted Earnings Per Share (1)
<TABLE>
<CAPTION>
For the Six
Year Ended Months ended
December 31, 1998 December 31, 1997
Basic and Diluted Basic and Diluted
----------------- -----------------
(in thousands, except per share
amounts)
<S> <C> <C>
Loss before extraordinary item......... $(111,162) $ (20)
Preferred stock dividends.............. (2,707) --
--------- -------
Loss attributable to common
shareholders.......................... (113,869) (20)
Extraordinary loss..................... (1,257) --
--------- -------
Net loss attributable to common
shareholders.......................... $(115,126) $ (20)
========= =======
Weighted average number of common
shares outstanding.................... 137,764 64,260
Earnings per share:
Loss attributable to common
shareholders........................ $ (0.83) $ --
Extraordinary loss................... (0.01) --
--------- -------
Net loss............................. $ (0.84) $ --
========= =======
</TABLE>
- --------
(1) For 1998, the dilutive effect of unvested stock grants of 880, the option
to purchase common stock of 753 and 6,613 of preferred shares were not
included in the computation of diluted earnings per share for the year
ended December 31, 1998 because they are anti-dilutive. For 1997, the
dilutive effect of unvested stock grants of 804 and the option to purchase
common stock of 1,017 were not included in the computation of diluted
earnings per share for the year ended December 31, 1997 because they are
anti-dilutive.
See Note 14 for a discussion of the impact of SFAS No. 123 ("Accounting for
Stock-Based Compensation") on earnings per share.
11. Commitments and Contingencies:
Office Lease
The Companies have entered into agreements to lease office space for the
Companies' corporate headquarters and other regional offices. In general, the
agreements provide for monthly payments of rent plus reimbursement for certain
other costs as specified per each agreement and are accounted for as operating
leases for financial reporting purposes. The leases have terms from 1 to 25
years and expire between 1999 and 2009. Annual rental payments of $3,125, $127
and $126 for 1998, 1997 and 1996, respectively are reflected in general and
administrative expense in the accompanying financial statements. The lease
agreement entered into for the Companies' corporate headquarters is with an
affiliated entity (see Note 12). Future five year minimum lease payments under
these lease agreements are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999................................................................. $ 4,366
2000................................................................. 3,834
2001................................................................. 3,486
2002................................................................. 3,414
2003................................................................. 3,361
2004 and thereafter.................................................. 7,940
-------
$26,401
=======
</TABLE>
F-38
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Hotel and Ground Leases
The Companies lease both land and hotels under agreements with terms ranging
from one to 100 years. The Companies have incurred rent expense totaling
$110,108, $4,117 and $1,075 for 1998, 1997 and 1996, respectively. Future five
year minimum lease payments under these lease agreements are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999.............................................................. $ 87,449
2000.............................................................. 87,567
2001.............................................................. 87,576
2002.............................................................. 87,692
2003.............................................................. 87,900
2004 and thereafter............................................... 1,009,738
----------
$1,447,922
==========
</TABLE>
Employment Agreements
The Companies have entered into employment agreements with each of their
respective executive officers. Generally, the agreements provide for annual
base compensation with any increases during the three-year term of the
agreement to be approved by the Compensation Committees of Patriot's or
Wyndham's Board of Directors, as applicable.
Future Earnout Obligations
In connection with the CHCI merger and the Gencom acquisition, Wyndham and a
subsidiary of Wyndham may be obligated to pay CHCI shareholders and a Gencom
related entity additional purchase consideration, in each case based on the
performance of certain specified assets.
In connection with the Summerfield acquisition, Patriot may be obligated to
pay in cash or OP units additional purchase consideration if certain
performance criteria are met based on (i) the average market price of the
paired shares of the Companies through December 31, 1998 and (ii) the
achievement of certain performance criteria for certain hotels under
development through the year 2000 (see Note 13).
Pursuant to the joint venture agreement related to the Wyndham Chicago St.
Claire Hotel (the hotel is currently under development), the agreement
provides for an earnout payment payable based on the net operating income from
the hotel for the year ended December 31, 2001, as calculated per the
agreement.
Forward Equity Contracts.
Patriot is a party to forward equity contracts with three counterparties
involving the sale of an aggregate of 13.3 million paired shares, with related
price adjustment mechanisms. Patriot's aggregate obligation under the forward
equity contracts was approximately $313,300 at December 31, 1998. As of such
date, Patriot has delivered an aggregate of 54 million shares to the
counterparties as collateral in addition to approximately 12.5 million paired
shares currently owned by the counterparties or their affiliates.
Patriot currently intends to settle in full all of the forward transactions
with the proceeds of the $1 billion equity investment. If the forward
transactions are settled in cash, the counterparties must deliver to the
Companies' paired shares then owned or held by them by them as collateral
under the respective forward agreements.
F-39
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On February 28, 1999, all three counterparties agreed, subject to specified
conditions, not to require settlement under their respective forward equity
agreements or to sell paired shares in connection with the forward equity
agreements until the earlier of (a) the closing of the investment and (b) June
30, 1999. The agreements provide that the standstill obligations terminate if:
(i) the agreement is terminated or the parties publicly announce that they do
not intend to close the investment and Patriot has not entered into another
agreement that provides for a complete settlement of the forward transactions
on or before June 30, 1999; (ii) the Companies' default on certain of
covenants under the forward agreements or under our credit facility: (iii) any
of the counterparties sells or agrees to sell paired shares; or (iv) the price
of the paired shares falls to a specified threshold, as described below. Any
counterparty whose standstill agreement terminates will have the right to
require an immediate settlement of its forward equity transaction.
The standstill agreement with PaineWebber Financial Products, Inc. provides
that the PaineWebber standstill obligation will terminate if the closing price
of the paired shares on any trading day is less than or equal to $4.50. If the
closing price of the paired shares fell below $4.50 PaineWebber's standstill
obligation would terminate and PaineWebber would be entitled to require
settlement under its forward contract. PaineWebber has not indicated that it
intends to sell paired shares or require settlement of its forward
transaction.
The standstill agreement with NationsBanc Mortgage Capital Corporation
provides that the NationsBanc standstill obligation will terminate if the
weighted average trading price of the paired shares (excluding the last 30
minutes of trading) on any trading day is less than or equal to $4.50.
The standstill agreement with UBS AG, London Branch provides that the UBS
standstill obligation will terminate if the paired share price (calculated as
provided in the UBS forward contract) falls below $4.50.
Nations has asserted that its standstill obligation has terminated by virtue
of the termination of PaineWebber's standstill obligation, based upon a "most
favored counterparty" clause in the Nations forward contract. UBS has asserted
that its standstill obligation has terminated based upon its interpretation of
the measure of the paired share price. The Companies have disputed both the
Nations and UBS assertions. Neither Nations nor UBS has indicated that it
intends to sell paired shares or require settlement of its forward
transaction.
The Companies may settle the forward transactions by delivering either cash
or paired shares (if such shares are covered by an effective registration
statement). Sources of cash are not currently available for the Companies to
make the payments that would be required to settle one or more of the forward
transactions in cash. Moreover, the Companies cannot assure you that their
bank lenders would consent to any cash settlements prior to the closing of the
transaction. In addition, given the current market price of the paired shares,
any settlement in paired shares would have severely dilutive effects on the
Companies' capital stock. The dilutive effects increase as the market price of
the paired shares decreases below the applicable forward prices. If any of the
counterparties sells paired shares, the conversion price of the preferred
stock to be issued to the investors will be adjusted downward to the extent
that the price recognized by the Companies on the sale is less than $8.75 per
share.
Generally, the Companies may settle by delivering paired shares only if a
registration statement covering such paired shares is effective. There are
currently effective registration statements covering the sale by the three
forward counterparties of up to 40 million paired shares and the sale by UBS
of an additional 4 million paired shares in connection with the forward equity
transactions. The Companies cannot assure you that these registration
statements will remain effective or that they will not be required to register
more paired shares in
F-40
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
connection with the forward equity transactions. Two of the counterparties
have requested that the Companies register the balance of the paired shares
delivered as collateral to all three counterparties. The Companies intend to
seek to register all such shares.
Contingencies
On January 12, 1999, a purported class action lawsuit was filed on behalf of
the stockholders of Patriot and Wyndham in the Delaware Chancery Court. The
lawsuit, captioned Charles Fraschilla v. Paul A. Nussbaum, et al., No.
16895NC, names as defendants the directors of Patriot ("Directors"), as well
as the Investors. The lawsuit alleges that the Directors breached their
fiduciary duties to Patriot's shareholders with respect to the Companies
financial condition. The lawsuit also alleges that the Directors breached
their fiduciary duty by "effectively selling control" of Patriot to the
investors for inadequate consideration and without having adequately
considered or explored all other alternatives to this sale or having taken
steps to maximize stockholder value. The lawsuit also alleges that the
Investors aided and abetted the Directors in their purported breaches of
fiduciary duty. The plaintiffs seek monetary damages from the Directors as
well as an injunction preventing the consummation of the deal with the
investors. On January 19, 1999, three nearly identical purported class action
lawsuits were filed in the same court on behalf of different purported class
representatives: (1) Sybil R. Meisel and Steven Langsam, Trustees, No.
16905NC; (2) Crandon Capital Partners, No. 16906NC; and Robert A. Staub, No.
16907NC. The plaintiffs have proposed an order of consolidation for these four
purported class action suits, and the parties are currently negotiating the
terms of that order.
On February 3, 1999, McNeill Investment Company, Inc. filed a lawsuit
against Patriot in the United States District Court for the Western District
of Pennsylvania. In the lawsuit, captioned McNeill Investment Company, Inc. v.
Patriot American Hospitality, Inc., No. 99-165, the plaintiff alleges that
Patriot breached its obligations under a registration rights agreement that
Patriot became obligated under through its merger transaction with Interstate
Hotels Corporation. The plaintiff claims approximately $9 million in damages.
Counsel is currently conducting a factual investigation of the claims made in
the complaint. Also, counsel is investigating the possibility of settlement
with the plaintiff, but if the matter is not settled, it will have to be
litigated. Patriot's answer or pleading in response to the complaint is due on
or before March 26, 1999.
The Companies are currently involved in certain guest and customer claims
and other disputes arising in the ordinary course of business. In the opinion
of management, the pending litigation will not have a material effect on the
financial statements.
12. Related Party Transactions:
Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries
As described in Note 5, Patriot, through the Patriot Partnership, loaned
$40,500 in the form of mortgage notes to PAH Ravinia as part of the financing
for PAH Ravinia's acquisition of the Crowne Plaza Ravinia Hotel. Patriot
recognized $43 of interest income in 1998, 1997 and 1996 related to such
mortgage notes (excluding $4,268 of such interest eliminated for financial
reporting purposes in 1998, and $4,280 in both 1997 and 1996). Patriot had
aggregate receivables (including mortgage notes) of $42,264 and $41,587 due
from PAH Ravinia as of December 31, 1998 and 1997, respectively.
Patriot through the Patriot Partnership, also loaned $31,400 in the form of
a mortgage note to PAH Windwatch (see Note 5), as part of the financing for
PAH Windwatch's acquisition of the Wyndham WindWatch Hotel. Patriot recognized
$79, $28 and $8 of interest income in 1998, 1997 and 1996, respectively,
related to such mortgage notes (excluding $2,759, $2,810 and $754 of such
interest eliminated for financial reporting purposes). Patriot had aggregate
receivables (including the mortgage note) of $32,830 and $34,060 due from PAH
Windwatch as of December 31, 1998 and 1997, respectively.
F-41
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additionally, the 1% voting stock of these entities is owned in part by
Senior Executive Officers of Patriot and Wyndham.
Acquisition and Sale of Interests From and to Officers and Affiliates
In September and October 1997, in connection with certain transactions with
affiliates of Gencom and CHCI to acquire ten hotels, eight leasehold interests
and an investment interest in GAH (see Note 4), two of the Companies'
Executive Officers and one of the Directors received cash in the aggregate
amount of approximately $3,577 and a total of 2,544,308 OP units of the
Operating Partnerships and 476,682 preferred OP units of the Wyndham
Partnership (with an aggregate value of approximately $70,238) as
consideration for their ownership interests in such assets acquired.
In connection with the CHCI Merger, Mr. Karim Alibhai, President and Chief
Operating Officer of Wyndham, received 156,863 OP units of the Operating
Partnerships valued at approximately $5,000 and entities affiliated with Mr.
Alibhai received 85,600 shares of Wyndham Series A Preferred Stock and 85,600
shares of Wyndham Series B Preferred Stock with an aggregate value of
approximately $3,946. These units and shares were issued in consideration of
Mr. Alibhai's ownership interests in CHCI and its affiliates. In addition, Mr.
Sherwood M. Weiser, a director of Wyndham, received 394,397 shares of Wyndham
Series A Preferred Stock and 394,398 shares of Wyndham, Series B Preferred
Stock valued at $18,182 in connection with the CHCI Merger as consideration
for his ownership interest in CHCI and its affiliates. Additionally, the
Companies issued 65,485 Paired Shares as part of the consideration for the
transaction of which Mr. Sherwood M. Weiser received 43,403 Paired Shares with
an approximate value of $994.
During 1998, Patriot sold its interest in four hotel assets: Courtyard by
Marriott Hotel in Orange, Connecticut, Courtyard by Marriott Hotel in St.
Louis, Missouri, Residence Inn by Marriott in Pittsburgh, Pennsylvania and the
Westborough by Marriott in Westborough, Massachusetts, for a net purchase
price of approximately $32,500 million. The assets were sold to an affiliate
of an independent member of the Board of Directors of Patriot. Patriot
recognized no gain or loss as a result of this transaction.
Effective January 15, 1999, in connection with the Summerfield acquisition
an additional 1,311,709 OP units valued at approximately $8,969 were issued as
additional consideration pursuant to the purchase agreement. Of the OP units
issued, Mr. Rolf E. Ruhfus III, a member of the Wyndham Board of Directors
received 344,082 of the OP units issued with an approximate value of $2,353.
Management and related services
Wyndham and certain subsidiaries provide management and related services to
a majority of the hotels owned and leased by Patriot and its subsidiaries and
leased to Wyndham. The management contracts provide for fees ranging from 2%
to 5%. Fees paid to Wyndham and certain subsidiaries totaled $42,859 and
$3,626 in 1998 and 1997, respectively. No such fees were earned in 1996.
Thc Companies received $22,940 fees in the aggregate from entities owned in
whole or in part by affiliates of the Companies.
During 1998, Wyndham received payments in the aggregate amount of $4,207
from hotel partnerships in which Crow Family Members have an interest. Some or
all of the Wyndham senior executive officers have an ownership interest in
such hotel partnerships. The payments were received as reimbursements for
certain administrative, tax legal, accounting, finance, risk management, sales
and marketing services provided by Wyndham to such entities.
Notes receivable from Affiliates, Officers and Employees
The Companies have provided funding to certain affiliated hotels as working
capital and have made loans to certain officers. As of December 31, 1998,
notes receivable from affiliated hotels totaled $35,766 and notes receivable
from officers and employees totaled $3,554. As of December 31, 1997 notes
receivable from affiliated hotels totaled $3,315.
F-42
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additionally, in connection with the Wyndham merger, Patriot assumed notes
receivable from senior executive officers of the merged company. As of
December 31, 1998, these promissory notes had an outstanding balance of
$15,254. The notes bear interest at 6% per annum and are fully secured by the
pledge of paired shares of the Companies held by the note obligors. The
balance of the notes including principal and accrued interest are due and
payable in one payment in May 2001. These notes are classified in
shareholders' equity for financial accounting purposes.
Other
During 1998, the Companies made payments totaling $3,423 to Wyndham Travel
Management Ltd., an entity owned by Lucy Billingsley (the daughter of Mr.
Trammell Crow), for travel services provided to Wyndham.
During 1998, the Companies made rent payments totaling $1,492 related to an
agreement with an affiliate of Mr. Harlan Crow to lease office space for the
Companies' corporate headquarters in Dallas, Texas and rent payments totaling
$81 related to an agreement with a board member Mr. Rolf E. Ruhfus.
The Companies, in connection with the Wyndham merger, have assumed a service
agreement with ISIS 2000, an entity affiliated with a member of the Crow
Family and Senior Executive Officers of the Companies, to provide centralized
reservations and property management services to all Wyndham branded hotels as
well as other hotels owned by the Companies. The service fees incurred by
Wyndham in 1998 were $4,368. No such fees were incurred in 1997 or 1996.
Pursuant to the Wyndham merger, the Companies have the option to purchase the
entity through April 1999 for approximately $3,000.
In addition, the Companies have a service contract with the Kinetic Group,
an entity affiliated with a member of the Crow Family, and senior executive
officers of the Companies, to provide the Companies with management
information services. Fees paid for the year ended December 31, 1998 totaled
$5,467. Pursuant to the Wyndham merger, the Companies have the option to
purchase the entity through April 1999 for approximately one hundred dollars.
In 1998, the Companies incurred lease expenses in the aggregate amount of
$455 for lease obligations to entities owned in whole or part by an affiliate
of the Companies.
In 1998, the Companies paid $598 as a consulting fee to a director,
Mr. Rolf E. Ruhfus.
In connection with the Wyndham merger, Crow Family Members and certain
Wyndham senior executives retained the right to receive additional
consideration on April 30, 2000 based on a formula pertaining to the
performance of Wyndham Riverfront New Orleans and Wyndham Garden Laguardia as
set forth in the Omnibus Purchase and Sale Agreement dated April 14, 1997.
Based on the performance of such properties as of December 31, 1998, the
additional consideration would be $9,152 and $9,971 respectively.
Wyndham has made insurance premium payments to Wynright Insurance
("Wynright"), an entity owned by Crow Family Members and the Wyndham senior
executive officers, with respect to certain insurance policies maintained for
the benefit of Wyndham and hotels owned or leased by Wyndham. Such payments
totaled $730,000 in 1998.
13. Minority Interest in the Operating Partnerships:
Pursuant to the Operating Partnerships' respective limited partnership
agreements, the common limited partners of the Operating Partnerships,
including certain affiliates of the Companies, received rights (the
"Redemption Rights") that enable them to cause the Operating Partnerships to
redeem each pair of OP units (consisting of one OP unit of the Patriot
Partnership and one OP unit of the Wyndham Partnership) in exchange
F-43
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
for cash equal to the value of a paired share (or, at the Companies' election,
the Companies may redeem each pair of OP units offered for redemption for one
paired share of common stock). In the case of the Wyndham Partnership's Class
A preferred OP units and Class C preferred OP units described below, each of
these preferred OP units may be redeemed for cash equal to the value of a
paired share (or, at Wyndham's election, Wyndham may redeem each preferred OP
unit offered for redemption for one paired share of common stock). The
Redemption Rights generally may be exercised at any time after one year
following the issuance of the OP units. The number of shares of common stock
issuable upon exercise of the Redemption Rights will be adjusted for share
splits, mergers, consolidations or similar pro rata transactions which would
have the effect of diluting the ownership interests of the limited partners of
the Operating Partnerships or the shareholders of the Companies.
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey merger
and the 1.927-for-1 stock split in July 1997, the number of OP units
outstanding and the OP unit conversion factor was adjusted to re-establish a
one-for-one exchange ratio of OP units to common shares.
The Patriot Partnership had a total of 49,974,000 OP units outstanding as of
December 31, 1996, of which 43,613,496 OP units were held by Patriot and
5,035,700 OP units and 1,324,804 Preferred OP units were held by minority
partners, which represent the minority interest in the Patriot Partnership.
During 1997, the Patriot Partnership issued an additional 20,376 OP units
valued at approximately $370 in connection with The Tutwiler Hotel
acquisition, and 2,590,197 OP units valued at approximately $58,662 in
connection with the acquisition of the four resort properties. In accordance
with their redemption rights, during the first six months of 1997 certain
partners elected to redeem a total of 379,606 OP units for a total of $14,441
in cash (based upon the market price of Patriot common stock on the effective
dates of the redemptions) and 150,000 shares of Patriot common stock (such
amounts have not been adjusted to reflect the stock splits and Cal Jockey
merger). As of June 30, 1997, the Patriot Partnership had 6,887,049 OP units
and 1,324,804 preferred OP units outstanding.
In connection with the Cal Jockey merger, the holders of Patriot Partnership
OP units and preferred OP units received OP units and Class B preferred OP
units of the Wyndham Partnership in an amount equal to the number of Patriot
Partnership units held by them at the closing of the Cal Jockey merger.
In addition, during 1997, the Operating Partnerships each issued 2,456,172
OP units in connection with the acquisition of hotel properties, and 2,388,932
OP units in connection with Patriot's acquisition of eight leasehold interests
from CHC Lease Partners and Wyndham's acquisition of its approximate 50%
ownership interest in GAH and redeemed 6,298 OP units. In addition, the
Wyndham Partnership issued 931,972 Class A Preferred OP units in connection
with the Grand Heritage Acquisition and 476,682 Class C Preferred OP units in
connection with the acquisition of the approximate 50% ownership interest in
GAH.
On September 30, 1997, the Companies exercised their right to call 2,000,033
OP units in each of the Operating Partnerships held by The Morgan Stanley Real
Estate Fund, L.P. and certain related entities (the "Morgan Stanley Call").
The exercise price on the Morgan Stanley Call was $25.875 per pair of OP
units. The Morgan Stanley Call was funded with the proceeds of certain direct
placements of the Companies' paired shares. See Note 14.
As of December 31, 1997, the Patriot Partnership had a total of 84,868,079
OP units outstanding of which 73,276,716 OP units were held by Patriot and
10,266,559 OP units and 1,324,804 preferred OP units were held by minority
partners, which represent the minority interest in the Patriot Partnership.
The Wyndham Partnership had a total of 86,276,733 OP units outstanding as of
December 31, 1997, of which 73,276,716 OP units were held by Wyndham and
10,266,559 OP units, 931,972 Class A Preferred OP units, 1,324,804 Class B
Preferred OP units and 476,682 Class C Preferred OP units were held by
minority partners, which represent the minority interest in the Wyndham
Partnership.
F-44
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
During 1998, the Operating Partnerships issued 53,989 OP units valued at
approximately $1,496 in connection with the Buena Vista hotel acquisition, and
3,223,795 OP units valued at approximately $81,146 in connection with the
Summerfield acquisition.
In accordance with their redemption rights, during 1998, certain partners of
the Operating Partnerships elected to redeemed 1,010,340 OP units, of which
1,009,570 were redeemed for paired shares of common stock, and 770 OP units
were redeemed for a total of $19 in cash (based on the 10 day average price of
the common stock immediately preceding the date of valuation). In addition,
certain limited partners of the Wyndham Partnership elected to redeem 324,809
preferred Class A OP units for common paired shares, and 46,731 preferred
Class C OP units were redeemed for 28,019 common paired shares in 1998 with
the remaining paired shares of 18,712 to be issued in 1999.
In connection with the Grand Heritage acquisition in 1997, the contribution
agreement provided that preferred Class A units with a value of $500 be placed
in escrow and released, subject to certain 1997 operating targets. In April of
1998, 20,942 preferred Class A OP units were issued.
In connection with the acquisition of GAH, preferred OP units of the Wyndham
Partnership with a value of approximately $5,000 were held back, subject to
the hotels and leaseholds acquired meeting certain operating targets over the
period prior to the CHCI Merger. On June 30 1998, 156,863 Preferred Class A Op
units were issued as those targets were met.
On July 30, 1998, the Wyndham Partnership, issued 156,272 Preferred Class A
OP units valued at approximately $3,500 in connection with the acquisition of
an approximate 49% ownership of Don Shula's Steak Houses Inc.
As of December 31, 1998, the Patriot Partnership had a total of 125,961,945
OP units outstanding of which 112,103,138 OP units were held by Patriot and
12,534,003 OP units, and 1,324,804 preferred OP units were held by minority
partners, which represent the minority interest in the Patriot Partnership.
The Wyndham Partnership had a total of 125,012,672 OP units outstanding as of
December 31, 1998, of which 109,782,674 OP units were held by Wyndham and
12,534,003 OP units, 784,377 Class A Preferred OP units, 1,324,804 Class B
Preferred OP units and 586,814 Class C Preferred OP units were held by
minority partners which represent the minority interest in the Wyndham
Partnership.
Subsequent to December 31, 1998, the Companies issued 1,311,709 OP units
valued at approximately $8,969 as additional purchase consideration in the
Summerfield acquisition.
14. Shareholders' Equity:
Capital Stock
Patriot's and Wyndham's respective Boards of Directors have authorized the
issuance of up to 100,000,000 shares of preferred stock in one or more series.
The number of shares in each series and the designation, powers, preferences
and rights of each such series and the qualifications, limitations or
restrictions thereof have not been established. As of December 31, 1997, no
preferred stock was issued.
During 1998, Patriot issued 4,860,876 Series A Convertible Preferred Stock
("Patriot Series A") in connection with the Wyndham merger. The holders of
Patriot Series A are entitled to receive dividends on a quarterly basis
payable concurrently with and in the same amount as dividends on paired
shares. Patriot Series A may convert into one paired share for each share of
Series A share which is held by the respective holder. Holders of Patriot
Series A are entitled to vote, on the basis of one vote for each share of
Patriot common stock as if the shares had been converted. Upon merger, the
holder has a right to receive upon conversion of Series A shares, shares which
could have been converted immediately prior to the merger.
F-45
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
During 1998, Wyndham issued 1,781,173 shares of Wyndham Series A Redeemable
Convertible Preferred Stock ("Wyndham Series A") and 1,781,181 Wyndham Series
B Redeemable Convertible Preferred Stock ("Wyndham Series B") in connection
with the CHCI merger. Holders of Wyndham Series A and Series B stock are
entitled to receive dividends payable concurrently with and in the same amount
as dividends on paired shares. Wyndham Series A and Series B stock may be
converted into cash based on the current market price, or at the option of
Wyndham, may receive one paired share for each share of Series A or Series B
stock which may be converted. Both Series A and B are non-voting.
Old Patriot was initially capitalized through the issuance of 2,850 shares
of no par value common stock to three of Old Patriot's executive officers for
which the executive officers paid nominal consideration. In connection with
the initial public offering, Patriot declared an approximate 41-to-1 stock
split of its outstanding common shares, resulting in the issuance of an
additional 115,900 shares of common stock to such executive officers. The
aggregate value of $1,425 (based upon the initial public offering price of
$12.00 per share), less cash received of $3, was recorded as unearned stock
compensation and is being amortized over the three-year vesting period.
In May 1996, Old Patriot sold an aggregate of approximately $40,000 of
equity securities in a private placement to an institutional investor that
purchased the securities on behalf of two owners. The securities consisted of
1,622,786 shares of common stock sold at $13.475 per share and 1,324,804 Class
B Preferred OP units sold at $13.688 per unit. The common stock is of the same
class as Old Patriot's then-existing common stock and is entitled to the same
voting and dividend rights as all outstanding common stock, subject to certain
restrictions on the resale of the stock. The Class B Preferred OP units are
entitled to quarterly distributions equal to 103% of the quarterly dividends
paid on the common stock (and, subsequent to the Cal Jockey merger, paired
shares). Generally, three years following issuance, the Class B Preferred OP
units may be converted into paired shares on a one-for-one basis (i.e., one
paired share for one Class B Preferred OP Unit), subject to certain
limitations. After 10 years, Patriot will have the right to exchange all the
outstanding Class B Preferred OP units for paired shares on a one-for-one
basis.
On December 31, 1997, the Companies sold 3,250,000 unregistered paired
shares to UBS Limited, an English corporation, for a purchase price per paired
share of $28.8125, or aggregate consideration of approximately $91,300, net of
a 2.5% discount.
On February 26, 1998, the Companies sold 4,900,000 unregistered paired
shares to Nations, for a purchase price per paired share of $24.8625, or
aggregate consideration of approximately $121,800, net of a 2.5% discount.
On April 6, 1998, the Companies sold 5,150,000 unregistered paired shares to
PaineWebber for a purchase price per paired share of $27.01125, or aggregate
consideration of approximately $139,108, net of a 2% discount.
Shareholders Rights Agreement
On December 20, 1998, the Board of Directors of Patriot adopted a
Shareholder Rights Agreement (the "Rights Agreement"). Pursuant to the terms
of the Rights Agreement, the Board of Directors declared a dividend
distribution of one Preferred Stock Purchase Right (a "Right") for each
outstanding share of Common Stock of the Patriot (the "Common Stock") and for
each outstanding share of Series A Convertible Preferred Stock of the Patriot
(the "Series A Preferred Stock") to stockholders of record as of December 20,
1998 (the "Record Date"). In addition, one Right will automatically attach to
each share of Common Stock and to each share of Series A Preferred Stock
issued between the Record Date and the Distribution Date as defined per the
F-46
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rights Agreement. Each Right entitles the registered holder thereof to
purchase from Patriot a unit consisting of one one-thousandth of a share of
Series X Junior Participating Cumulative Preferred Stock, par value $0.01 per
share, at a cash exercise price of $35.00 per Unit, subject to adjustment.
Dividends
On December 23, 1997, Patriot declared a $0.2981 per common share dividend
to holders of record on January 5, 1998. Patriot paid dividends of $0.2446 per
common share for each of the first three quarters of 1997. In addition, in
connection with the Cal Jockey Merger, Old Patriot also declared a special
dividend of $0.0559 per common share payable to holders of record on June 27,
1997, which was paid on June 30, 1997. Concurrent with each of the dividend
declarations, the Operating Partnerships authorized distributions in the same
amount on outstanding OP units. Old Patriot paid dividends of $0.2236 per
common share for the fourth quarter of 1995 (its first quarter of operations)
and for the each of the first three quarters of 1996. Old Patriot paid
dividends of $0.2446 per common share for the fourth quarter of 1996.
On October 5, 1998, Patriot made a capital contribution to Wyndham to
facilitate an acquisition by Wyndham. This contribution resulted in a "deemed
distribution" for tax purposes to Patriot's shareholders of common stock of
$0.7081 per share. No cash was actually distributed to the shareholders.
However, for tax purposes the shareholders will treat the distribution as
though cash were received and then contributed to Wyndham.
On May 4, 1998, Patriot declared a $0.2981 per common share dividend to
holders of record on May 20, 1998 and on July 28, 1998, Patriot declared a
$0.2981 per common share dividend to holders of record on August 10, 1998.
On December 22, 1998, Patriot declared a stock dividend of $0.44 per share
of common stock for the fourth quarter ended December 31, 1998 (the
"Dividend"). The Dividend was payable January 25, 1999 to stockholders of
record on December 30, 1998. Each stockholder received the option to receive
the Dividend in the form of additional paired shares or shares of Series B
Cumulative Perpetual Preferred Stock, par value $0.01 per share of Patriot.
Per share data (including dividends), weighted average shares outstanding and
all stock option activity have been restated to reflect the stock dividend.
The holders of Series B Preferred Stock shall be entitled to receive, when,
as and if declared by Patriot's Board of Directors out of funds legally
available for the payment of dividends, cumulative preferential cash dividends
per share at the rate of 15% on the stated value of $25.00 per share per
annum. The Series B Preferred Stock is redeemable by Patriot on or after
January 2, 2000 at a redemption price of $25.00 per share and has a
liquidation preference of $25.00 per share.
Stock Incentive Plans
The Companies have adopted certain employee incentive programs for the
purpose of (i) attracting and retaining employees, directors and others, (ii)
providing incentives to those deemed important to the success of the
Companies, and (iii) associating the interests of these individuals with the
interests of the Companies and their shareholders through opportunities for
increased stock ownership. Certain of the stock options and restricted stock
grants issued under the incentive stock programs will fully vest and become
non-forfeitable upon consummation of the investment.
The Directors' Plan. The Directors' Plan provides for the award of stock
options and stock awards with respect to Director compensation through June
1997 for each eligible non-employee director of the Companies.
F-47
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Directors' Plan also provides for the annual award of common stock to
each eligible director in payment of one-half of the annual retainer of $25
payable to each such director through June 1997. The number of shares awarded
will be determined based upon the fair market value of the stock at the date
of the grant. Such shares vest immediately upon grant and are non-forfeitable.
The 1997 Incentive Plans. The 1997 Incentive Plans provide for the award of
stock options, stock awards or performance shares to each eligible employee
and director of Patriot and Wyndham. Under each 1997 Incentive Plan, the
aggregate number of paired shares available for grants of awards shall be the
sum of (i) 3,000,000 paired shares plus (ii) 10% of any future net increase in
the total number of shares of paired common stock.
Under the Companies' 1997 Incentive Plans, each independent director may
elect to take all or a portion of his/her fees in the form of deferred paired
share units. In addition, the independent directors of Patriot and Wyndham
will automatically be granted a non-qualified stock option, immediately
exercisable in full, to acquire 10,000 paired shares at an exercise price per
paired share equal to the fair market value of a paired share on the date of
grant. Option terms are fixed by the Compensation Committees and may not
exceed ten years from the date of grant.
Stock Grant Awards
During 1996, pursuant to the Directors' Plan and the Incentive Plan, Old
Patriot awarded 48,000 shares of common stock to its non-employee directors
and 314,800 shares of common stock to certain of its officers and employees.
In addition, the directors were granted 2,640 shares of common stock with an
aggregate value of $37 in payment of one-half of the annual retainer payable
to each director. Old Patriot recorded a total of $5,144 (the aggregate value
of Old Patriot's common stock based on the market price at the date of the
award) as unearned stock compensation in 1996, which is being amortized over
the vesting period of four years.
During 1997, pursuant to the Incentive Plans, the Board of Directors awarded
547,867 paired shares of common stock to certain officers of the Companies.
The Companies recorded a total of $12,897 (the aggregate value of the common
stock based on the market price at the date of the award) as unearned stock
compensation in 1997, which is being amortized over the vesting periods of one
to five years. For 1998, 1997 and 1996, $7,622 $4,686 and $1,068,
respectively, of amortization of stock compensation related to stock grants
awarded to Patriot's directors, officers and certain employees is included in
general and administrative expense in the accompanying consolidated financial
statements.
During 1998, pursuant to the Incentive Plans, the Board of Directors awarded
331,755 restricted awards to certain officers of the Companies. The Companies
have recorded $1,613 related to the restricted awards and such amount is
included in general and administrative expense in the accompanying
consolidated financial statements.
Stock Option Awards
Upon completion of the initial public offering in 1995, 1,073,333 options
were granted to the executive officers to purchase shares of Old Patriot
common stock. Each option is exercisable at an amount equal to the initial
public offering price of $11.18 per share. Of the options granted, 59,634
vested immediately, while the remaining options become exercisable at various
dates through January 1, 2005. In addition, each eligible director who was a
member of Old Patriot's Board as of September 27, 1995, was awarded
nonqualified options to purchase 16,100 shares of common stock on that date
(each such director, a "Founding Director"). The options granted to Founding
Directors have an exercise price equal to the initial public offering price of
$11.18 per share and vested immediately.
During 1996, pursuant to the Directors' Plan and the Incentive Plan, Old
Patriot's Board of Directors granted stock options to purchase 32,200 shares
of common stock to Old Patriot's directors and stock options to purchase
381,676 shares of common stock to Old Patriot's officers and certain
employees. The exercise price of
F-48
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the options granted to the directors is $13.22 (the market price of Old
Patriot's common stock on May 23, 1996, the date of the grant). For the
officers and employees employed as of the grant date of April 19, 1996, the
exercise price of the options is $12.52 (the market price of Old Patriot's
common stock on the date of grant). For officers and employees hired
subsequent to April 19, 1996, the exercise price is equal to the market price
of Old Patriot's common stock on the employee's date of hire. The options to
purchase common stock vest annually over a period of seven years.
During 1997, pursuant to the Directors' Plan, 1995 Incentive Plan and the
1997 Incentive Plan, the Companies awarded directors, officers and employees
nonqualified options to purchase an aggregate of 4,744,184 of paired shares of
common stock at prices ranging from $20.85 to $33.58.
As of December 31, 1998, pursuant to the Directors' Plan, the 1995 Incentive
Plan and the 1997 Incentive Plans, the Companies have authorized the grant of
options for up to 10,912,938 paired shares with exercise prices ranging from
$5.13 to $33.58 per paired share (2,981,685 of such options were vested).
During 1997, a total of 338,064 paired shares were issued pursuant to exercise
of options (at exercise prices ranging from $5.13 to $13.28) resulting in net
proceeds of $2,307. During 1998, a total of 1,299,250 paired shares were
issued pursuant to exercise of options (at exercise prices ranging from $11.18
to $17.82) resulting in net proceeds of $15,274.
The Companies have elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Companies'
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Wyndham Stock Option Exchange Program
All optionees, other than the directors and the top two executive officers,
were given the opportunity to exchange certain options for new options which
have a Black-Scholes value equal to the old options, but were for fewer
shares, at the then current stock price and with the same term as the
remaining term of the old options.
Statement 123
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Companies had accounted for their compensatory employee
stock options under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997 and 1996, respectively: risk-free interest rates of 5.31%, 6.61% and
6.09%; dividend yields of 6%; volatility factors of the expected market price
of the Companies' common stock of 0.735, 0.389 and 0.173, and a weighted
average expected life of the options of 4 years, 4 years and 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Companies' employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options that have vesting periods and are non-transferable.
F-49
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Companies' pro forma information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Basic
Pro forma net (loss) income available to common
shareholders.................................. $ 185,566 $(4,949) $37,607
Pro forma earnings per share: ................. $ (1.35) $ (0.08) $ 0.81
Diluted
Pro forma net (loss) income available to common
shareholders.................................. $(352,807) $(4,949) $37,607
Pro forma earnings per share: ................. $ (2.56) $ (0.09) $ 1.04
</TABLE>
A summary of the Companies' stock option activity, and related information
for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000's) Price (000's) Price (000's) Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 6,241 $20.82 1,584 $11.54 1,170 $11.18
Granted................. 3,997 17.50 4,692 24.51 414 12.59
Exercised............... (578) 11.38 (6) 12.89 --
Forfeited............... (1,943) 23.48 (29) 12.85 --
------ ----- -----
Outstanding, end of
year................... 7,717 19.28 6,241 20.82 1,584 11.54
====== ===== =====
Exercisable at end of
year................... 972 $14.89 430 $11.18
Weighted average fair
value of options
granted during year.... $ 7.70 $ 4.28 $ 1.27
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$7.55 to $33.58. The weighted average remaining contractual life of those
options was 8 years. Exercise prices for options outstanding as of December
31, 1997 ranged from $11.18 to $33.58. The weighted average remaining
contractual life of those options was nine years. Exercise prices for
compensatory options outstanding as of December 31, 1996 ranged from $11.18 to
$14.09. The weighted average remaining contractual life of those options was
nine years.
15. Income Taxes:
Patriot
Patriot, in accordance with SFAS No. 109, recorded a deferred tax liability
during 1998 in conjunction with the acquisition of foreign operations, the
Arcadian transaction. As of December 31, 1998, Patriot had a deferred tax
liability of approximately $38,912 and recognized $1,148 of deferred tax
expense associated with foreign operations.
F-50
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Wyndham
The income tax provision of Wyndham for year ended and six months ended
December 31, 1998 and 1997, respectively consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- ----
<S> <C> <C>
Current:
Federal.................................................... $ 25,691 $199
State...................................................... 3,355 130
-------- ----
Total current................................................ 29,046 329
-------- ----
Deferred:
Federal.................................................... (13,130) 136
State...................................................... (1,535) 16
-------- ----
Total deferred............................................... (14,665) 152
-------- ----
Total income tax expense................................. $ 14,381 $481
======== ====
The reason for the difference between total tax expense and the amount
computed by applying the statutory Federal income tax rate of 35% to income
before income taxes is as follows:
<CAPTION>
1998 1997
-------- ----
<S> <C> <C>
Tax at statutory rate........................................ $(27,874) $127
State income taxes........................................... 1,820 118
Valuation allowance.......................................... 17,866 --
Assets held for sale......................................... 7,573 --
Goodwill..................................................... 5,330 --
Lease buyout costs........................................... 20,033 --
Minority interest and other.................................. (10,367) 236
-------- ----
Total income tax expense................................... $ 14,381 $481
======== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of Wyndham's deferred tax assets and liabilities for the year ended and six
months ended December 31, 1998 and 1997, respectively are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating losses................................... $ 21,221 $ --
Disposition of assets.................................. 887 --
Other non-current assets............................... 8,569 89
-------- -------
Total deferred tax assets............................ 30,677 89
Valuation allowance.................................... (17,866) --
-------- -------
Net deferred asset................................. $ 12,811 $ 89
======== =======
Deferred tax liabilities:
Depreciation........................................... (25,754) (600)
Management contracts and tradenames.................... (70,319) (8,896)
Other non-current liabilities.......................... (1,289) (143)
-------- -------
Total deferred tax liabilities....................... (97,362) (9,639)
-------- -------
Net deferred income tax liability.................. $(84,551) $(9,550)
======== =======
</TABLE>
As of December 31, 1998, Wyndham and certain affiliated subsidiaries have
net operating loss carryforwards for federal income tax purposes of
approximately $78,651, which are available to offset future federal taxable
income, if any, through 2018.
F-51
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
16. Employee Benefit Plans:
The Companies sponsors 401(K) retirement savings plans. Employees who are
over 21 years of age and have completed one year of service are eligible to
participate in the plans. The Companies match 50% of employee contributions up
to 4% of an employee's salary. The aggregate expense under the plans totaled
$511 for 1998. No plans were in effect prior to 1998.
The Companies maintain self-insured group health plans through a Voluntary
Employee Benefit Association referred to hereinafter as VEBA. The plans are
funded to the limits provided by the Internal Revenue Service, and liabilities
have been recorded for estimated incurred but unreported claims. Aggregate and
stop loss insurance exists at amounts which limit exposure to the Companies.
The Companies have recognized expense related to the plan of $2,313 for 1998.
No plan such as this was in effect prior to 1998.
17. Fair Value of Financial Instruments:
SFAS No. 107 requires disclosures about the fair value for all financial
instruments, whether or not recognized, for financial statement purposes.
Disclosures about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1998. Considerable
judgment is necessary to interpret market data and develop estimated fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized on disposition of the
financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Management estimates the fair value of (i) accounts receivable, accounts
payable and accrued expenses approximate carrying value due to the relatively
short maturity of these instruments; (ii) the notes receivable approximate
carrying value based upon effective borrowing rates for issuance of debt with
similar terms and remaining maturities; and (iii) the borrowings under the
Credit Facility, Term Loan and various other mortgage notes approximate
carrying value because these borrowings accrue interest at floating interest
rates based on market or accrue interest at fixed rates which approximate
market rates.
Patriot manages its debt portfolio by using interest rate caps and swaps to
achieve an overall desired position of fixed and floating rates. The fair
value of interest rate hedge contracts is estimated based on quotes from the
market makers of these instruments and represents the estimated amounts that
Patriot would expect to receive or pay to terminate the contracts. Credit and
market risk exposures are limited to the net interest differentials. The
estimated unrealized loss on the interest rate swaps was approximately $24,836
at December 31, 1998, which represents the amount Patriot would pay to
terminate the swap agreements based upon current market rates. The fair value
of the interest rate cap agreements is based upon quoted market prices and
approximated $144 at December 31, 1998.
18. Segment Reporting:
The Companies' classify their business into proprietary owned brands and
non-proprietary brand hotel divisions, under which they manage the business.
Among its proprietary branded hotels, the Company is positioned in the
luxury segment under the Grand Bay Hotels & Resorts(R) brand; in the upscale
segment under Wyndham(TM); and in the mid-priced segment under the ClubHouse
brand. Additionally, the Company offers proprietary branded all-suite
accommodations through its upscale Summerfield Suites brand and its mid-priced
Sierra Suites brand. Other proprietary hotel brands owned and developed by the
Companies include Malmaison, Grand Heritage(R) and Carefree(R).
F-52
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Description of reportable segments
The Companies have six reportable segments: Wyndham hotel properties, resort
properties, all suite properties, non-proprietary branded properties and other
proprietary branded hotel properties and other.
. Wyndham hotel properties include Wyndham Hotels, Wyndham Gardens and
Wyndham Grand Heritage. The Wyndham hotel properties are full-service
properties that generally offer a full range of meeting and conference
facilities and banquet space. Facilities generally include restaurants
and lounge areas, gift shops and recreational facilities, including
swimming pools. Full-service hotels generally provide a significant array
of guest services, including room service, valet services and laundry.
. Resort properties include Wyndham Resorts, Grand Bay resort properties
and other resort properties. Resorts are designed to offer unique
destinations which appeal to today's sophisticated vacation traveler and
to blend with their environment, enhancing the natural surroundings with
design that fits the locale. Each resort's recreational activities are of
the highest caliber and are designed to capitalize on the natural
attractions of the location. Many offer a combination of golf, tennis,
skiing, health spa, hiking and other sports.
. All suite properties include the Summerfield and Sierra Suite properties.
The Summerfield and Sierra Suite properties generally target the business
travelers who usually anticipate a one to two week stay. The suites
generally have limited public space and offer limited food and beverage
service. However, the suites provide guests with larger rooms and work
space.
. Non-proprietary branded properties include all properties which are not
Wyndham hotel properties, resort properties, all suite properties or
other proprietary branded properties. The properties consist of non
Wyndham branded assets such as: Crowne Plaza(R), Radisson(R), Hilton(R),
Hyatt(R), Four Points by Sheraton(R), Holiday Inn(R), DoubleTree(R),
Embassy Suites(R), Marriott(R), Courtyard by Marriott(R), Sheraton(R) and
independents.
. Other proprietary branded hotel properties include Malmaison, Grand
Heritage, Clubhouse and hotels acquired in the Arcadian Acquisition.
. Other includes participating lease revenues, racecourse facility revenue
and expenses, management fee and service fee income, interest and other
income, general and administrative costs, interest expense, depreciation
and amortization and other one-time charges. General and administrative
costs, interest expenses and depreciation and amortization are not
allocated to each reportable segment; therefore, they are reported in the
aggregate within this segment.
Measurement of segment profit or loss and segment assets
The Companies evaluate performance based on the operating income or loss
from each business segment. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies.
Factors management used to identify the reportable segments
The Companies' reportable segments are determined by brand affiliation and
type of property. The reportable segments are each managed separately due to
the specific characteristics of each segment.
<TABLE>
<CAPTION>
Year ended Non- Other
December 31, Wyndham Suite proprietary proprietary
1998 Hotels Resorts properties branded branded Other(1) Total
------------ ---------- -------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 610,523 $315,674 $ 74,333 $ 761,154 $ 80,998 $ 213,659 $2,056,341
Operating income
(loss)................. 153,723 76,349 14,690 183,703 26,492 (576,963) (122,006)
Segment assets.......... 1,461,037 900,431 245,578 2,906,527 297,609 1,604,488 7,415,670
Capital additions....... 635,853 544,060 204,292 1,930,121 296,769 16,264 3,627,359
</TABLE>
- --------
(1) Operating income (loss) for 1998 includes unusual items related to the
treasury rate lock settlement of $49,334 and the cost of reacquiring
leaseholds of $64,407.
F-53
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended Non- Other
December 31, Wyndham Suite proprietary proprietary
1997(2) Hotels Resorts properties branded branded Other(3) Total
------------ -------- -------- ---------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 10,711 $ 30,334 $ -- $115,223 $ 9,595 $169,172 $ 335,035
Operating income
(loss)................. 2,388 6,628 -- 29,947 1,436 (42,272) (1,873)
Segment assets.......... 435,452 348,013 -- 795,679 47,999 880,710 2,507,853
Capital additions....... 366,280 311,378 -- 577,788 25,287 125,946 1,406,679
</TABLE>
- --------
(2) Total revenue and operating income (loss) for the reportable segments is
reported for the six months ended December 31, 1997. Prior to July 1,
1997, revenue and operating income (loss) related to the operations of the
hotel properties was reported by the third party lessees who operated the
properties pursuant to Participating Leases.
(3) Operating income (loss) for 1997 includes unusual items related to the
cost of reacquiring leaseholds of $54,499.
<TABLE>
<CAPTION>
Year ended Non- Other
December 31, Wyndham Suite proprietary proprietary
1996 (4) Hotels Resorts properties branded branded Other Total
------------ ------- ------- ---------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ -- $ -- $ -- $ -- $ -- $ 76,493 $76,493
Operating income
(loss)................. -- -- -- -- -- 38,968 38,968
Segment assets.......... -- -- -- -- -- 760,931 760,931
Capital additions....... -- -- -- -- -- 393,599 393,599
</TABLE>
- --------
(4) Revenue and operating income (loss) related to the operations of the hotel
properties was reported by the third party lessees who operated the
properties pursuant to Participating Leases.
The following table represents revenue and long-lived asset information by
geographic area as of and for the period ending December 31, 1998. Revenues
are attributed to the United States and its territories and Europe based on
the location of hotel properties. The hotel properties in Europe were acquired
on April 6, 1998 with the Arcadian acquisition. Prior to this date, all of the
Companies' business was attributed to hotel properties located in the United
States and its territories.
<TABLE>
<CAPTION>
United
1998 States Europe Total
---- ---------- ------- ----------
<S> <C> <C> <C>
Revenues...................................... $2,034,949 $21,392 $2,056,341
Long-lived assets............................. 7,157,617 258,053 7,415,670
</TABLE>
19. Non-cash Investing and Financing Activities:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- -------
<S> <C> <C> <C>
In connection with the Cal Jockey Merger, the
acquisition of management companies, hotel
properties and other operating assets, the
Companies issued common stock, preferred stock,
options and OP units in exchange for net assets
as follows:
Patriot and Wyndham............................. $1,698,542 $449,415 $16,391
========== ======== =======
Patriot......................................... $1,532,649 $340,794 $16,391
========== ======== =======
Wyndham......................................... $ 165,893 $108,621 $ --
========== ======== =======
</TABLE>
F-54
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
20. Quarterly Financial Information (unaudited):
<TABLE>
<CAPTION>
Combined Patriot Wyndham
------------------ ------------------ ------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
First Quarter:
Total revenue.......... $349,807 $ 35,388 $113,165 $ 35,388 $329,982 $ --
Income before
extraordinary item.... $ 37,128 $ 11,348 $ 34,213 $ 11,348 $ 3,180 $ --
Net income............. $ 18,412 $ 11,348 $ 15,497 $ 11,348 $ 3,180 $ --
Net income per
share/paired share:
Basic.................. $ 0.17 $ 0.21 $ 0.14 $ 0.21 $ 0.03 $ --
Diluted................ $ 0.16 $ 0.21 $ 0.13 $ 0.21 $ 0.03 $ --
Weighted average number
of shares:
Basic.................. 109,549 53,248 109,549 53,248 109,549 --
Diluted................ 117,090 54,613 117,090 54,613 117,090 --
Second Quarter:
Total revenue.......... $465,463 $ 37,730 $140,257 $ 37,730 $452,247 $ --
(Loss) income before
extraordinary item.... $(14,411) $ 11,818 $ 23,902 $ 11,818 $(43,832) $ --
Net (loss) income...... $(26,254) $ 11,818 $ 12,059 $ 11,818 $(43,832) $ --
Net (loss) income per
share/paired share:
Basic.................. $ (0.21) $ 0.22 $ 0.08 $ 0.22 $ (0.33) $ --
Diluted................ $ (0.21) $ 0.21 $ 0.09 $ 0.21 $ (0.33) $ --
Weighted average number
of shares:
Basic.................. 132,804 53,382 132,804 53,382 132,804 --
Diluted................ 132,804 55,029 140,476 55,029 132,804 --
Third Quarter:
Total revenue.......... $603,850 $ 81,638 $184,696 $ 50,190 $593,680 $ 44,184
(Loss) income before
extraordinary item
(1)................... $(58,158) $(24,470) $(37,436) $(25,179) $(25,777) $ 709
Net (loss) income...... $(59,415) $(27,004) $(37,436) $(27,713) $(27,034) $ 709
Net (loss) income per
share/paired share:
Basic.................. $ (0.40) $ (0.38) $ (0.25) $ (0.39) $ (0.18) $ 0.01
Diluted................ $ (1.02) $ (0.38) $ (0.87) $ (0.39) $ (0.18) $ 0.01
Weighted average number
of shares:
Basic.................. 154,510 71,706 154,510 71,706 154,510 71,706
Diluted................ 154,510 71,706 154,510 71,706 154,510 73,679
Fourth Quarter:
Total revenue.......... $630,259 $180,279 $157,291 $ 62,246 $625,982 $159,950
(Loss) income before
extraordinary item
(2)................... $(90,968) $ 1,666 $(35,010) $ 2,395 $(44,732) $ (729)
Net (loss) income...... $(90,968) $ 1,666 $(35,010) $ 2,395 $(44,732) $ (729)
Net (loss) income per
share/paired share:
Basic.................. $ (0.65) $ 0.02 $ (0.28) $ 0.03 $ (0.30) $ (0.01)
Diluted................ $ (1.01) $ 0.02 $ (0.64) $ 0.03 $ (0.30) $ (0.01)
Weighted average number
of shares:
Basic.................. 154,139 78,346 154,139 78,346 154,139 78,346
Diluted................ 154,139 80,915 154,139 80,915 154,139 78,346
</TABLE>
- --------
(1) Income (loss) before extraordinary item for the third quarter of 1998
includes the cost of the Treasury Lock Settlement, a non-recurring
expense, of $49,225 that was reported by Patriot.
(2) Income (loss) before extraordinary item for the fourth quarter of 1998
includes the following non-recurring expense items:
. Impairment in value of assets held for sale of $27,897 reported by
Patriot
. Impairment in value of assets held for sale of $23,184 reported by
Wyndham
F-55
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
21. Pro Forma Results of Operations:
The following unaudited separate and combined pro forma results of
operations of Patriot and Wyndham are presented as if (i) the merger and
acquisition of the WHG Casinos and Resorts and related third party minority
interests consummated in January 1998 and the acquisition of the remaining
minority interests completed in March and July 1998, the acquisition included
the Condado Plaza Hotel & Casino, El San Juan Hotel and Casino and the El
Conquistador Hotel and Casino and the management company for the three
resorts, located in San Juan, Puerto Rico, the acquisition of the Buena Vista
Hotel located in Orlando, Florida in January 1998, and the acquisition of the
Golden Door Spa located in Escondido, California in June 1998; (ii) the
acquisition of Arcadian International Limited and the Malmaison Group
including 10 hotels, land held for developments and the proprietary Malmaison
brand in April 1998; (iii) the merger of Interstate Hotels Company with and
into Patriot and the related financing in June 1998; (iv) the acquisition of
the partnership interests in SF Hotel Company, L.P. in June 1998, which
included four hotels, 24 management and leasehold interests, 12 management
contracts and the proprietary brand names Summerfield Suites, Sierra Suites
and Sunrise Sierra Suites; (v) the merger of the hospitality related
businesses of CHC International with and into Wyndham in June 1998 including
the remaining 50% interest in GAH-II, L.P., the remaining 17 leases and 16
management contracts related to Patriot Hotels leased by CHC Lease Partners,
10 management and asset management contracts and the Grand Bay proprietary
brand name which occurred in 1998 and 1997 had occurred on January 1, 1997.
The following unaudited pro forma financial information is not necessarily
indicative of what actual results of operations of Patriot and Wyndham would
have been assuming such transactions had been completed as of January 1, 1997,
nor do they purport to represent the results of operations for future periods.
PATRIOT AND WYNDHAM
Combined Pro Forma Results of Operations
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1998 1997
---------- ----------
(in thousands,
except per share
data)
<S> <C> <C>
Total revenue....................................... $2,564,690 $2,457,182
Net loss............................................ (147,947) (55,656)
Basic loss per Paired Share......................... $ (1.17) $ (0.37)
========== ==========
Diluted loss per Paired Share....................... $ (2.28) $ (0.37)
========== ==========
Weighted average number of Paired Shares............ 151,313 151,313
========== ==========
PATRIOT
Consolidated Pro Forma Results of Operations
<CAPTION>
Years Ended December
31,
----------------------
1998 1997
---------- ----------
(in thousands,
except per share
data)
<S> <C> <C>
Total revenue....................................... $ 722,790 $ 713,582
Net loss............................................ (14,175) (97,337)
Basic loss per share................................ $ (0.27) $ (0.64)
========== ==========
Diluted loss per share.............................. $ (1.37) $ (0.64)
========== ==========
Weighted average number of common shares............ 151,313 151,313
========== ==========
</TABLE>
F-56
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
WYNDHAM
Consolidated Pro Forma Results of Operations
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1998 1997
---------- ----------
(in thousands,
except per share
data)
<S> <C> <C>
Total revenue........................................ $2,531,678 $2,433,794
Net (loss) income.................................... (132,856) 41,681
Basic (loss) income per share........................ $ (0.90) $ 0.28
========== ==========
Diluted (loss) income per share...................... $ (0.90) $ 0.26
========== ==========
Weighted average number of common shares............. 151,313 151,313
========== ==========
Dilutive Securities:
Effect of unvested stock grants...................... -- 880
Dilutive options to purchase paired shares........... -- 753
Dilutive convertible preferred shares................ -- 8,423
Weighted average number of common shares............. 151,313 161,369
========== ==========
</TABLE>
22. Subsequent Events:
Asset sales
In February 1999, Patriot sold its interest in the Bay Meadows Racecourse
located in San Mateo, California. The Companies received cash proceeds of
approximately $3,446 after payment of legal costs and other closing costs. The
Companies recognized an estimated impairment loss on assets held for sale of
$42,278 related to the Racecourse facility in 1998. In connection with the
transaction Patriot terminated its lease to Wyndham for the Racecourse
facilities. The actual loss on sale of asset recognized was $42,766.
Acquisitions
In January 1999, Patriot acquired the remaining 25% minority interests in
each of the five following hotels; Embassy Suites Schaumburg, the Hilton
Dania, the Marriott Suites at Valley Forge, the Marriott Boston Andover and
the Marriott Tysons Corner from CIGNA. The acquisition of such interests was
financed through additional mortgage indebtedness totaling $49,800 and the
sale of an additional 10% interest in the Marriott Warner Center.
Consulting Agreements
On February 26, 1999, Patriot, Wyndham and Paul A. Nussbaum entered into a
Separation Agreement (the "Separation Agreement") whereby Mr. Nussbaum
resigned his position as Chairman of the Board of Directors and Chief
Executive Officer of Patriot. Pursuant to the Separation Agreement, Mr.
Nussbaum has been named Chairman Emeritus of the Board of Directors of Patriot
and will remain as a Director of Wyndham.
In accordance with terms of the Separation Agreement, Patriot will: (i)
guarantee the repayment of the remaining outstanding principal on Mr.
Nussbaum's NationsBank Loan of approximately $7,000; (ii) make all interest
payments that become due and payable on the NationsBank Loan on or after the
date of separation; (iii) shall pay severance of $3,200 reduced by any
interest payments made by Patriot on the NationsBank Loan through June 30,
1999.
F-57
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additionally, Mr. Nussbaum's outstanding unvested options to purchase paired
shares shall vest and remain fully exercisable for the period of their
respective terms and within six months Mr. Nussbaum may elect to exchange such
options on a Black Scholes neutral basis for new options with an exercise
price equal to the fair market value of a Paired Share on the election date.
Mr Nussbaum will also receive 250,000 Paired Shares equally over a three year
period and any restrictions will be lifted from existing paired shares held by
Mr. Nussbaum.
As a condition to receiving the second and third installments of the paired
shares, Mr. Nussbaum has agreed to provide non-exclusive consulting services
to the Companies for a period of two years following the resignation date.
Additionally, Mr. Nussbaum will receive other compensation as provided for in
the separation agreement.
Interest Rate Swaps and Caps
Patriot has entered into two additional interest rate swap arrangements to
swap floating rate LIBOR-based interest rates for a fixed rate interest amount
as a hedge against $50,987 of the outstanding balance on specific property
related debt. The interest rate swap fixes the LIBOR portion of the debt
interest rate at 5.31% per annum through January 2000 ($19,987) and 5.42% per
annum through March 2001 ($31,000). If the actual LIBOR rate is less than the
specified fixed interest rate, Patriot is obligated to pay the differential
interest amount, such amount being recorded as incremental interest expense.
If the LIBOR rate is greater than the specified fixed interest rate, the
differential interest amount is refunded to Patriot.
Additionally, Patriot entered into two interest rate cap arrangements as
follows; an interest rate cap that limits LIBOR to 7% on up to $1,500,000 of
indebtedness through April 2000, and an interest cap that limits LIBOR to
6.75% on up to $19,475 of indebtedness through March 2001.
Securities Purchase Agreement
Wyndham and Patriot have entered into an agreement with investors providing
for a $1,000,000 equity investment and related restructing of the two
companies. The Companies have also received financing commitments for a
$2,450,000 credit facility to be put into place upon the completion of the $1
billion equity investment.
The new $2,450,000 credit facility will consist of: $1,000,000 of term loans
with a seven year term; an $800,000 credit facility with a five year term;
and, a $650,000 increasing rate loan facility with a five year term will
provide financing which may be redeemed with the proceeds of the issuance of
senior unsecured notes.
As a condition of the $1,000,000 equity investment, the Companies are
required to restructure their existing organization. Under the contemplated
restructuring, a subsidiary of Wyndham will merge with and into Patriot and
Patriot will become a wholly-owned subsidiary of Wyndham and new shares of
Wyndham will be issued in exchange for the then outstanding shares of Patriot
common stock. In addition, the pairing agreement between Wyndham and Patriot
will terminate, Patriot's status as a REIT will terminate effective January 1,
1999 and Patriot will become a taxable corporation at that date. As a result
of that transaction, the Company will be required to record a charge for
deferred income taxes for the difference between the income tax basis and the
recorded carrying value of assets and liabilities. The Company is continuing
its analysis of the expected effects of this non-cash charge. Currently the
estimate is in the range of $750,000, however; this amount could vary when the
analysis is completed. In addition, the Company will charge off the value of
an intangible asset associated with the paired share structure of
approximately $84,000.
F-58
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
WYNDHAM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In the event that the equity and related debt transaction referred to above
are not completed, management has determined that additional capital would
have to be raised from other sources or the Companies would have to sell
significant amounts of assets to produce proceeds sufficient to meet its
existing current debt maturity obligations. These asset sales could include
resort properties or Wyndham-managed properties in major cities and could
negatively impact operations. Management believes these alternatives, if
necessary, represent a viable plan to address Company's liquidity needs.
F-59
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period(a)
--------------------- ------------------ ------------------------------
Buildings and Buildings and Accumulated Year
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation(b)(c) Built
----------- ------------ ------- ------------- ----- ------------ ------- ------------- -------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wyndham Brand
Properties:
Wyndham Bel Age
Hotel
Los Angeles,
California...... $ -- $ 5,653 $ 32,212 $ -- $ 106 $ 5,653 $ 32,318 $ 37,971 $ 961 1984
Wyndham Bristol
Palace Hotel
Toronto,
Canada.......... -- 3,048 15,503 -- -- 3,048 15,503 18,551 424 1974
Wyndham Buena
Vista Palace
Resort & Spa
Orlando,
Florida......... 49,353 -- 144,264 -- 123 -- 144,387 144,387 3,533 1977
Wyndham Buttes
Resort
Tempe, Arizona.. -- -- 55,297 -- 165 -- 55,462 55,462 1,931 1986
Wyndham City
Centre
Washington,
District of
Columbia........ -- 3,675 30,569 -- 91 3,675 30,660 34,335 1,143 1969
Wyndham Emerald
Plaza
San Diego,
California...... 35,000 5,551 60,462 17 95 5,568 60,557 66,125 1,730 1991
Wyndham Resprt &
Spa
Fort Lauderdale,
Florida......... -- 2,134 16,448 23 9,198 2,157 25,646 27,803 1,516 1961
Wyndham Franklin
Plaza
Philadelphia,
Pennsylvania.... -- 4,878 62,793 -- 117 4,878 62,910 67,788 2,016 1979
Wyndham
Greenspoint
Hotel
Houston, Texas.. 40,156 1,930 39,815 20 1,091 1,950 40,906 42,856 2,863 1985
Wyndham Miami
Beach Resort
Miami, Florida.. -- 13,000 54,875 -- 3 13,000 54,878 67,878 626
Wyndham
Gateway--Miami
Airport
Miami, Florida.. 25,625 2,561 23,009 -- 43 2,561 23,052 25,613 823 1976
Wyndham Myrtle
Beach Resort &
Golf Club
Myrtle Beach,
South Carolina.. -- 5,644 26,470 61 5,411 5,705 31,881 37,586 1,222 1974
Wyndham
Northwest
Chicago
Chicago,
Illinois........ -- 1,212 52,025 -- 76 1,212 52,101 53,313 1,549 1983
Wyndham
Peachtree
Conference
Center
Peachtree City
(Atlanta),
Georgia......... 37,873 3,059 21,915 33 4,833 3,092 26,748 29,840 2,185 1984
Wyndham Richmond
Airport
Richmond,
Virginia........ (h) -- 4,262 -- 2,800 -- 7,062 7,062 527 1997
Wyndham Toledo
Toledo, Ohio.... -- -- 16,082 -- 105 -- 16,187 16,187 599 1985
Wyndham
Riverfront Hotel
New Orleans,
Louisiana....... -- 2,774 28,023 -- 6 2,774 28,029 30,803 835 1996
Wyndham
Washington, D.C.
Washington,
District of
Columbia........ -- 4,750 40,439 -- -- 4,750 40,439 45,189 1,155 1983
<CAPTION>
Date of
Description Acquisition
----------- -----------
<S> <C>
Wyndham Brand
Properties:
Wyndham Bel Age
Hotel
Los Angeles,
California...... 1997
Wyndham Bristol
Palace Hotel
Toronto,
Canada.......... 1998
Wyndham Buena
Vista Palace
Resort & Spa
Orlando,
Florida......... 1998
Wyndham Buttes
Resort
Tempe, Arizona.. 1997
Wyndham City
Centre
Washington,
District of
Columbia........ 1997
Wyndham Emerald
Plaza
San Diego,
California...... 1997
Wyndham Resprt &
Spa
Fort Lauderdale,
Florida......... 1996
Wyndham Franklin
Plaza
Philadelphia,
Pennsylvania.... 1997
Wyndham
Greenspoint
Hotel
Houston, Texas.. 1996
Wyndham Miami
Beach Resort
Miami, Florida.. 1998
Wyndham
Gateway--Miami
Airport
Miami, Florida.. 1997
Wyndham Myrtle
Beach Resort &
Golf Club
Myrtle Beach,
South Carolina.. 1997
Wyndham
Northwest
Chicago
Chicago,
Illinois........ 1997
Wyndham
Peachtree
Conference
Center
Peachtree City
(Atlanta),
Georgia......... 1995
Wyndham Richmond
Airport
Richmond,
Virginia........ 1998
Wyndham Toledo
Toledo, Ohio.... 1997
Wyndham
Riverfront Hotel
New Orleans,
Louisiana....... 1997
Wyndham
Washington, D.C.
Washington,
District of
Columbia........ 1998
</TABLE>
F-60
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wyndham
Westshore Hotel
Tampa, Florida.. 31,675 1,448 31,565 -- 166 1,448 31,731 33,179 1,130
Wyndham Garden
Hotel--
Brookfield
Brookfield,
Illinois........ -- 1,787 17,564 -- -- 1,787 17,564 19,351 481
Wyndham Garden
Hotel--Charlotte
Charlotte, North
Carolina........ -- 792 17,535 -- -- 792 17,535 18,327 480
Wyndham Garden
Hotel--Commerce
Los Angeles,
California...... -- 2,116 26,497 -- -- 2,116 26,497 28,613 726
Wyndham Garden
Hotel--Market
Center
Dallas, Texas... -- 967 12,796 -- -- 967 12,796 13,763 350
Wyndham Garden
Hotel--Park
Central
Dallas, Texas... -- 4,523 -- -- 8,711 4,523 8,711 13,234 48
Wyndham Garden
Hotel--
Indianapolis
Indianapolis,
Indiana......... -- 513 15,497 -- -- 513 15,497 16,010 424
Wyndham Garden
Hotel--K.C.
Airport
Airport--Kansas
City, Missouri.. -- 970 7,993 -- -- 970 7,993 8,963 219
Wyndham Garden
Hotel--Knoxville
Knoxville,
Tennessee....... 4,539 825 6,467 -- -- 825 6,467 7,292 177
Wyndham Garden
Hotel LaGuardia
Airport
New York, New
York............ -- 1,800 16,443 -- 7 1,800 16,450 18,250 490
Wyndham Garden
Hotel--Las
Colinas
Dallas, Texas... -- 1,884 16,963 -- 6 1,884 16,969 18,853 505
Wyndham Garden
Hotel--Midtown
Atlanta,
Georgia......... -- 2,322 13,785 -- 749 2,322 14,534 16,856 1,010
Wyndham Garden
Hotel--Novi
Detroit,
Michigan........ -- 555 10,401 -- 6 555 10,407 10,962 310
Wyndham Garden
Hotel--Omaha
Omaha,
Nebraska........ 5,618 710 10,086 -- -- 710 10,086 10,796 276
Wyndham Garden
Hotel--Overland
Park
Overland Park,
Kansas.......... -- 769 3,532 -- -- 769 3,532 4,301 97
Wyndham Garden
Hotel--
Pleasanton
Pleasanton,
California...... -- 1,568 12,845 -- 6 1,568 12,851 14,419 369
Wyndham Garden
Hotel--
Richardson
Richardson,
Texas........... -- 530 8,048 -- -- 530 8,048 8,578 220
Wyndham Garden
Hotel--
Schaumburg,
Illinois........ -- 1,613 14,464 -- -- 1,613 14,464 16,077 396
Wyndham Garden
Hotel--West Port
St. Louis,
Missouri........ -- 862 9,273 -- 4 862 9,277 10,139 254
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Wyndham
Westshore Hotel
Tampa, Florida.. 1984 1997
Wyndham Garden
Hotel--
Brookfield
Brookfield,
Illinois........ 1990 1998
Wyndham Garden
Hotel--Charlotte
Charlotte, North
Carolina........ 1989 1998
Wyndham Garden
Hotel--Commerce
Los Angeles,
California...... 1991 1998
Wyndham Garden
Hotel--Market
Center
Dallas, Texas... 1968 1998
Wyndham Garden
Hotel--Park
Central
Dallas, Texas... 1998 1998
Wyndham Garden
Hotel--
Indianapolis
Indianapolis,
Indiana......... 1990 1998
Wyndham Garden
Hotel--K.C.
Airport
Airport--Kansas
City, Missouri.. 1992 1998
Wyndham Garden
Hotel--Knoxville
Knoxville,
Tennessee....... 1989 1998
Wyndham Garden
Hotel LaGuardia
Airport
New York, New
York............ 1988 1997
Wyndham Garden
Hotel--Las
Colinas
Dallas, Texas... 1986 1997
Wyndham Garden
Hotel--Midtown
Atlanta,
Georgia......... 1987 1996
Wyndham Garden
Hotel--Novi
Detroit,
Michigan........ 1988 1997
Wyndham Garden
Hotel--Omaha
Omaha,
Nebraska........ 1991 1998
Wyndham Garden
Hotel--Overland
Park
Overland Park,
Kansas.......... 1971 1998
Wyndham Garden
Hotel--
Pleasanton
Pleasanton,
California...... 1985 1997
Wyndham Garden
Hotel--
Richardson
Richardson,
Texas........... 1996 1998
Wyndham Garden
Hotel--
Schaumburg,
Illinois........ 1985 1998
Wyndham Garden
Hotel--West Port
St. Louis,
Missouri........ 1997 1998
</TABLE>
F-61
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
-------------------- ------------------- -----------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ------ ------------- ----- ------------ --------- ------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wyndham Garden
Hotel--Vinings
Atlanta,
Georgia......... 9,675 1,700 22,853 -- -- 1,700 22,853 24,553 626
Wyndham Garden
Hotel--Wichita
Wichita,
Kansas.......... 3,143 960 5,978 -- -- 960 5,978 6,938 164
Wyndham Garden
Hotal--WoodDale
Chicago,
Illinois........ -- 2,266 12,939 -- 7 2,266 12,946 15,212 446
Wyndham Grand
Heritage -
Ambassador West
Chicago,
Illinois........ -- 2,059 11,856 -- 1,659 2,059 13,515 15,574 502
Wyndham Grand
Heritage
- - Bourbon
Orleans Hotel
New Orleans,
Louisiana....... 13,500 1,942 14,209 171 1,168 2,113 15,377 17,490 1,391
Wyndham Grand
Heritage - The
Fairmount
San Antonio,
Texas........... -- -- 2,957 -- 137 -- 3,094 3,094 278
Wyndham Grand
Heritage - The
Mayfair
St. Louis,
Missouri........ -- 250 7,559 3 960 253 8,519 8,772 536
Wyndham Grand
Heritage - The
Tutwiler
Birmingham,
Alabama......... -- 1,444 8,124 (26) 812 1,418 8,936 10,354 505
Wyndham Grand
Heritage -
Tremont House
Boston,
Massachusetts... -- 1,776 14,066 18 10,033 1,794 24,099 25,893 1,445
Wyndham Grand
Heritage - Union
Station
Nashville,
Tennessee....... -- -- 7,512 -- 716 -- 8,228 8,228 326
Grand Bay Hotels
& Resort:
Carmel Valley
Ranch
Carmel,
California...... -- 4,430 14,704 -- 10,888 4,430 25,592 30,022 1,011
Grand Bay Hotel
Coconut Grove
Miami, Florida.. 25,200 3,066 28,442 1,237 (920) 4,303 27,522 31,825 1,007
The Boulders
Scottsdale,
Arizona......... -- 13,188 121,700 -- 1,051 13,188 122,751 135,939 6,833
The Lodge at
Ventana Canyon
Tucson,
Arizona......... 28,489 13,287 23,332 -- (208) 13,287 23,124 36,411 1,312
The Peaks Resort
& Spa
Telluride,
Colorado........ -- 5,141 13,997 -- 669 5,141 14,666 19,807 869
Summerfield
Suites:
Summerfield--
Denver South
Denver,
Colorado........ -- 1,072 8,183 -- 36 1,072 8,219 9,291 203
Summerfield--
Hanover
Whippany, New
Jersey.......... -- 2,223 18,585 -- 16 2,223 18,601 20,824 268
<CAPTION>
Year Date of
Description Built Acquisition
----------- ------ -----------
<S> <C> <C>
Wyndham Garden
Hotel--Vinings
Atlanta,
Georgia......... 1985 1998
Wyndham Garden
Hotel--Wichita
Wichita,
Kansas.......... 1985 1998
Wyndham Garden
Hotal--WoodDale
Chicago,
Illinois........ 1986 1997
Wyndham Grand
Heritage -
Ambassador West
Chicago,
Illinois........ 1924 1997
Wyndham Grand
Heritage
- - Bourbon
Orleans Hotel
New Orleans,
Louisiana....... 1800s 1995
Wyndham Grand
Heritage - The
Fairmount
San Antonio,
Texas........... 1906 1995
Wyndham Grand
Heritage - The
Mayfair
St. Louis,
Missouri........ 1925 1996
Wyndham Grand
Heritage - The
Tutwiler
Birmingham,
Alabama......... 1913 1996
Wyndham Grand
Heritage -
Tremont House
Boston,
Massachusetts... 1925 1996
Wyndham Grand
Heritage - Union
Station
Nashville,
Tennessee....... 1986 1997
Grand Bay Hotels
& Resort:
Carmel Valley
Ranch
Carmel,
California...... 1987 1997
Grand Bay Hotel
Coconut Grove
Miami, Florida.. 1983 1997
The Boulders
Scottsdale,
Arizona......... 1985 1997
The Lodge at
Ventana Canyon
Tucson,
Arizona......... 1985 1997
The Peaks Resort
& Spa
Telluride,
Colorado........ 1992 1997
Summerfield
Suites:
Summerfield--
Denver South
Denver,
Colorado........ 1997 1998
Summerfield--
Hanover
Whippany, New
Jersey.......... 1997 1998
</TABLE>
F-62
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summerfield--
Morristown
Morristown, New
Jersey.......... -- 3,050 20,920 -- 24 3,050 20,944 23,994 272
Summerfield--
Seattle Downtown
Seattle,
Washington...... -- 1,515 24,276 16 624 1,531 24,900 26,431 1,938
Summerfield--
Waltham
Waltham,
Massachusetts... -- 2,639 16,351 -- 140 2,639 16,491 19,130 286
Malmaison:
Malmaison
Edinburgh
Edinburgh,
United Kingdom.. (i) 2,674 7,747 6 496 2,680 8,243 10,923 188
Malmaison
Glasgow
Glasgow, United
Kingdom......... (i) 2,859 8,056 6 21 2,865 8,077 10,942 285
Malmaison
Manchester
Manchester,
United Kingdom.. (i) 5,332 9,859 12 3,565 5,344 13,424 18,768 203
Malmaison
Newcastle
Newcastle,
United Kingdom.. (i) 3,672 12,183 7 -- 3,679 12,183 15,862 197
Malmaison Leeds
Leeds, United
Kingdom......... (i) -- 10,315 -- -- -- 10,315 10,315 --
ClubHouse Inns:
ClubHouse--
Nashville
Airport
Nashville,
Tennessee....... -- 907 5,526 -- -- 907 5,526 6,433 151
ClubHouse Inn--
Albuquerque
Albuquerque, New
Mexico.......... -- 990 5,793 -- -- 990 5,793 6,783 159
ClubHouse Inn--
Atlanta
(Norcross)
Atlanta,
Georgia......... 4,530 785 9,691 -- -- 785 9,691 10,476 265
ClubHouse Inn--
Overland Park
Overland Park,
Kansas.......... 4,846 830 7,397 -- -- 830 7,397 8,227 203
ClubHouse Inn--
Savannah
Savannah,
Georgia......... -- 925 4,555 -- 105 925 4,660 5,585 127
ClubHouse Inn--
Topeka
Topeka, Kansas.. -- 390 5,312 -- -- 390 5,312 5,702 145
ClubHouse Inn--
Valdosta
Valdosta,
Georgia......... -- 825 5,588 -- -- 825 5,588 6,413 153
ClubHouse Inn &
Conference
Center
Nashville,
Tennessee....... -- 1,582 12,337 -- -- 1,582 12,337 13,919 338
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Summerfield--
Morristown
Morristown, New
Jersey.......... 1997 1998
Summerfield--
Seattle Downtown
Seattle,
Washington...... 1985 1996
Summerfield--
Waltham
Waltham,
Massachusetts... 1997 1998
Malmaison:
Malmaison
Edinburgh
Edinburgh,
United Kingdom.. 1994 1998
Malmaison
Glasgow
Glasgow, United
Kingdom......... 1997 1998
Malmaison
Manchester
Manchester,
United Kingdom.. 1998 1998
Malmaison
Newcastle
Newcastle,
United Kingdom.. 1997 1998
Malmaison Leeds
Leeds, United
Kingdom......... 1998 (e)
ClubHouse Inns:
ClubHouse--
Nashville
Airport
Nashville,
Tennessee....... 1988 1998
ClubHouse Inn--
Albuquerque
Albuquerque, New
Mexico.......... 1987 1998
ClubHouse Inn--
Atlanta
(Norcross)
Atlanta,
Georgia......... 1988 1998
ClubHouse Inn--
Overland Park
Overland Park,
Kansas.......... 1988 1998
ClubHouse Inn--
Savannah
Savannah,
Georgia......... 1989 1998
ClubHouse Inn--
Topeka
Topeka, Kansas.. 1986 1998
ClubHouse Inn--
Valdosta
Valdosta,
Georgia......... 1988 1998
ClubHouse Inn &
Conference
Center
Nashville,
Tennessee....... 1991 1998
</TABLE>
F-63
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
-------------------- ----------------- -----------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ------ ------------- ---- ------------ --------- ------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Proprietary
Brand
Properties:
Marriott Albany
Albany, New
York............ -- 4,000 68,856 -- 32 4,000 68,888 72,888 1,010
Marriott
Arlington
Arlington,
Texas........... -- -- 63,045 -- 91 -- 63,136 63,136 932
Marriott Atlanta
North Central
Atlanta,
Georgia......... -- -- 36,462 -- 185 -- 36,647 36,647 536
Marriott Boston
Andover
Andover,
Massachusetts... -- 2,318 33,245 -- 375 2,318 33,620 35,938 498
Marriott Boston
Westborough
Westborough,
Massachusetts... -- 1,500 41,968 -- 107 1,500 42,075 43,575 609
Marriott Houston
Greenspoint
North
Houston, Texas.. -- 3,600 44,211 -- 29 3,600 44,240 47,840 649
Marriott
Minneapolis
Southwest
Minnetonka,
Minnesota....... -- 2,968 36,933 -- 87 2,968 37,020 39,988 520
Marriott
Colorado Springs
Colorado
Springs,
Colorado........ -- 1,783 53,252 -- (5) 1,783 53,246 55,029 810
Marriott
Harrisburg
Harrisburg,
Pennsylvania.... 19,988 3,400 38,304 -- 246 3,400 38,550 41,951 560
Marriott Indian
River Plantation
Resort
Stuart,
Florida......... -- 6,800 48,606 -- 590 6,800 49,196 55,996 575
Marriott Casa
Marina Resort
Key West,
Florida......... 31,000 15,158 85,078 -- 136 15,158 85,214 100,372 415
Marriott Troy
Troy, Michigan.. -- 1,790 29,220 19 2,114 1,809 31,334 33,143 2,820
Marriott Reach
Resort
Key West,
Florida......... 24,911 10,029 24,947 -- 833 10,029 25,780 35,809 386
Marriott Suites
At Valley Forge
Valley Forge,
Pennsylvania.... -- 2,619 41,997 -- 23 2,619 42,020 44,639 605
Marriott
Philadelphia
West
West
Conshohocken,
Pennsylvania.... -- 2,500 67,279 -- -- 2,500 67,279 69,779 992
Marriott
Pittsburgh
Airport
Pittsburgh,
Pennsylvania.... 14,743 3,000 54,780 -- 46 3,000 54,826 57,826 801
Marriott Roanoke
Airport
Roanoke,
Virginia........ -- 1,653 27,693 -- 20 1,653 27,713 29,366 417
Marriott San
Diego Mission
Valley
San Diego,
California...... -- 8,000 40,743 -- 26 8,000 40,769 48,769 593
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Non-Proprietary
Brand
Properties:
Marriott Albany
Albany, New
York............ 1985 1998
Marriott
Arlington
Arlington,
Texas........... 1985 1998
Marriott Atlanta
North Central
Atlanta,
Georgia......... 1975 1998
Marriott Boston
Andover
Andover,
Massachusetts... 1985 1998
Marriott Boston
Westborough
Westborough,
Massachusetts... 1985 1998
Marriott Houston
Greenspoint
North
Houston, Texas.. 1981 1998
Marriott
Minneapolis
Southwest
Minnetonka,
Minnesota....... 1988 1998
Marriott
Colorado Springs
Colorado
Springs,
Colorado........ 1989 1998
Marriott
Harrisburg
Harrisburg,
Pennsylvania.... 1980 1998
Marriott Indian
River Plantation
Resort
Stuart,
Florida......... 1987 1998
Marriott Casa
Marina Resort
Key West,
Florida......... 1980 1998
Marriott Troy
Troy, Michigan.. 1990 1995
Marriott Reach
Resort
Key West,
Florida......... 1978 1998
Marriott Suites
At Valley Forge
Valley Forge,
Pennsylvania.... 1985 1998
Marriott
Philadelphia
West
West
Conshohocken,
Pennsylvania.... 1991 1998
Marriott
Pittsburgh
Airport
Pittsburgh,
Pennsylvania.... 1987 1998
Marriott Roanoke
Airport
Roanoke,
Virginia........ 1983 1998
Marriott San
Diego Mission
Valley
San Diego,
California...... 1988 1998
</TABLE>
F-64
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ----------------------------------
Buildings and Buildings and Accumulated Year
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c) Built
----------- ------------ ----- ------------- ---- ------------ -------- ------------------------- ------------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full Service
Hotels:
Marriott St.
Louis West
St. Louis,
Missouri........ 16,496 1,800 48,251 -- 58 1,800 48,309 50,109 717 1990
Marriott
Syracuse
East Syracuse,
New York........ 10,374 1,150 29,236 -- 563 1,150 29,799 30,949 436 1977
Marriott Tysons
Corner
Tysons Corner,
Virginia........ -- 3,650 64,333 -- 113 3,650 64,446 68,096 956 1981
Marriott Warner
Center
Woodland Hills,
California...... -- 6,250 100,063 -- 10 6,250 100,073 106,323 1,485 1986
Courtyard by
Marriott
Beachwood,
Ohio............ -- 1,510 7,553 -- 190 1,510 7,743 9,253 324 1986
Doubletree Hotel
Anaheim
Orange,
California...... 13,467 2,464 23,297 -- 403 2,464 23,700 26,164 889 1984
Doubletree Hotel
Corporate Woods
Overland Park,
Kansas.......... 21,909 3,317 38,088 -- 318 3,317 38,406 41,723 1,456 1982
Doubletree Hotel
Post Oak
Houston, Texas.. 29,748 4,441 43,672 -- 1,059 4,441 44,731 49,172 1,689 1982
Doubletree Hotel
St. Louis
St. Louis,
Missouri........ 13,366 2,160 18,300 -- 453 2,160 18,753 20,913 701 1984
Doubletree Hotel
Allen Center
Houston, Texas.. 11,156 2,280 24,707 -- 1,810 2,280 26,517 28,797 1,530 1978
Doubletree Guest
Suites
Glenview,
Illinois........ 20,500 3,237 19,709 -- 181 3,237 19,890 23,127 759 1988
Doubletree Hotel
Westminster
Westminster
(Denver),
Colorado........ -- 1,454 9,973 15 1,099 1,469 11,072 12,541 768 1980
Doubletree Hotel
Tallahassee,
Florida......... -- 2,127 7,779 -- 2,792 2,127 10,571 12,698 637 1977
Doubletree Hotel
Des Plaines
Des Plaines
(Chicago),
Illinois........ -- 1,903 5,555 -- 3,211 1,903 8,766 10,669 530 1969
Doubletree Hotel
Minneapolis,
Minnesota....... -- 1,650 15,895 -- 1,269 1,650 17,164 18,814 861 1986
Doubletree Hotel
Tulsa,
Oklahoma........ 9,246 1,428 18,596 -- 39 1,428 18,635 20,063 1,071 1982
Doubletree Park
Place
Minneapolis,
Minnesota....... -- 2,188 13,531 -- 3,466 2,188 16,997 19,185 745 1981
Doubletree Miami
Airport
Miami, Florida.. -- 3,808 7,052 -- 2,644 3,808 9,696 13,504 572 1975
<CAPTION>
Date of
Description Acquisition
----------- -----------
<S> <C>
Full Service
Hotels:
Marriott St.
Louis West
St. Louis,
Missouri........ 1998
Marriott
Syracuse
East Syracuse,
New York........ 1998
Marriott Tysons
Corner
Tysons Corner,
Virginia........ 1998
Marriott Warner
Center
Woodland Hills,
California...... 1998
Courtyard by
Marriott
Beachwood,
Ohio............ 1997
Doubletree Hotel
Anaheim
Orange,
California...... 1997
Doubletree Hotel
Corporate Woods
Overland Park,
Kansas.......... 1997
Doubletree Hotel
Post Oak
Houston, Texas.. 1997
Doubletree Hotel
St. Louis
St. Louis,
Missouri........ 1997
Doubletree Hotel
Allen Center
Houston, Texas.. 1996
Doubletree Guest
Suites
Glenview,
Illinois........ 1997
Doubletree Hotel
Westminster
Westminster
(Denver),
Colorado........ 1996
Doubletree Hotel
Tallahassee,
Florida......... 1996
Doubletree Hotel
Des Plaines
Des Plaines
(Chicago),
Illinois........ 1996
Doubletree Hotel
Minneapolis,
Minnesota....... 1997
Doubletree Hotel
Tulsa,
Oklahoma........ 1996
Doubletree Park
Place
Minneapolis,
Minnesota....... 1997
Doubletree Miami
Airport
Miami, Florida.. 1996
</TABLE>
F-65
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full Service
Hotels:
Embassy Suites
Chicago,
Illinois........ 41,329 -- 82,017 -- -- -- 82,017 82,017 1,269
Embassy Suites
Schaumburg,
Illinois........ -- 2,001 29,350 -- 185 2,001 29,535 31,536 438
Embassy Suites
Hunt Valley,
Maryland........ -- 529 13,872 6 314 535 14,186 14,721 1,257
Embassy Suites
Phoenix North
Phoenix,
Arizona......... -- 2,028 40,160 -- 40 2,028 40,200 42,229 622
Hyatt Newporter
Newport Beach,
California...... -- -- 15,611 -- 1,685 -- 17,296 17,296 1,293
Hyatt Regency
Lexington,
Kentucky........ -- -- 11,958 -- 1,280 -- 13,238 13,238 964
Hilton Cleveland
South
Independence,
Ohio............ -- 2,760 12,264 29 1,280 2,789 13,544 16,333 1,212
Hilton Gateway
Newark
Newark, New
Jersey.......... -- 1,740 31,262 -- 32 1,740 31,294 33,035 484
Hilton Columbus
Columbus,
Georgia......... -- 570 13,132 -- -- 570 13,132 13,702 203
Hilton Del Mar
Del Mar (San
Diego),
California...... -- 1,900 11,435 20 539 1,920 11,974 13,894 934
Hilton Greenwood
Village (Denver
South)
Greenwood
Village,
Colorado........ -- 1,800 42,003 -- -- 1,800 42,003 43,803 650
Hilton Dania
Dania, Florida.. -- 2,651 24,748 -- -- 2,651 24,748 27,399 367
Hilton
Huntington
Melville, New
York............ -- 3,000 49,435 -- -- 3,000 49,435 52,435 765
Hilton
Parsipanny
Parsippanny, New
Jersey.......... -- 5,350 87,775 -- 36 5,350 87,811 93,161 1,359
Hilton Melbourne
Airport
Melbourne,
Florida......... -- 1,502 6,391 -- 145 1,502 6,536 8,038 234
Holiday Inn
Sebring,
Florida......... -- 626 2,387 7 420 633 2,807 3,440 242
Holiday Inn
San Angelo,
Texas........... -- 428 3,982 11 197 439 4,179 4,618 383
Holiday Inn--YO
Ranch
Kerrville,
Texas........... -- 410 6,099 -- 119 410 6,218 6,628 230
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Full Service
Hotels:
Embassy Suites
Chicago,
Illinois........ 1991 1998
Embassy Suites
Schaumburg,
Illinois........ 1984 1998
Embassy Suites
Hunt Valley,
Maryland........ 1985 1995
Embassy Suites
Phoenix North
Phoenix,
Arizona......... 1985 1998
Hyatt Newporter
Newport Beach,
California...... 1962 1996
Hyatt Regency
Lexington,
Kentucky........ 1977 1996
Hilton Cleveland
South
Independence,
Ohio............ 1980 1995
Hilton Gateway
Newark
Newark, New
Jersey.......... 1971 1998
Hilton Columbus
Columbus,
Georgia......... 1982 1998
Hilton Del Mar
Del Mar (San
Diego),
California...... 1989 1996
Hilton Greenwood
Village (Denver
South)
Greenwood
Village,
Colorado........ 1982 1998
Hilton Dania
Dania, Florida.. 1988 1998
Hilton
Huntington
Melville, New
York............ 1988 1998
Hilton
Parsipanny
Parsippanny, New
Jersey.......... 1981 1998
Hilton Melbourne
Airport
Melbourne,
Florida......... 1986 1997
Holiday Inn
Sebring,
Florida......... 1983 1995
Holiday Inn
San Angelo,
Texas........... 1984 1995
Holiday Inn--YO
Ranch
Kerrville,
Texas........... 1984 1997
</TABLE>
F-66
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full Service
Hotels:
Holiday Inn
Aristocrat
Dallas, Texas... -- 144 7,806 2 244 146 8,050 8,196 734
Holiday Inn
Beachwood
Beachwood,
Ohio............ -- 307 13,519 -- 315 307 13,834 14,141 375
Holiday Inn
Crockett
San Antonio,
Texas (d) ...... -- 1,936 12,130 21 1,224 1,957 13,354 15,311 1,212
Holiday Inn
Lenox
Atlanta,
Georgia......... -- -- 10,090 -- 318 -- 10,408 10,408 832
Holiday Inn
Northwest
Houston, Texas.. -- 333 2,324 4 378 337 2,702 3,039 234
Holiday Inn
Northwest Plaza
Austin, Texas... -- 1,424 9,323 15 181 1,439 9,504 10,943 876
Holiday Inn
Select - Farmers
Branch
Farmers Branch
(Dallas),
Texas........... -- 3,045 15,786 33 1,830 3,078 17,616 20,694 1,548
Holiday Inn
Westlake
Beachwood,
Ohio............ -- 2,843 14,218 -- 798 2,843 15,016 17,859 617
Holiday Inn
Brentwood
Brentwood,
Tennessee....... -- 1,080 22,342 -- 4 1,080 22,346 23,425 346
Holiday Inn
San Francisco,
California...... -- -- 18,807 -- 54 -- 18,861 18,861 762
Redmont Hotel
Birmingham,
Alabama -- 227 2,151 2 78 229 2,229 2,458 115
Omni Inner
Harbour Hotel
Baltimore,
Maryland........ -- 1,129 49,491 -- 453 1,129 49,944 51,073 2,082
Radisson
Burlington
Burlington,
Vermont......... -- 935 28,453 -- 4 935 28,457 29,392 440
Radisson Hotel &
Suites
Dallas, Texas... -- 1,011 8,276 10 302 1,021 8,578 9,599 781
Radisson
Englewood
Englewood, New
Jersey.......... -- -- 26,320 -- -- -- 26,320 26,320 407
Radisson Suite
Hotel
Kansas City,
Kansas.......... -- 914 10,341 -- 318 914 10,659 11,573 395
Radisson Hotel
Lisle,
Illinois........ -- 1,995 24,726 -- -- 1,995 24,726 26,721 383
Radisson New
Orleans Hotel
New Orleans,
Louisiana....... -- 2,463 23,630 43 987 2,506 24,617 27,123 2,198
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Full Service
Hotels:
Holiday Inn
Aristocrat
Dallas, Texas... 1925 1995
Holiday Inn
Beachwood
Beachwood,
Ohio............ 1974 1998
Holiday Inn
Crockett
San Antonio,
Texas (d) ...... 1909 1995
Holiday Inn
Lenox
Atlanta,
Georgia......... 1987 1996
Holiday Inn
Northwest
Houston, Texas.. 1982 1995
Holiday Inn
Northwest Plaza
Austin, Texas... 1984 1995
Holiday Inn
Select - Farmers
Branch
Farmers Branch
(Dallas),
Texas........... 1979 1995
Holiday Inn
Westlake
Beachwood,
Ohio............ 1980 1997
Holiday Inn
Brentwood
Brentwood,
Tennessee....... 1989 1998
Holiday Inn
San Francisco,
California...... 1964 1997
Redmont Hotel
Birmingham,
Alabama 1925 1997
Omni Inner
Harbour Hotel
Baltimore,
Maryland........ 1968 1997
Radisson
Burlington
Burlington,
Vermont......... 1975 1998
Radisson Hotel &
Suites
Dallas, Texas... 1986 1995
Radisson
Englewood
Englewood, New
Jersey.......... 1989 1998
Radisson Suite
Hotel
Kansas City,
Kansas.......... 1931 1995
Radisson Hotel
Lisle,
Illinois........ 1987 1998
Radisson New
Orleans Hotel
New Orleans,
Louisiana....... 1924 1997
</TABLE>
F-67
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ------------------ ------------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ ----- ------------- ---- ------------ --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Radisson
Northbrook
Northbrook,
Illinois........ -- 1,437 10,968 16 305 1,453 11,273 12,726 626
Radisson
Overland Park
Overland Park,
Kansas.......... -- 1,296 5,377 14 578 1,310 5,955 7,265 312
Radisson
Riverwalk
Jacksonville,
Florida......... -- 2,400 16,965 (388) 486 2,012 17,451 19,463 661
Radisson Plaza
Hotel San Jose
Airport
San Jose,
California...... -- 1,438 40,474 -- -- 1,438 40,474 41,912 626
Radisson Suites
Town & Country
Houston, Texas.. -- 655 9,725 7 195 662 9,920 10,582 917
Radisson Hotel
Beachwood,
Ohio............ 5,593 2,226 11,129 -- 313 2,226 11,442 13,668 477
Radisson Hotel
Akron, Ohio..... -- 1,136 5,678 -- 131 1,136 5,809 6,945 244
Ramada Hotel
San Francisco,
California...... -- -- 15,853 -- 146 -- 15,999 15,999 646
Sheraton Four
Points
Blacksburg,
Virginia........ -- 470 16,651 -- 10 470 16,661 17,131 258
Sheraton Four
Points
Saginaw,
Michigan........ -- 773 6,451 8 310 781 6,761 7,542 617
WestCoast Hotel
& Marina
Long Beach,
California...... -- -- 3,145 -- 1,544 -- 4,689 4,689 332
WestCoast Valley
River Inn
Eugene, Oregon.. -- 1,754 15,839 19 1,055 1,773 16,894 18,667 1,097
Fort Magruder
Inn and
Conference
Center
Williamsburg,
Virginia........ -- 2,192 22,499 -- 4 2,192 22,503 24,695 348
Pickwick Hotel
San Francisco,
California...... -- 2,000 11,922 22 5,314 2,022 17,236 19,258 824
Park Shore
Honolulu
Honolulu,
Hawaii.......... -- -- 24,339 -- 560 -- 24,899 24,899 941
Limited Service
Hotels:
Hampton Inn
Canton, Ohio.... -- 350 4,315 3 351 353 4,666 5,019 422
Hampton Inn
Rochester, New
York............ -- 104 7,829 2 340 106 8,169 8,275 743
<CAPTION>
Year Date of
Description Built Acquisition
----------- ----- -----------
<S> <C> <C>
Radisson
Northbrook
Northbrook,
Illinois........ 1976 1995
Radisson
Overland Park
Overland Park,
Kansas.......... 1974 1997
Radisson
Riverwalk
Jacksonville,
Florida......... 1979 1997
Radisson Plaza
Hotel San Jose
Airport
San Jose,
California...... 1985 1998
Radisson Suites
Town & Country
Houston, Texas.. 1986 1995
Radisson Hotel
Beachwood,
Ohio............ 1968 1997
Radisson Hotel
Akron, Ohio..... 1989 1997
Ramada Hotel
San Francisco,
California...... 1962 1997
Sheraton Four
Points
Blacksburg,
Virginia........ 1971 1998
Sheraton Four
Points
Saginaw,
Michigan........ 1984 1995
WestCoast Hotel
& Marina
Long Beach,
California...... 1978 1996
WestCoast Valley
River Inn
Eugene, Oregon.. 1973 1996
Fort Magruder
Inn and
Conference
Center
Williamsburg,
Virginia........ 1975 1998
Pickwick Hotel
San Francisco,
California...... 1928 1996
Park Shore
Honolulu
Honolulu,
Hawaii.......... 1968 1997
Limited Service
Hotels:
Hampton Inn
Canton, Ohio.... 1985 1995
Hampton Inn
Rochester, New
York............ 1986 1995
</TABLE>
F-68
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
---------------------- -------------------- ---------------------------------
Buildings and Buildings and Accumulated
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation (b)(c)
----------- ------------ -------- ------------- ------- ------------ -------- ------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn
Cleveland
Airport
North Olmsted,
Ohio............ -- 236 5,483 2 412 238 5,895 6,133 531
Hampton Inn
Jacksonville
Airport
Jacksonville,
Florida......... -- 285 4,355 4 159 289 4,514 4,803 415
Arcadian Hotels:
Arcadian--
Brandschatch
Brandschatch-
Place, United
Kingdom......... (j) 830 6,907 2 56 832 6,963 7,795 165
Arcadian--
Chilston Park
Chilston Park,
United Kingdom.. (j) 581 7,701 1 135 582 7,836 8,418 184
Arcadian--
Ettington Park
Ettington Park,
United Kingdom.. (j) 1,411 10,782 3 41 1,414 10,823 12,237 256
Arcadian--
Haycock
Haycock, United
Kingdom......... (j) 1,660 9,937 4 86 1,664 10,023 11,687 237
Arcadian--
L'Horizon
L'Horizon,
United Kingdom.. (j) 3,320 18,678 7 47 3,327 18,725 22,052 443
Arcadian--
Mollington
Banastre
Mollington
Banastre, United
Kingdom......... (j) 1,245 9,504 3 113 1,248 9,617 10,865 227
Arcadian--
Nutfield Priory
Nutfield Priory,
United Kingdom.. (j) 2,075 18,900 5 125 2,080 19,025 21,105 450
Arcadian--Priest
House
Priest House,
United Kingdom.. (j) 664 6,559 1 23 665 6,582 7,247 156
Arcadian--
Rookery Hall
Rookery Hall,
United Kingdom.. (j) 830 4,777 2 30 832 4,807 5,639 114
Arcadian--Wood
Hall
Wood Hall,
United Kingdom.. (j) 747 4,364 2 10 749 4,374 5,123 103
Arcadian--
Woodlands Park
Woodlands Park,
United Kingdom.. (j) 2,075 11,437 5 91 2,080 11,528 13,608 272
Other:
Bay Meadows
Racecourse
San Mateo
California (g).. -- -- 15,052 2,340 6,813 2,340 21,865 24,205 3,497
Golden Door Spa
Escondido,
California...... 6,000 5,800 3,000 -- -- 5,800 3,000 8,800 46
-------- -------- ---------- ------- -------- -------- ---------- ---------- --------
$609,048 $375,209 $3,961,539 $ 3,925 $124,073 $379,134 $4,085,612 $4,464,746 $130,211
======== ======== ========== ======= ======== ======== ========== ========== ========
<CAPTION>
Year Date of
Description Built Acquisition
----------- -------- -----------
<S> <C> <C>
Hampton Inn
Cleveland
Airport
North Olmsted,
Ohio............ 1986 1995
Hampton Inn
Jacksonville
Airport
Jacksonville,
Florida......... 1985 1995
Arcadian Hotels:
Arcadian--
Brandschatch
Brandschatch-
Place, United
Kingdom......... 1980 (f) 1998
Arcadian--
Chilston Park
Chilston Park,
United Kingdom.. 1985 (f) 1998
Arcadian--
Ettington Park
Ettington Park,
United Kingdom.. 1984 (f) 1998
Arcadian--
Haycock
Haycock, United
Kingdom......... 1632 (f) 1998
Arcadian--
L'Horizon
L'Horizon,
United Kingdom.. 1954 (f) 1998
Arcadian--
Mollington
Banastre
Mollington
Banastre, United
Kingdom......... 1953 (f) 1998
Arcadian--
Nutfield Priory
Nutfield Priory,
United Kingdom.. 1988 (f) 1998
Arcadian--Priest
House
Priest House,
United Kingdom.. (f) 1998
Arcadian--
Rookery Hall
Rookery Hall,
United Kingdom.. 1960 (f) 1998
Arcadian--Wood
Hall
Wood Hall,
United Kingdom.. 1988 (f) 1998
Arcadian--
Woodlands Park
Woodlands Park,
United Kingdom.. 1988 (f) 1998
Other:
Bay Meadows
Racecourse
San Mateo
California (g).. 1934 1997
Golden Door Spa
Escondido,
California...... 1954 1998
</TABLE>
F-69
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
NOTES TO SCHEDULE III
(in thousands)
<TABLE>
<CAPTION>
Period
October 2,
Year Ended Year Ended Year Ended 1995 through
December 31, December 31, December 31, December 31,
1998 1997 1997 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(a) Reconciliation of Real
Estate
Balance at beginning of
period................. $1,863,568 $ 597,494 $242,132 $ --
Additions during this
period:
Acquisitions.......... 2,473,180 1,209,052 342,557 242,132
Improvements.......... 127,998 57,022 12,805 --
---------- ---------- -------- --------
Balance at end of
period................. $4,464,746 $1,863,568 $597,494 $242,132
========== ========== ======== ========
(b) Reconciliation of
Accumulated Depreciation:
Balance at beginning of
period................. $ 41,041 $ 12,048 $ 1,508 $ --
Depreciation for
period.............. 89,170 28,993 10,540 1,508
---------- ---------- -------- --------
Balance at end of
period................. $ 130,211 $ 41,041 $ 12,048 $ 1,508
========== ========== ======== ========
</TABLE>
(c) Depreciation is computed on buildings and improvements based upon a useful
life of 35 years.
(d) Hotel sold in March 1999.
(e) Hotel under development expected to open in 1999.
(f) Year built represents first date operated as a hotel.
(g) Racetrack sold February 1999.
(h) Hotel is encumbered by a capital lease obligation of $4,531.
(i) Hotels encumbered by debt obligations of $27,037 which is secured by 4
hotels and one under development.
(j) Hotels encumbered by obligations totaling $97,140 which is secured by 11
hotels an one under development.
F-70
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
As of December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Principal
Amount of
Loans
Subject to
Face Carrying Delinquent
Interest Periodic Payment Prior Amount of Amount of Principal or
Description Rate Maturity Date Terms Liens Mortgages Mortgages (a) Interest
----------- -------- --------------- ------------------------ ------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Promissory note,
collateralized by a 10.25% January 1, 2000 Monthly payments of None $36,000 $36,000 None
first lien deed of trust interest only are
on the Crown Plaza required. Principal
Ravinia Hotel........... payable in full at
maturity
Promissory note,
collateralized by a
second lien deed of 12.5% January 1, 2000 Monthly payments of $36,000 4,500 4,500 None
trust on the Crowne interest only are
Plaza Ravinia Hotel..... required. Principal
payable in full at
maturity
Promissory note,
collateralized by a 9.0% August 31, 1999 Monthly payments of None 31,400 31,102 None
first lien deed of trust interest only are
on the Wyndham Wind required. Principal
Watch Hotel............. payable in full at
maturity
------- -------
$71,900 $71,602
======= =======
</TABLE>
- ----
(a)Reconciliation of Mortgage Loans on Real Estate:
<TABLE>
<CAPTION>
Period
October 2, 1995
Year Ended Year Ended Year Ended Through
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Balance at beginning of
period.................. $71,602 $71,602 $40,500 $ --
New mortgage loans...... -- -- 31,400 40,500
Principal payments re-
ceived.................. -- -- (298) --
------- ------- ------- -------
Balance at end of peri-
od...................... $71,602 $71,602 $71,602 $40,500
======= ======= ======= =======
</TABLE>
For federal income tax purposes, the aggregate cost of investments in
mortgage loans on real estate is the carrying amount as disclosed in the
schedule.
F-71
<PAGE>
EXHIBIT (d)
June 1, 1999
Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
Patriot American Hospitality, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, TX 75207
Re: The Restructuring of Wyndham International, Inc., and Patriot American
Hospitality, Inc.
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Wyndham
International, Inc., a Delaware corporation ("Wyndham"), and Patriot American
Hospitality, Inc., a Delaware corporation ("Patriot"), in connection with the
issuance of a new series of preferred stock of Wyndham to investors including
affiliates of each of Apollo Real Estate Management III, L.P., Apollo Management
IV, L.P., Thomas H. Lee Equity Fund IV, L.P., Beacon Capital Partners, L.P., and
Strategic Real Estate Investments I, LLC (the "Investment") and the related
restructuring of Wyndham and Patriot (the "Restructuring"), including the
exchange by certain holders of Wyndham preferred stock of their preferred stock
for Wyndham Class A common stock (the "Preferred Stock Exchange"), the reverse
stock split undertaken by Wyndham and Patriot with respect to their paired
shares (the "Reverse Stock Split"), the merger of a newly created, wholly owned
subsidiary of Wyndham into Patriot with Patriot as the surviving corporation
(the "Merger"), the contribution of interests in Wyndham International Operating
Partnership, L.P. and/or Patriot American Hospitality Partnership, L.P. (the
"Operating Partnerships"), by certain holders of such interests, to Wyndham in
exchange for Wyndham common stock (the "OP Unit Exchange"), and the transaction,
which
<PAGE>
Wyndham International, Inc.
Patriot American Hospitality, Inc.
June 1, 1999
Page 2
may occur under certain circumstances, in which Wyndham common stock is
exchanged for the stock of the subsidiaries specified in paragraph 6 of Exhibit
A of the securities purchase agreement for the Investment (the "Securities
Purchase Agreement") held by certain partners of Patriot American Hospitality
Partnership, L.P. (the "D-Sub Stock Exchange"), all as more fully described in
the proxy statement, as amended, filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities and Exchange Act of 1934
in connection with the Investment and Restructuring (the "Proxy"). The
Investment and the Restructuring are referred to collectively as the
"Transactions."
This opinion relates to the qualification of the Preferred Stock Exchange
as a reorganization under Section 368(a)(1)(E) of the Internal Revenue Code of
1986, as amended (the "Code"), the taxation of the Reverse Stock Split to
holders of paired shares, and the qualification of the Merger, the OP Unit
Exchange and the D-Sub Stock Exchange (if it occurs) for treatment under Code
Section 351.
For purposes of this opinion, we have reviewed and relied upon the
Securities Purchase Agreement and the exhibits thereto, the Proxy and the
exhibits thereto, the charters of Wyndham and Patriot as currently in effect,
and the limited partnership agreements of the Operating Partnerships as
currently in effect (the "Documents"). In addition, in rendering our opinion we
have relied upon certain statements, factual representations and warranties made
by Wyndham and Patriot set forth in a representation letter provided to us by
Wyndham and Patriot in connection with the preparation of this opinion. We have
assumed that such statements, representations and warranties are true, correct,
complete and not breached and will continue to be so through the completion of
the Transactions, that no actions that are inconsistent with such statements,
representations and warranties will be taken, and that all statements,
representations and warranties made to "the best knowledge of" any person or
with similar qualification are and will be true, correct and complete as if made
without such qualification.
We also have assumed (i) the genuineness of all signatures, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
authority and capacity of the individual or individuals who executed any such
documents on behalf of any person, (v) the conformity to the final documents of
all documents submitted to us as drafts, and (vi) the accuracy and completeness
of all records made available to us. In addition, we have assumed (i) each of
the
<PAGE>
Wyndham International, Inc.
Patriot American Hospitality, Inc.
June 1, 1999
Page 3
proposals submitted to the stockholders of Wyndham and/or Patriot pursuant to
the Proxy will be approved by stockholders, (ii) the Transactions will be
consummated in accordance with the Documents, as described in the Proxy and
without the occurrence of any condition or other provision or the waiver of a
condition or other provision that would adversely affect our opinion, (iii)
Wyndham and Patriot will each comply with the reporting obligations with respect
to the Transactions required under the Code and the Treasury Regulations
thereunder, (iv) the Documents are valid and binding in accordance with their
terms, and (v) none of the persons who receive stock of Wyndham pursuant to the
Investment, the Merger, the OP Unit Exchange or the D-Sub Exchange (the
"Transferors") has or will have a plan or intention or has entered or will enter
into a binding agreement to sell shares of Wyndham that would cause the
Transferors to lose "control" of Wyndham within the meaning of Code Section
368(c) (and such assumption would continue to be true if the Transferors were
deemed to include any persons who acquire preferred stock of Wyndham upon
exercise of certain transferable stock rights proposed to be issued following
the Transactions, as described in the Proxy).
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations, warranties and assumptions or any change after the date hereof
in applicable law could adversely affect our opinion. No ruling has been or
will be sought from the Internal Revenue Service by Wyndham or Patriot as to the
federal income tax consequences of any aspect of the Transactions.
For purposes of this opinion, the term "U.S. Person" means a person
described in Code Section 7701(a)(30) that is not subject to special treatment
under the Code with respect to its participation in the Transactions.
Based upon and subject to the foregoing, as well as the limitations set
forth below, it is our opinion, under presently applicable federal income tax
law, that:
(1) the Preferred Stock Exchange will qualify as a reorganization within
the meaning of Code Section 368(a)(1)(E);
(2) holders of paired shares will not recognize gain or loss as a result
of the Reverse Stock Split;
(3) the recognition of gain or loss upon the exchange of all of the
Patriot common stock and preferred stock for Wyndham common stock and
cash pursuant to the Merger; the exchange of interests in Wyndham
International Operating Partnership, L.P. for Wyndham common stock and
cash and the exchange of interests in Patriot American Hospitality
Partnership, L.P. for Wyndham common stock and cash pursuant to the OP
Unit
<PAGE>
Wyndham International, Inc.
Patriot American Hospitality, Inc.
June 1, 1999
Page 4
Exchange; and the exchange of the stock of the subsidiaries specified
in paragraph 6 of Exhibit A of the Securities Purchase Agreement for
Wyndham common stock pursuant to the D-Sub Stock Exchange (if it
occurs) by U.S. Persons that participate in such exchanges will be
governed by Code Section 351(a) and (b), except as otherwise required
by Code Sections 304, 357(c) and 751(a) and except in the case of
persons who receive only cash and no stock of Wyndham in such
exchanges; and
(4) the discussion set forth in the Proxy under the heading "Federal
Income Tax Consequences," to the extent that it constitutes statements
of, or legal conclusions regarding, federal income tax law, is
accurate in all material respects.
* * *
No opinion is expressed as to any matter not specifically addressed above.
Also, no opinion is expressed as to the tax consequences of the Transactions
under any foreign, state or local tax law. Furthermore, our opinion is based on
current federal income tax law and administrative practice, and we do not
undertake to advise you as to any changes after the date hereof in federal
income tax law or administrative practice that may affect our opinion.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
Goodwin, Procter & Hoar LLP
