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As filed with the Securities and Exchange Commission on September 27, 1996
Registration Statement No. 333- ________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
PATRIOT AMERICAN HOSPITALITY, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 75-2599709
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3030 LBJ Freeway
Suite 1500
Dallas, Texas 75234
(972) 888-8000
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Paul A. Nussbaum
Chairman and Chief Executive Officer
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
(972) 888-8000
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
____________________
copy to:
Gilbert G. Menna, P.C.
Kathryn I. Murtagh, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
(617) 570-1000
____________________
Approximate date of commencement of proposed sale to public: From time to
time after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Maximum Maximum
Amount Aggregate Aggregate Amount of
Title of Shares to be Price Per Offering Registration
to be Registered Registered Unit (1) Price Fee
- --------------------------------------------------------------------------------
Common Stock 3,083,592 $32.1875 $99,253,118 $34,226
================================================================================
(1) This estimate is based on the average of the high ($32.625) and low ($31.75)
sales prices on the New York Stock Exchange of the Common Stock of Patriot
American Hospitality, Inc. on September 24, 1996, pursuant to Rule 457(c)
under the Securities Act of 1933, as amended, and is made solely for
purposes of determining the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell nor the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
- ----------
Subject to Completion
Preliminary Prospectus dated September 27, 1996
3,083,592 Shares
Patriot American Hospitality, Inc.
Common Stock
_______________
Patriot American Hospitality, Inc. (collectively with its subsidiaries, the
"Company") is a self-administered real estate investment trust ("REIT")
organized under the laws of Virginia, which owns hotels in several states
diversified by franchise or brand affiliation (the "Hotels"). The Company's
stock, no par value per share (the "Common Stock") is listed on the New York
Stock Exchange (the "NYSE") under the symbol "PAH".
This prospectus (the "Prospectus") relates to (i) the possible issuance from
time to time by the Company of up to 2,839,937 shares of Common Stock (the
"Redemption Shares"), if and to the extent that holders ("Unitholders") of up to
2,839,937 units of limited partnership interest ("Units") in Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership (the "Operating
Partnership") receive such shares in exchange for Units; and (ii) the
registration of 243,655 shares of Common Stock (the "Restricted Stock") being
registered for the account of certain persons named herein (collectively, the
"Registering Stockholders"). The Units were issued in connection with the
formation of the Company in October 1995 and in subsequent private placements in
connection with property acquisitions. The Restricted Stock was issued in
connection with the formation of the Company and pursuant to the Company's 1995
Stock Option and Incentive Plan (the "1995 Plan") and the Company's Non-Employee
Director's Incentive Plan (the "Directors Plan").
Pursuant to the agreement of limited partnership of the Operating
Partnership (the "Operating Partnership Agreement"), a Unitholder may tender its
Units to the Operating Partnership for cash; provided, however, that the Company
may acquire any Units so tendered for an equivalent number of shares of Common
Stock. The Company anticipates that it generally will elect to issue Common
Stock in exchange for Units tendered for redemption rather than paying cash. As
a result, the Company may from time to time issue up to 2,839,937 Redemption
Shares upon the acquisition of Units tendered to the Operating Partnership for
redemption. Accordingly, the Company is registering the Redemption Shares to
provide Unitholders with freely tradeable securities upon redemption.
Each of the Registering Stockholders, directly or through agents, dealers or
underwriters, may, from time to time, sell all or a portion of the Restricted
Stock on terms to be determined at the time of sale. To the extent required, the
specific terms of a particular offer will be set forth in an accompanying
Prospectus Supplement. Each Registering Stockholder reserves the right to accept
and, together with its agents, dealers or underwriters, to reject, in whole or
in part, any proposed purchase of Restricted Stock.
The Company will not receive any proceeds from the issuance of any
Redemption Shares. The Company will acquire additional Units in the Operating
Partnership in exchange for any Redemption Shares that the Company may issue to
a Unitholder pursuant to this Prospectus. The Company will not receive any
proceeds from the sale of shares of Restricted Stock offered hereby by the
Registering Stockholders. The Company has agreed to bear certain expenses of
registration of the Redemption Shares and the Restricted Stock under federal and
state securities laws.
To ensure that the Company maintains its qualification as a REIT, ownership
by any single person is limited to 9.8%, or 15% for certain stockholders, of the
value of any class of the outstanding capital stock of the Company.
See "Risk Factors" on page 4 for certain factors relevant to an investment in
the Common Stock.
___________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________________
The date of this Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC"
or "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Redemption Shares and the Restricted Stock. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits
thereto on file with the Commission pursuant to the Securities Act and the rules
and regulations of the Commission thereunder. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits thereto, may be
inspected and copies obtained from the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company files information electronically with the Commission, and the
Commission maintains a Web Site that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The address of the Commissions's
Web Site is (http://www.sec.gov).
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Common Stock is listed on the New York Stock
Exchange (the "NYSE"), and such materials can be inspected and copied at the
NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1995, filed with the Commission pursuant to the Exchange Act;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996, filed with the Commission pursuant to the
Exchange Act;
3. The Company's Current Reports on Form 8-K, as amended, dated December 1,
1995 and April 2, 1996, filed with the Commission pursuant to the Exchange Act;
and
4. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A, filed with the Commission pursuant to the
Exchange Act, including all amendments and reports updating such description.
All other documents filed with the Commission by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the securities
are to be incorporated herein by reference and such documents shall be deemed to
be a part hereof from the date of filing of such documents. Any statement
contained in this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
2
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Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents. Written requests
should be mailed to Rex E. Stewart, Secretary, Patriot American Hospitality,
Inc., 3030 LBJ Freeway, Suite 1500, Dallas, Texas 75234. Telephone requests
may be directed to (972) 888-8000.
3
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RISK FACTORS
An investment in the Common Stock involves various risks. Unitholders and
other prospective investors should carefully consider the following information
in conjunction with the other information contained in this Prospectus before
making an investment decision regarding the Redemption Shares or the Restricted
Stock.
Tax Consequences to Unitholders of Exchange of Units
Tax Consequences of Exchange of Units. In the event that the Company
exercises its right to acquire Units tendered for redemption in exchange for
cash or Redemption Shares, the Company's acquisition of such Units will be
treated for tax purposes as a sale of the Units by the Unitholders. Such a sale
will be fully taxable to the Unitholder and the Unitholder will be treated as
realizing for tax purposes an amount equal to the sum of the cash received or
the value of the Redemption Shares received in the exchange plus the amount of
any Operating Partnership liabilities allocable to the exchanged Units at the
time of the redemption or exchange. It is possible that the amount of gain
recognized or even the tax liability resulting from such gain could exceed the
amount of cash and the value of other property (i.e., Redemption Shares)
received upon such disposition. See "Description of Units and Redemption of
Units --Tax Consequences of Redemption." In addition, the ability of the
Unitholder to sell a substantial number of Redemption Shares in order to raise
cash to pay tax liabilities associated with the redemption of Units may be
limited as a result of fluctuations in the market price of the Common Stock, and
the price the Unitholder receives for such shares may not equal the value of its
Units at the time of redemption or exchange.
In the event that the Company does not exercise its right to acquire Units
tendered for redemption in exchange for cash or Redemption Shares, and such
Units are redeemed by the Operating Partnership for cash, the tax consequences
may differ. See "Description of Units and Redemption of Units."
Potential Change in Investment Upon Redemption of Units. If a Unitholder
exercises its right to require the redemption of all or a portion of its Units,
the Unitholder may receive cash or, at the option of the Company, Redemption
Shares in exchange for its Units. If the Unitholder receives cash from either
the Operating Partnership or the Company, the Unitholder will not have any
interest in the Company or the Operating Partnership (except to the extent that
it retains Units) and will not benefit from any subsequent increases in the
value of Common Stock and will not receive any future distributions from the
Company or the Operating Partnership (unless the Unitholder retains or acquires
in the future additional Common Stock or Units). If the Unitholder receives
Common Stock, the Unitholder will become a stockholder of the Company rather
than a holder of Units in the Operating Partnership. See "Description of Units
and Redemption of Units--Comparison of Ownership of Units and Common Stock."
Dependence on Lessees and Payments under the Participating Leases
The Company owns hotels in several states diversified by franchise or brand
affiliation (the "Hotels"). The Company leases each of the Hotels, except the
Crowne Plaza Ravinia and the Marriott WindWatch Hotel, which are owned through
special purpose entities to lessees that are independent from the Company (the
"Lessees") pursuant to separate participating leases (the "Participating
Leases".) The Lessees and the special purpose entities that own the Crowne Plaza
Ravinia and the Marriott WindWatch Hotel in turn have entered into separate
agreements (the "Management Agreements") with hotel management entities (the
"Operators") to operate the Hotels. Neither the Company nor its management owns
an interest in, or participates in the management of, the Lessees or the
Operators.
The Company's ability to make distributions to shareholders and to service
outstanding debt depends almost exclusively upon the ability of the Lessees to
make rent payments under the Participating Leases (which is dependent primarily
on the Lessees' ability to generate sufficient revenues from the Hotels). Any
failure or delay by the Lessees in making rent payments may adversely affect the
Company's ability to make anticipated distributions to shareholders or make
scheduled debt service payments. Such failure or delay may be caused by
reductions in revenue from the Hotels or in the net operating income of the
Lessees or otherwise. Although failure on the part of the Lessees to materially
comply with the terms of a Participating Lease would give the Company the right
to terminate such lease, take possession of the applicable property and seek
enforcement of the payment obligations under the lease the Company would then be
required to find another lessee to lease such property. There can be no
assurance that the Company would be able to find another lessee or that, if
another lessee were found, the Company would be able to enter into a new lease
on favorable terms.
4
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Lack of Control Over Operations of the Hotels
The Company also is dependent on the ability of the Lessees and the
Operators to manage the Hotels. To maintain its status as a REIT, the Company is
not able to operate the Hotels or any subsequently acquired properties. As a
result, although the Company has the authority to review annual budgets for the
Hotels, and to approve certain items, the Company is unable to directly
implement strategic business decisions with respect to the marketing of its
properties, such as decisions with respect to the setting of room rates,
repositioning of a franchise, redevelopment of food and beverage operations and
certain similar decisions.
Risks of Leverage; No Limits on Indebtedness
General
Neither the Company's Amended and Restated Bylaws (the "Bylaws") nor its
Amended and Restated Articles of Incorporation (the "Articles of Incorporation")
limit the amount of indebtedness the Company may incur. The Company maintains a
line of credit (the "Line of Credit") with PaineWebber Real Estate Securities,
Inc. ("PaineWebber"). Currently, the maximum committed amount available under
the Line of Credit is $228 million. Additionally, in connection with the
Company's acquisition of the Wyndham Greenspoint Hotel, located in Houston,
Texas, the Company incurred a single asset mortgage loan of $22.0 million (the
"Greenspoint Loan"). The Company has utilized the Line of Credit to finance
certain acquisitions of Hotels and may use the Line of Credit to fund the
acquisition of additional hotels. The Line of Credit is currently secured by a
first mortgage lien on certain of the Hotels and a second mortgage lien on the
Wyndham Greenspoint Hotel. The Line of Credit will be secured by qualifying
subsequently acquired hotels that are purchased with borrowings under the Line
of Credit. Other Hotels may be added as security for the Line of Credit
depending upon the outstanding balances thereunder. Subject to the limitations
described above, the Company may borrow additional amounts from the same or
other lenders in the future, or may issue corporate debt securities in public or
private offerings. Certain of such additional borrowings may be secured by
properties owned by the Company.
There can be no assurances that the Company will be able to meet its debt
service obligations and, to the extent that it cannot, the Company risks the
loss of some or all of its assets, including the Hotels, to foreclosure. Adverse
economic conditions could cause the terms on which borrowings become available
to be unfavorable. In such circumstances, if the Company is in need of capital
to repay indebtedness in accordance with its terms or otherwise, it could be
required to liquidate one or more investments in hotel properties at times which
may not permit realization of the maximum return on such investments.
Variable Rate Debt
The Line of Credit and the Greenspoint Loan bear interest at a variable
rate. Economic conditions could result in higher interest rates, which could
increase debt service requirements on variable rate debt and could reduce the
amount of Cash Available for Distribution (defined as funds from operations,
adjusted for certain non-cash items, less reserves for capital expenditures).
Funds from operations means net income or 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 and joint ventures.
Risk of Investment in Subsidiaries
The capital stock of PAH Ravinia , Inc. ("PAH Ravinia"), the special purpose
corporation which owns the Crowne Plaza Ravinia, is divided into two classes:
voting common stock, 96% of which is owned indirectly by officers and directors
of PAH Ravinia and 4% of which is held indirectly by the Operating Partnership,
and nonvoting common stock, 100% of which is held by the Operating Partnership.
Management's voting common stock represents 0.96% of the economic interest in
PAH Ravinia. Although the Company's stock ownership represents a 99.04% economic
interest in PAH Ravinia, the Company is not able to elect directors and its
ability to influence the day-to-day decisions of PAH Ravinia may therefore be
limited. As a result, the voting stockholders of PAH Ravinia may implement
business policy decisions that would not have been implemented by the Company
and that are adverse to the interests of the Company or that lead to adverse
financial results.
PAH WindWatch LLC is a special purpose limited liability company (taxable as
a corporation for federal income tax purposes) that owns the Marriot WindWatch
Hotel, located in Hauppauge, New York. The 1% managing member interest of PAH
WindWatch LLC is held by PAH WindWatch Partners, 96% of which is held indirectly
by officers of the
5
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Company and 4% of which is held indirectly by the Operating Partnership. The
Operating Partnership holds a 99% nonmanaging member interest in PAH WindWatch
LLC. Although the Operating Partnership holds a 99.04% economic interest in PAH
WindWatch LLC, the Company does not manage the entity and its ability to
influence the day-to-day decisions of PAH WindWatch LLC may therefore be
limited. As a result, PAH WindWatch Partners, as the managing member of PAH
WindWatch LLC may implement business policy decisions that would not have been
implemented by the Company and that are adverse to the interests of the Company
or that lead to adverse financial results.
Risks Involved in Joint Ownership of Properties
The Company holds a 90% general partner interest in the limited
partnerships that own each of the Holiday Inn Capital Plaza (Tallahassee,
Florida), the Holiday Inn International Airport South (Miami, Florida), and the
Holiday Inn O'Hare (Des Plaines, Illinois). Consequently, although the Company
has retained sole decision-making authority regarding most matters affecting
these Hotels, the exercise of that authority may be limited to the extent that
the interests of the limited partner must be considered, and the limited partner
has veto rights regarding certain transactions.
Joint ownership of Hotels may, under certain circumstances, involve risks
not otherwise present, including the possibility that the Company's partners
might become bankrupt, that such partners might at any time have economic or
other business interests or goals that are inconsistent with the business
interests or goals of the Company, and that such partners may be in a position
to take action contrary to the instructions or the requests of the Company or
contrary to the Company's policies or objectives, including the Company's policy
with respect to maintaining its qualification as a REIT. Consequently, actions
by such partners might result in subjecting jointly owned Hotels to additional
risk. The Company will, however, seek to maintain sufficient control of the
entities holding jointly-owned Hotels to permit the Company's business
objectives to be achieved. There is no limitation under the Company's
organizational documents as to the amount of available funds that may be
invested in partnerships, joint ventures or co-investments. The Company has
entered into an arrangement with the Doubletree Hotels Corporation pursuant to
which the Company will invest $200 million in hotels which will be held in
separate limited partnerships, including the hotels listed immediately above,
of which the Company will be a 90% general partner or in other entities,
such as limited liability companies, in which it is contemplated that the
Company would serve as a 90% manager-member.
Competition for Management Time
The Company was formed to continue and expand the hotel acquisition,
ownership, redevelopment and repositioning business of the Patriot American
Group ("Patriot American"). Paul A. Nussbaum, the Chairman of the Board and
Chief Executive Officer of the Company, continues to act as chief executive
officer of Patriot American, and, therefore, will be subject to competing
demands on his time. Mr. Nussbaum intends to devote a majority of his business
time to the Company.
Conflicts of Interest
Sale of Hotels
Certain officers and directors of the Company or their affiliates may have
had unrealized gain in their interests in certain of the Hotels transferred to
the Company in connection with its formation. The sale of such Hotels by the
Company may cause adverse tax consequences to such officers, directors or their
affiliates. Therefore, the interests of the Company, such officers, directors
and their affiliates could be different in connection with the disposition of
such Hotels.
Continuing Acquisitions and Hotel Development
Affiliates of the Lessees may acquire, develop or manage hotels that compete
with the Company's Hotels. Accordingly, the Lessees' decisions relating to the
operation of the Hotels that are in competition with other hotels owned or
managed by them may not reflect the interests of the Company.
6
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Hotel Industry Risks
Operating Risks
The Hotels are subject to all operating risks common to the hotel industry.
These risks include, among other things, (i) competition for guests from other
hotels, a number of which may have greater marketing and financial resources
than the Company and the Lessees; (ii) increases in operating costs due to
inflation and other factors, which increases may not have been offset in recent
years, and may not be offset in the future by increased room rates; (iii)
dependence on business and commercial travelers and tourism, which business may
fluctuate and be seasonal; (iv) increases in energy costs and other expenses of
travel, which may deter travelers; and (v) adverse effects of general and local
economic conditions. These factors could adversely affect the Lessees' ability
to generate revenues and to make lease payments and therefore the Company's
ability to service its debt and to make expected distributions to shareholders.
The Company is also subject to the risk that in connection with the
acquisition of hotels it may not be possible to transfer certain operating
licenses, such as food and beverage licenses, to the Lessees or Operators, or to
obtain new licenses in a timely manner in the event such licenses cannot be
transferred. The failure to have alcoholic beverages licenses or other
operating licenses could adversely affect the ability of the affected Lessees to
generate revenues and make lease payments to the Company.
Operating Costs and Capital Expenditures; Hotel Renovation
Hotels in general, including the Hotels, 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, the Company
is obligated to establish a reserve to pay the cost of certain capital
expenditures at the Hotels and pay for periodic replacement or refurbishment of
F, F & E and expects to be similarly obligated with respect to future
acquisitions of hotels. However, if capital expenditures exceed the Company's
expectations, the additional cost could have an adverse effect on the Company's
ability to service its debt and on Cash Available for Distribution. In addition,
the Company has and may continue to 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 Investment Opportunities
The Company may be competing for investment opportunities with entities that
have substantially greater financial resources than the Company. These entities
may generally be able to accept more risk than the Company can prudently manage,
including risks with respect to the creditworthiness of a hotel operator or the
geographic proximity of its investments. Competition may generally reduce the
number of suitable investment opportunities offered to the Company and increase
the bargaining power of property owners seeking to sell.
Seasonality
The hotel industry is seasonal in nature. Revenues at certain of the Hotels
are greater in the first and second quarters of a calendar year and at other of
the Hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at the Hotels may cause quarterly fluctuations in the
Company's lease revenue.
Investment in Single Industry
The Company's current strategy is to acquire interests only in hotels and
related properties. As a result, the Company will be subject to risks inherent
in investments in a single industry. The effects on Cash Available for
Distribution to the Company's shareholders resulting from a downturn in the
hotel industry will be more pronounced than if the Company had diversified its
investments.
7
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Real Estate Investment Risks
General Risks
The Company's investments are subject to varying degrees of risk generally
incident to the ownership of real property. The underlying value of the
Company's real estate investments and the Company's income and ability to make
distributions to its shareholders is dependent upon the ability of the Lessees
to operate the 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 the Participating Leases. Income from the 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, civil unrest, acts of God, including earthquakes and other natural
disasters (which may result in uninsured losses), acts of war, adverse changes
in zoning laws, and other factors which are beyond the control of the Company.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions is
limited. If the Company must sell an investment, there can be no assurance that
the Company will be able to dispose of it in the time period it desires or that
the sales price of any investment will recoup or exceed the amount of the
Company's investment.
Property Taxes
Each Hotel is subject to real property taxes. The real property taxes on
hotel properties in which the Company invests may increase or decrease as
property tax rates change and as the properties are assessed or reassessed by
taxing authorities. If property taxes increase, the Company's ability to make
expected distributions to its shareholders could be adversely affected.
Consents of Ground Lessor Required for Sale of Certain Hotels
Certain of the Hotels are subject to ground leases with third party lessors.
In addition, the Company may acquire hotels in the future that are subject to
ground leases. Any proposed sale of a hotel that is subject to a ground lease
by the Operating Partnership or any proposed assignment of the Operating
Partnership's leasehold interest in the ground lease may require the consent of
third party lessors. As a result, the Company and the Operating Partnership may
not be able to sell, assign, transfer or convey the Operating Partnership's
interest in any such hotel in the future absent the consent of such third
parties, even if such transaction may be in the best interests of the
shareholders of the Company.
Environmental Matters
The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances and
regulations, as well as the cost of complying with future legislation. Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of hazardous or toxic substances, or
the failure to remediate such property properly, may adversely affect the
owner's ability to borrow by using such real property as collateral. Persons who
arrange for the transportation, disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs or
other hazardous materials. Environmental laws may also impose restrictions on
the manner in which a property may be used or transferred or in which businesses
may
8
<PAGE>
be operated, and these restrictions may require expenditures. In connection
with the ownership and operation of the Hotels, the Company, the Operating
Partnership or the Lessees 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 the Company's results of operations and financial condition.
Phase I environmental site assessments ("ESAs") have been conducted at all of
the Hotels by qualified independent environmental engineers. The purpose of
Phase I ESAs is to identify potential sources of contamination for which the
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 the Company believes would have a material adverse
effect on the Company's business, assets, results of operations or liquidity,
nor is the Company 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 the Company is currently unaware. The Company has not
been notified by any governmental authority, and has no other knowledge of, any
material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental substances in connection with any of its
hotels, except as incorporated herein by reference or as noted below.
Marriott WindWatch Hotel. The Marriott WindWatch Hotel is in close proximity
to a former municipal landfill, which has been designated as a National
Priorities List ("NPL") site by the United States Environmental Protection
Agency ("EPA"). The Hotel property is downgradient of the NPL site. An
environmental consultant retained by the Company has informed the Company that
the current data relating to the NPL site do not suggest any groundwater
contamination from the former landfill has migrated into the Hotel property. The
environmental consultant has also informed the Company that it is unlikely that
any groundwater contamination from the former landfill will in the future
migrate onto the Hotel property resulting in contaminant levels above applicable
action levels. Remediation activities by the municipality, under the supervision
of the EPA and the New York State Department of Environmental Conservation
("DEC"), are ongoing but have not yet been completed. The DEC has indicated that
it does not intend to pursue as potentially responsible parties nearby
landowners whose property becomes contaminated as a result of off-site migration
from the former landfill.
Uninsured and Underinsured Losses
Each Participating Lease specifies comprehensive insurance to be maintained
on each of the Hotels, including liability, fire and extended coverage.
Management believes such specified coverage is of the type and amount
customarily obtained for or by an owner of hotels. Leases for subsequently
acquired hotels will contain similar provisions. However, there are certain
types of losses, generally of a catastrophic nature, such as earthquakes and
floods, that may be uninsurable or not economically insurable. The Company's
Board of Directors and management will use their discretion in determining
amounts, coverage limits and deductibility provisions of insurance, with a view
to maintaining appropriate insurance coverage on the Company's 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 the Company's 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 the
Company might not be adequate to restore its economic position with respect to
such property.
Acquisition and Development Risks
The Company intends to pursue acquisitions of additional hotels and, under
appropriate circumstances, may pursue development opportunities. Acquisitions
entail risks that investments will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to market
and acquire properties will prove inaccurate, as well as general investment
risks associated with any new real estate investment. New project development
is subject to numerous risks, including risks of construction delays or cost
overruns that may increase project costs, new project commencement risks such as
receipt of zoning, occupancy and other required governmental approvals and
permits and the incurrence of development costs in connection with projects that
are not pursued to completion. The fact that the Company must distribute 95% of
its net taxable income in order to maintain its qualification as a REIT may
limit the Company's ability to rely upon lease income from the Hotels or
subsequently acquired properties to finance acquisitions or new developments.
As a result, if debt or equity financing were not available on acceptable terms,
further
9
<PAGE>
acquisitions or development activities might be curtailed or Cash Available for
Distribution might be adversely affected.
Tax Risks
Failure to Qualify as a REIT
The Company operates in a manner designed to permit it to qualify as a REIT
for federal income tax purposes. The continued qualification of the Company as
a REIT will depend on the Company's continuing ability to meet various
requirements concerning, among other things, the ownership of its outstanding
stock, the nature of its assets, the sources of its income, and the amount of
its distributions to its shareholders. If the Company were to fail to qualify
as a REIT in any taxable year, the Company would not be allowed a deduction for
distributions to shareholders in computing its taxable income and would be
subject to federal income tax (including any applicable minimum tax) on its
taxable income at regular corporate rates. Unless entitled to relief under
certain provisions of the Code), the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. As a result, the Company's Cash Available for
Distribution would be reduced for each of the years involved. Although the
Company currently intends to continue to operate in a manner designed to permit
it to qualify as a REIT, it is possible that future economic, market, legal, tax
or other considerations may cause the Board of Directors to revoke the REIT
election.
Adverse Effects of REIT Minimum Distribution Requirements
In order to qualify as a REIT, the Company is generally required each year
to distribute to its shareholders at least 95% of its net taxable income
(excluding any net capital gain). In addition, the Company is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year and (iii) 100% of its undistributed income from prior years.
The Company intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax. The
Company's income consists primarily of its share of the income of the Operating
Partnership, and the Company's Cash Available for Distribution consists
primarily of its share of cash distributions from the Operating Partnership.
Differences in timing between taxable income and Cash Available for Distribution
and the seasonality of the hotel industry could require the Company to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. For federal income tax purposes,
distributions paid to shareholders may consist of ordinary income, capital
gains, nontaxable return of capital, or a combination thereof. The Company
provides its shareholders with an annual statement as to its designation of the
taxability of distributions.
Distributions by the Company are determined by the Company's Board of
Directors and depend on a number of factors, including the amount of the
Company's Cash Available for Distribution, the Company's financial condition,
any decision by the Board of Directors to reinvest funds rather than to
distribute such funds, the Company's capital expenditures, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Board of Directors deems relevant.
Failure of the Operating Partnership to be Classified as a Partnership for
Federal Income Tax Purposes; Impact on REIT Status
The Operating Partnership (and each of its subsidiary partnerships) has been
structured to be classified as a partnership for federal income tax purposes.
If the Operating Partnership (or a subsidiary partnership) were to fail to be
classified as a partnership for federal income tax purposes, the Operating
Partnership (or the subsidiary partnership) would be taxable as a corporation.
In such event, the Company likely would cease to qualify as a REIT for a variety
of reasons. Furthermore, the imposition of a corporate income tax on the
Operating Partnership would reduce substantially the amount of Cash Available
for Distribution.
Risks of Operating Hotels Under Franchise or Brand Affiliations
Certain of the Hotels are operated under franchise or brand affiliations. In
addition, hotels in which the Company invests subsequently may be operated
pursuant to franchise or brand affiliations. The continuation
10
<PAGE>
of the franchise licenses relating to the franchised Hotels (the "Franchise
Licenses") is subject to specified operating standards and other terms and
conditions. The continued use of a brand is generally contingent upon the
continuation of the Management Agreement related to that Hotel with the branded
Operator. Franchisors typically inspect licensed properties periodically to
confirm adherence to operating standards. Action on the part of any of the
Company, the Operating Partnership, the Lessees or the Operators could result in
a breach of such standards or other terms and conditions of the Franchise
Licenses and could result in the loss or cancellation of a franchise license.
It is possible that a franchisor could condition the continuation of a franchise
license on the completion of capital improvements which the Board of Directors
determines are too expensive or otherwise unwarranted in light of general
economic conditions or the operating results or prospects of the affected hotel.
In that event, the Board of Directors may elect to allow the franchise license
to lapse. In any case, if a franchise or brand affiliation is terminated, the
Company and the Lessee may seek to obtain a suitable replacement franchise or
brand affiliation, or to operate the Hotel independent of a franchise or brand
affiliation. The loss of a franchise or brand affiliation could have a material
adverse effect upon the operations or the underlying value of the hotel covered
by the franchise or brand affiliation because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the franchisor or brand owner.
Limitation on Acquisition and Change in Control
Ownership Limitation
In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code of 1986, as amended (the "Code") to include certain entities). Furthermore,
if any shareholder or group of shareholders of any Lessee owns, actually or
constructively, 10% or more in value of the capital stock of the Company, such
Lessee could become a related party tenant of the Company, which would result in
loss of REIT status for the Company. For the purpose of preserving the Company's
REIT qualification, the Company's Articles of Incorporation prohibit direct or
indirect ownership (taking into account applicable ownership provisions of the
Code) in excess of more than 9.8% of any class of the Company's outstanding
capital stock (the "Ownership Limitation"), subject to a provision which permits
mutual funds and certain other entities to own as much as 15% of a class of the
Company's capital stock in appropriate circumstances (the "Look Through
Ownership Limitation"). Generally, the capital stock owned by affiliated owners
is aggregated for purposes of the Ownership Limitation. The Ownership Limitation
could have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of the Common Stock might receive a premium for
their Common Stock over the then prevailing market price or which such holders
might believe to be otherwise in their best interests.
Preferred Stock
The Articles of Incorporation authorize the Board of Directors to issue up
to 20,000,000 preferred shares and to establish the preferences and rights of
any shares issued. The issuance of preferred shares could have the effect of
delaying or preventing a change in control of the Company even if a change in
control were in the shareholders' interest. No preferred shares are currently
issued or outstanding.
Virginia Anti-Takeover Statutes
As a Virginia corporation, the Company is subject to various provisions of
the Virginia Stock Corporation Act ("the VSCA") that impose certain restrictions
and require certain procedures with respect to certain takeover offers and
business combinations, including, but not limited to, combinations with
interested holders and share purchases from certain holders. Such provisions may
deter takeover attempts or tender offers, including offers or attempts that may
result in the payment of a premium over the market price for the Common Stock or
that a shareholder might otherwise consider in its best interest.
Ability of Board to Change Policies
The major policies of the Company, including its policies with respect to
acquisitions, financing, growth, operations, debt capitalization and
distributions, are determined by its Board of Directors. The Board of Directors
may amend or revise these and other policies from time to time without a vote of
the shareholders of the Company.
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<PAGE>
Adverse Effect of Increase in Market Interest Rates on Price of Common Stock
One of the factors that may influence the price of the Common Stock in
public trading markets will be the annual yield from distributions by the
Company on the Common Stock as compared to yields on certain financial
instruments. Thus, an increase in market interest rates will result in higher
yields on certain financial instruments, which could adversely affect the market
price of the Common Stock.
THE COMPANY
General
The Company is a self-administered REIT organized under the laws of
Virginia, which owns Hotels in several states diversified by franchise or brand
affiliation. The Common Stock is listed on the New York Stock Exchange under the
symbol "PAH".
The Company leases each of the Hotels, except the Crowne Plaza Ravinia and
the Marriott WindWatch Hotel, which are owned through special purpose entities,
to a Lessee. Lessees include CHC Lease Partners, an entity owned by CHC
International, Inc. and a principal of the Gencom Group ("Gencom"); Metro Hotels
Leasing Corporation, an affiliate of Metro Joint Venture, d/b/a Metro Hotels, a
Dallas-based hotel company; NorthCoast Hotels L.L.C., an entity owned by a
consortium of investors including principals of West Coast Hotels, Inc. and
Sunmakers Travel Group; DTR North Canton, Inc., a subsidiary of Doubletree
Hotels Corporation; and Crow Hotel Lessee, Inc., an entity formed by members of
the Trammel Crow family. The Crowne Plaza Ravinia and the Marriott WindWatch
Hotel acquisitions were structured without a Lessee for reasons specific to the
acquisitions. The Company anticipates that future acquisitions will continue to
be structured with Lessees. The Lessees and the special purpose entities that
own the Crowne Plaza Ravinia and the Marriott WindWatch Hotel in turn have
entered into Management Agreements with the Operators to operate the Hotels.
Neither the Company nor its management owns an interest in, or participates in
the management of, the Lessees or the Operators.
The Company was formed in April 1995 to continue and expand the hotel
acquisition, ownership, redevelopment and repositioning business of Patriot
American. In October 1995, the Company completed its initial public
offering.
The Company's executive offices are located at 3030 LBJ Freeway, Suite 1500,
Dallas, Texas 75234.
The Hotels
Set forth below are summary descriptions of the Hotels.
<TABLE>
<CAPTION>
Number
of Guest Year Built/
Location Rooms Renovated(1)
-------- -------- ------------
<S> <C> <C> <C>
Full Service Hotels:
Bonaventure................ Ft. Lauderdale, FL 492 1981
Bourbon Orleans Hotel...... New Orleans, LA 211 1800s/1995
Crockett Hotel............. San Antonio, TX 206 1909/1983
Crowne Plaza Ravinia....... Atlanta, GA 495 1986/1993
Del Mar Hilton............. Del Mar (San Diego), CA 245 1989
Doubletree Denver/Boulder.. Westminster (Denver), CO 180 1985/1992
Embassy Suites Hunt Valley. Hunt Valley, MD 223 1985/1995
Fairmount Hotel............ San Antonio, TX 37 1906/1994
Four Points by Sheraton
Fashion Square........... Saginaw, MI 156 1984
Hilton Inn Cleveland South. Independence, OH 191 1980/1994
Holiday Inn Aristocrat..... Dallas, TX 172 1925/1994
Holiday Inn Capital Plaza.. Tallahassee, FL 244 1977
Holiday Inn Lenox.......... Atlanta, GA 297 1987/1995
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Number
of Guest Year Built/
Location Rooms Renovated(1)
-------- -------- ------------
<S> <C> <C> <C>
Holiday Inn Miami
International
Airport South................. Miami, FL 264 1975
Holiday Inn O'Hare............. Chicago, IL 242 1969
Holiday Inn Northwest.......... Houston, TX 193 1982/1994
Holiday Inn Northwest Plaza.... Austin, TX 193 1984/1994
Holiday Inn Select North
Dallas........................ Farmers Branch
(Dallas), TX 374 1979/1994
Holiday Inn.................... San Angelo, TX 148 1984/1994
Holiday Inn.................... Sebring, FL 148 1983/1995
Hyatt Newporter Hotel.......... Newport Beach, CA 410 1962
Hyatt Regency.................. Lexington, KY 365 1977/1992
Marriott Hotel................. Troy, MI 350 1990
Marriott WindWatch Hotel....... Hauppauge, NY 362 1989
Radisson Hotel & Suites........ Dallas, TX 198 1986/1994
Radisson Suites Town & Country. Houston, TX 173 1986/1992
Radisson New Orleans Hotel..... New Orleans, LA 759 1924/1995
Tremont House Hotel(2)......... Boston, MA 288 1925/1988
Valley River Inn............... Eugene, OR 257 1976
WestCoast Long Beach Hotel
and Marina.................... Long Beach, CA 192 1976/1987
WestCoast Wenatchee Center
Hotel......................... Wenatchee, WA 147 1986/1994
WestCoast Gateway Hotel........ Seattle, WA 145 1990
WestCoast Roosevelt Hotel...... Seattle, WA 151 1929/1987
Wyndham Garden Hotel-Midtown... Atlanta, GA 191 1987/1994
Wyndham Greenspoint Hotel...... Houston, TX 472 1985/1995
------
Subtotal....................... 9,171
Limited Service Hotels:
Hampton Inn Jacksonville
Airport....................... Jacksonville, FL 113 1985
Hampton Inn.................... Rochester, NY 113 1986
Hampton Inn Cleveland Airport.. North Olmstead, OH 113 1986
Hampton Inn.................... Canton, OH 108 1985
WestCoast Plaza Park Suites(3). Seattle, WA 194 1990
------
Subtotal....................... 641
Conference Center:
Peachtree Executive
Conference Center............. Peachtree City
(Atlanta), GA 250 1984
------
Total...................... 10,062
======
</TABLE>
_________________
(1) The Company defines a renovation as a significant upgrade of guest rooms or
common areas with capital expenditures averaging at least $1,000 per guest
room for limited service hotels and at least $1,500 per guest room for full
service hotels and conference centers. In some cases, renovations
occurred over more than one calendar year. Year renovated reflects the
calendar year in which the most recent of such renovations were completed.
Information on renovations for certain of the Hotels was provided by prior
owners.
(2) The Company intends to increase the room count at this Hotel to
approximately 321 rooms in connection with a renovation. At present only
283 of the 288 rooms are utilized as guest rooms.
(3) This Hotel currently contains unused restaurant space. The Company
intends to complete the build out of a restaurant in this space, thereby
converting the Hotel from a limited service to a full service property.
13
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Under its Articles of Incorporation, the Company has the authority to issue
200,000,000 shares of Common Stock and 20,000,000 shares of preferred stock, no
par value (the "Preferred Stock"). No shares of Preferred Stock are currently
outstanding.
Common Stock
The holders of shares of Common Stock are entitled to one vote per share on
all matters voted on by shareholders, including elections of directors. Except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of Preferred Shares, the holders of such
shares exclusively possess all voting power. The Articles of Incorporation do
not provide for cumulative voting in the election of directors. Subject to any
preferential rights of any outstanding series of Preferred Shares, the holders
of shares of Common Stock are entitled to such dividends as may be declared from
time to time by the Board of Directors from funds available therefor, and upon
liquidation will be entitled to receive pro rata all assets of the Company
available for distribution to such holders.
Preferred Stock
The Board of Directors is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof. Because
the Board of Directors has the power to establish the preferences and rights of
each class or series of Preferred Shares, the Board of Directors may afford the
holders of any series or class of Preferred Stock preferences, powers and
rights, voting or otherwise, senior to the rights of holders of shares of Common
Stock. The issuance of Preferred Stock could have the effect of delaying or
preventing a change in control of the Company.
Articles of Incorporation and Bylaw Provisions
Restrictions on Transfer
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of capital
stock. Specifically, not more than 50% in value of the Company's outstanding
shares of capital stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year, and the Company must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of twelve months or
during a proportionate part of a shorter taxable year. In addition, the Company
must meet certain requirements regarding the nature of its gross income in order
to qualify as a REIT. One such requirement is that at least 75% of the Company's
gross income for each year must consist of rents from real property and income
from certain other real property investments. If the Company owns, actually or
constructively, 10% or more of the ownership interests in any Lessee, within the
meaning of section 856(d)(2)(B) of the Code, the rents received by the Company
from the Lessees will not qualify as rents from real property, which could
result in loss of REIT status for the Company.
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Articles of Incorporation, subject to certain
exceptions described below, provide pursuant to the Ownership Limitation that no
person may own, or be deemed to own by virtue of the attribution provisions of
the Code, more than 9.8% of either (i) the outstanding shares of any class of
Common Stock or (ii) the outstanding shares of Preferred Stock of any class or
series of Preferred Stock (subject to the Look-Through Ownership Limitation
applicable to certain shareholders, as further described below). Any transfer of
Common Stock or Preferred Stock that would (i) result in any person owning,
directly or indirectly, Common Stock or Preferred Stock in excess of the
Ownership Limitation, (ii) result in Common Stock and Preferred Stock being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of section 856(h) of the Code, or (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's real property, within the meaning of section 856(d)(2)(B) of
the Code, will be null and void, and the intended transferee will acquire no
rights in such shares of Common Stock or Preferred Stock.
14
<PAGE>
Certain types of entities, such as pension trusts qualifying under
section 401(a) of the Code, mutual funds qualifying as regulated investment
companies under section 851 of the Code, and corporations, will be looked
through for purposes of the "closely held" test in section 856(h) of the Code.
The Articles of Incorporation allow such an entity under the Look-Through
Ownership Limitation to own up to 15% of the shares of any class or series of
the Company's capital stock, provided that such ownership does not cause any
beneficial owner of such entity to exceed the Ownership Limitation or otherwise
result in a violation of the tests described in clauses (ii), (iii) and (iv) of
the preceding paragraph.
Subject to certain exceptions described below, any purported transfer of
Common Stock or Preferred Stock that would (i) result in any person owning,
directly or indirectly, shares of Common Stock or Preferred Stock in excess of
the Ownership Limitation (or the Look-Through Ownership Limitation, if
applicable), (ii) result in the shares of Common Stock and Preferred Stock being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of section 856(h) of the Code, or (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's, the Operating Partnership's or a Subsidiary Partnership's real
property, within the meaning of section 856(d)(2)(B) of the Code, will be
designated as "Shares-in-Trust" and will be transferred automatically to a trust
(a "Trust"), effective on the day before the purported transfer of such shares
of Common Stock or Preferred Stock. The record holder of the Common Stock or
Preferred Stock that are designated as Shares-in-Trust (the "Prohibited Owner")
will be required to submit such number of shares of Common Stock or Preferred
Stock to the Company for registration in the name of the trustee of the Trust
(the "Trustee"). The Trustee will be designated by the Company, but will not be
affiliated with the Company. The beneficiary of the Trust (the "Beneficiary")
will be one or more charitable organizations named by the Company.
Shares-in-Trust will remain issued and outstanding shares of Common Stock or
Preferred Stock and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Trustee will receive all dividends
and distributions on the Shares-in-Trust and will hold such dividends or
distributions in trust for the benefit of the Beneficiary. The Trustee will vote
all Shares-in-Trust. The Trustee will designate a permitted transferee of the
Shares-in-Trust, provided that the permitted transferee (i) purchases such
Shares-in-Trust for valuable consideration and (ii) acquires such Shares-in-
Trust without such acquisition resulting in another transfer to another Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required
to repay to the Trustee the amount of any dividends or distributions received by
the Prohibited Owner (i) that are attributable to any Shares-in-Trust and (ii)
the record date of which was on or after the date that such shares became
Shares-in-Trust. Any vote taken by a Prohibited Owner prior to the Company's
discovery that the Shares-in-Trust were held in trust will be rescinded as void
ab initio. The Prohibited Owner generally will receive from the Trustee the
lesser of (i) the price per share such Prohibited Owner paid for the shares of
Common Stock or Preferred Stock that were designated as Shares-in-Trust (or, in
the case of a gift or devise, the Market Price (as defined below) per share on
the date of such transfer) or (ii) the price per share received by the Trustee
from the sale of such Shares-in-Trust. Any amounts received by the Trustee in
excess of the amounts to be paid to the Prohibited Owner will be distributed to
the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept such
offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust or (ii) the date the
Company determines in good faith that a transfer resulting in such Shares-in-
Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing Price"
on any date shall mean the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of Common Stock or Preferred Stock are not
listed or admitted to trading on the NYSE, as reported in the principal
consolidated transaction reporting system with
15
<PAGE>
respect to securities listed on the principal national securities exchange on
which the shares of Common Stock or Preferred Stock are listed or admitted to
trading or, if the shares of Common Stock or Preferred Stock are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
the shares of Common Stock or Preferred Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the shares of Common Stock or
Preferred Stock selected by the Board of Directors. "Trading Day" shall mean a
day on which the principal national securities exchange on which the shares of
Common Stock or Preferred Stock are listed or admitted to trading is open for
the transaction of business or, if the shares of Common Stock or Preferred Stock
are not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
Any person who acquires or attempts to acquire Common Stock or Preferred
Stock in violation of the foregoing restrictions, or any person who owned shares
of Common Stock or Preferred Stock that were transferred to a Trust, will be
required (i) to give immediately written notice to the Company of such event and
(ii) to provide to the Company such other information as the Company may request
in order to determine the effect, if any, of such transfer on the Company's
status as a REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common Stock and Preferred Stock must, within 30 days
after January 1 of each year, provide to the Company a written statement or
affidavit stating (i) the name and address of such direct or indirect owner,
(ii) the number of shares of Common Stock and Preferred Stock owned directly or
indirectly, and (iii) a description of how such shares are held. In addition,
each direct or indirect shareholder shall provide to the Company such additional
information as the Company may request in order to determine the effect, if any,
of such ownership on the Company's status as a REIT and to ensure compliance
with the Ownership Limitation.
The Ownership Limitation generally does not apply to the acquisition of
shares of Common Stock or Preferred Stock by an underwriter that participates in
a public offering of such shares. In addition, the Board of Directors, upon such
conditions as the Board of Directors may direct, may exempt a person from the
Ownership Limitation under certain circumstances. The foregoing restrictions
will continue to apply until the Board of Directors determines that it is no
longer in the best interests of the Company to continue to qualify as a REIT.
All certificates representing shares of Common Stock bear a legend referring
to the restrictions described above. All additional certificates representing
shares of Common Stock or Preferred Stock will bear substantially the same
legend.
The ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of shares of
Common Stock might receive a premium from their shares of Common Stock over the
then prevailing market price or which such holders might believe to be otherwise
in their best interest.
Transfer Agent
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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DESCRIPTION OF UNITS AND REDEMPTION OF UNITS
General
Unitholders may, subject to certain limitations, require the Operating
Partnership to redeem all or a portion of their Units (the "Redemption Right").
This Redemption Right shall be exercised pursuant to a notice of redemption
delivered to the Operating Partnership, with a copy delivered to PAH GP, Inc.,
its general partner. Upon redemption, for each Unit redeemed, a Unitholder will
receive cash in an amount equal to the market value (as defined below) of a
share of Common Stock (subject to certain adjustments in the event of stock
dividends and stock splits); provided, however, that the Company may, in its
sole discretion, by notice to the Unitholder within five business days after
receipt of the notice of redemption, elect to acquire any Unit presented to the
Operating Partnership for redemption for cash or for one share of Common Stock
(subject to the same adjustments). The market value of the Common Stock for
purposes of redeeming Units will be equal to the average of the closing trading
price of the Common Stock for the ten trading days prior to the day on which the
redemption notice was received by the Operating Partnership.
The Company anticipates that it generally will elect to acquire any Units
presented to the Operating Partnership for redemption by the issuance of the
Redemption Shares. Such an acquisition by the Company will be treated as a sale
of the Units to the Company for Federal income tax purposes. See "--Tax
Consequences of Redemption." Upon a redemption for cash, a Unitholder's right to
receive distributions with respect to the Units redeemed will cease. Upon the
receipt of Redemption Shares, a Unitholder will have rights as a stockholder of
the Company, including the right to receive dividends from the time of its
acquisition of the Redemption Shares.
A Unitholder must notify the Company of its desire to require the Operating
Partnership to redeem Units. A Unitholder may not exercise the Redemption Right
for less than 1,000 Units or, if such Unitholder holds less than 1,000 Units,
all of the Units held by such Unitholder. A Unitholder is not entitled to
exercise the Redemption Right if the delivery of Redemption Shares would be
prohibited under the provisions of the Operating Partnership Agreement to
protect the Company's qualification as a REIT.
Tax Consequences of Redemption
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a Unitholder should it exercise its right
to redeem its Units.
Tax Treatment of Exchange or Redemption of Units. If the Company elects to
purchase Units tendered for redemption, the Operating Partnership Agreement
provides that each of the Unitholder, the Operating Partnership and the Company
shall treat the transaction between the Unitholder and the Company as a sale of
Units by the Unitholder at the time of such redemption. Such sale will be fully
taxable to the Unitholder and the Unitholder will be treated as realizing for
tax purposes an amount equal to the sum of the cash value or the value of the
Common Stock received in the exchange plus the amount of any Operating
Partnership liabilities allocable to the redeemed Units at the time of the
redemption. The determination of the amount of gain or loss is discussed more
fully below. If the Company does not elect to purchase a Unitholder's Units
tendered for redemption and the Operating Partnership redeems such Units for
cash that the Company contributes to the Operating Partnership to effect such
redemption, the redemption likely would be treated for tax purposes as a sale of
such Units to the Company in a fully taxable transaction, although the matter is
not free from doubt. In that event, the Unitholder would also be treated as
realizing an amount equal to the sum of the cash received in the exchange plus
the amount of any Operating Partnership liabilities allocable to the redeemed
Units at the time of the redemption. The determination of the amount and
character of gain or loss in the event of such a sale is discussed more fully
below. See "--Tax Treatment of Disposition of Units by a Limited Partner
Generally."
If the Company does not elect to purchase Units tendered for redemption and
the Operating Partnership redeems a Unitholder's Units for cash that is not
contributed by the Company to effect the redemption, the tax consequences would
be the same as described in the previous paragraph, except that, if the
Operating Partnership redeems less than all of a Unitholder's Units, the
Unitholder would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the cash,
plus the
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amount of any Operating Partnership liabilities allocable to the redeemed Units,
exceeded the Unitholder's adjusted basis in all of its Units immediately before
the redemption.
If the Company contributes cash to the Operating Partnership to effect a
redemption, and in the unlikely event that the redemption transaction is treated
as the redemption of a Unitholder's Units by the Operating Partnership rather
than a sale of Units to the Company, the income tax consequences to the
Unitholder would be as described in the preceding paragraph.
Tax Treatment of Disposition of Units by a Limited Partner Generally. If a
Unit is disposed of in a manner that is treated as a sale of the Unit, or a
limited partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the adjusted tax basis in such
Unit. See "--Basis of Units." Upon the sale of a Unit, the "amount realized"
will be measured by the sum of the cash and fair market value of other property
(i.e., Redemption Shares) received plus the amount of any Operating Partnership
liabilities allocable to the Units sold. To the extent that the amount of cash
or property received plus the allocable share of any Operating Partnership
liabilities exceeds the limited partner's adjusted tax basis in the Units
disposed of, such limited partner will recognize gain. It is possible that the
amount of gain recognized or even the tax liability resulting from such gain
could exceed the amount of cash and/or the value of any other property (i.e.,
Redemption Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a Unit attributable to a limited partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section 751
of the Code) exceeds the basis attributed to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include
amounts that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general a Unitholder who acquired his Units by
contribution of property and/or money to the Operating Partnership had an
initial tax basis in his Units ("Initial Basis") equal to the sum of (i) the
amount of money contributed (or deemed contributed as described below) and (ii)
his adjusted tax basis in any other property contributed in exchange for such
Units, and less the amount of any money distributed (or deemed distributed, as
described below) in connection with the acquisition of the Units. The Initial
Basis of Units acquired by other means would have been determined under the
general rules of the Code, including the partnership provisions, governing the
determination of tax basis. Other rules, including the "disguised sale" rules
discussed below, also may affect Initial Basis, and Unitholders are urged to
consult their own tax advisors regarding their Initial Basis. A Unitholder's
Initial Basis in his Units is generally increased by (i) such Unitholder's share
of Operating Partnership taxable and tax-exempt income and (ii) increases in
such Unitholder's allocable share of liabilities of the Operating Partnership
(including any increase in his share of liabilities occurring in connection with
the acquisition of his Units). Generally, such Unitholder's basis in his Units
is decreased (but not below zero) by (i) such Unitholder's share of Operating
Partnership distributions, (ii) decreases in such Unitholder's allocable share
of liabilities of the Operating Partnership (including any decrease in his share
of liabilities of the Operating Partnership occurring in connection with the
acquisition of his Units), (iii) such Unitholder's share of losses and
deductible expenses of the Operating Partnership and (iv) such Unitholder's
share of nondeductible expenditures of the Operating Partnership that are not
chargeable to his capital account.
Potential Application of the Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption by the Operating Partnership of Units
issued in exchange for a contribution of property to the Operating Partnership
may cause the original transfer of property to the Operating Partnership in
exchange for Units to be treated as a "disguised sale" of property. Section 707
of the Code and the Treasury Regulations thereunder (the "Disguised Sale
Regulations") generally provide that, unless one of the prescribed exceptions is
applicable, a partner's contribution of property to a partnership and a
simultaneous or subsequent transfer of money or other consideration (which may
include the assumption of or taking subject to a liability) from the partnership
to the partner will be presumed to be a sale, in whole or in part, of such
property by the partner to the partnership. Further, the Disguised Sale
Regulations provide generally that, in the absence of an applicable exception,
if money or other consideration is transferred by a partnership to a partner
within two years of the
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partner's contribution of property, the transactions are presumed to be a sale
of the contributed property unless the facts and circumstances clearly establish
that the transfers do not constitute a sale. The Disguised Sale Regulations
also provide that if two years have passed between the transfer of money or
other consideration and the contribution of property, the transactions will be
presumed not to be a sale unless the facts and circumstances clearly establish
that the transfers constitute a sale.
Accordingly, if a Unit is redeemed by the Operating Partnership from a
Unitholder who holds Units that were issued in exchange for a contribution of
property to the Operating Partnership, the Internal Revenue Service (the "IRS")
could contend that the Disguised Sale Regulations apply because the Unitholder
will thus receive cash subsequent to a previous contribution of property to the
Operating Partnership. In that event, the IRS could contend that the
contribution was taxable as a disguised sale under the Disguised Sale
Regulations. Any gain recognized thereby may be eligible for installment
reporting under Section 453 of the Code, subject to certain limitations. In
addition, in such event, the Disguised Sale Regulations might apply to cause a
portion of the proceeds received by a redeeming Unitholder to be characterized
as original issue discount on a deferred obligation which would be taxable as
interest income in accordance with the provisions of Section 1272 of the Code.
Each Unitholder is advised to consult its own tax advisors to determine whether
redemption of its Units could be subject to the Disguised Sale Regulations.
Comparison of Ownership of Units and Common Stock
The nature of an investment in Common Stock of the Company is generally
economically equivalent to an investment in Units in the Operating Partnership.
There are, however, some differences between ownership of Units and ownership of
Common Stock, some of which may be material to investors. The information below
highlights a number of significant differences between the Operating Partnership
and the Company relating to, among other things, form of organization, permitted
investments, policies and restrictions, management structure, compensation and
fees, investor rights and Federal income taxation and compares certain legal
rights associated with the ownership of Units and Common Stock, respectively.
These comparisons are intended to assist Unitholders in understanding how their
investment will be changed if their Units are acquired for Common Stock. This
discussion is summary in nature and does not constitute a complete discussion of
these matters, and investors should carefully review the balance of this
Prospectus and the registration statement of which this Prospectus is a part for
additional important information about the Company.
Form of Organization and Assets Owned. The Operating Partnership is
organized as a Virginia limited partnership. A substantial amount of the
Company's operations are conducted through the Operating Partnership.
The Company was organized under the laws of the Commonwealth of Virginia in
April 1995. Because of certain state tax considerations, the Company holds its
interest in the Operating Partnership through PAH GP and PAH LP. PAH GP is the
sole general partner of and owns a 1% partnership interest in the Operating
Partnership. PAH LP is one of the Operating Partnership's Limited Partners and
currently owns an approximately 84.4% limited partnership interest in the
Operating Partnership. Through its ownership of PAH GP and PAH LP, the Company
has an indirect investment in the Hotels and other assets owned by the Operating
Partnership.
Length of Investment. The Operating Partnership has a stated termination
date of December 31, 2050, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
Purpose and Permitted Investments. The purpose of the Operating Partnership
includes the conduct of any business that may be lawfully conducted by a limited
partnership formed under Virginia law, except that the Partnership Agreement
requires the business of the Operating Partnership to be conducted in such a
manner that will permit the Company to be classified as a REIT for Federal
income tax purposes. The Operating Partnership may, subject to the foregoing
limitation, invest or enter into partnerships, joint ventures or similar
arrangements and may own interests in any other entity.
Under its Articles of Incorporation, the Company may engage in any
lawful activity permitted under the VSCA.
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Additional Equity. The Operating Partnership is authorized to issue Units
and other partnership interests to its partners or to other persons for such
consideration and on such terms and conditions as PAH GP, as general partner
(the "General Partner"), in its sole discretion, may deem appropriate.
The Board of Directors of the Company may authorize the issuance of shares
of capital stock of any class, whether now or hereafter authorized, or
securities or rights, convertible into shares of capital stock, for such
consideration as the Board of Directors may deem advisable, subject to such
restrictions or limitations as may be set forth in the Company's Bylaws. As long
as the Operating Partnership is in existence, the proceeds of all equity capital
raised by the Company will be contributed to the Operating Partnership in
exchange for Units or other interests in the Operating Partnership.
Borrowing Policies. The Operating Partnership has no restrictions on
borrowings, and the General Partner, has full power and authority to borrow
money on behalf of the Operating Partnership.
The Company is not restricted under its governing instruments from incurring
borrowings.
Other Investment Restrictions. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, there are no restrictions upon the
Operating Partnership's authority to enter into certain transactions, including,
among others, making investments, lending Operating Partnership funds, or
reinvesting the Operating Partnership's cash flow and net sale or refinancing
proceeds.
Neither the Company's Articles of Incorporation nor its Bylaws impose any
restrictions upon the types of investments that may be made by the Company.
Management Control. All management powers over the business and affairs of
the Operating Partnership are vested in the General Partner, and no Limited
Partner of the Operating Partnership has any right to participate in or exercise
control or management power over the business and affairs of the Operating
Partnership.
The Board of Directors has exclusive control over the Company's business and
affairs subject only to the restrictions in the Articles of Incorporation and
the Bylaws. Each member of the Company's Board of Directors is elected annually.
The policies adopted by the Board of Directors may be altered or eliminated
without advice of the stockholders of the Company. Accordingly, except for their
vote in the elections of directors, stockholders of the Company have no control
over the ordinary business policies of the Company.
Management Liability and Indemnification. The Operating Partnership
Agreement generally provides that the General Partner will incur no liability to
the Operating Partnership or any Limited Partner for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or omission
if the General Partner acted in good faith. In addition, the General Partner is
not responsible for any misconduct or negligence on the part of its agents
provided the General Partner appointed such agents in good faith. The Operating
Partnership Agreement also provides for indemnification of the General Partner,
PAH LP, the Company, the Directors and officers of the General Partner, PAH LP
or the Company, and such other persons as the General Partner may from time to
time designate, against any and all losses, claims, damages, liabilities, joint
or several expenses, (including reasonable legal fees and expenses), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Operating Partnership in which such person
may be involved .
The Articles of Incorporation and the VSCA contain provisions which require
the Company to indemnify an officer or director against liability incurred in
any proceeding to which he is a party because he is an officer or director if
(i) he conducted himself in good faith, (ii) he believed (A) in the case of
conduct in his official capacity with the Company, that his conduct was in its
best interest, or (B) in all other cases, that his conduct was at least not
opposed to its best interests, and (iii) in the case of any criminal proceeding,
he had no reasonable cause to believe that his conduct was unlawful.
The Articles of Incorporation of the Company also contain a provision
which eliminates the liability of a director or officer to the Company or it
shareholders for monetary damages for any breach of duty as a
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director or officer. This provision does not eliminate such liability to the
extent that the director or officer engaged in willful misconduct or a known
violation of criminal law or of any federal or state securities law.
Unless a determination has been made that indemnification is not
permissible, the Articles of Incorporation also permit the Company to make
advances to and reimburse an officer or director for expenses prior to final
disposition of the proceeding, upon receipt of a written undertaking from the
director or officer to repay the amounts advanced or reimbursed if it is
ultimately determined that he is not entitled to indemnification. The Board of
Directors of the Company also has the authority to extend to any person who is
an employee or agent of the Company, or who is or was serving at the request of
the Company as a director, officer, employee or agent of another entity, the
same indemnification rights possessed by directors and officers, subject to all
of the accompanying conditions and obligations.
The VSCA permits a court, upon application of a director or officer, to
review the Company's determination as to a director's or officer's request for
advances, reimbursement or indemnification. The court may order the Company to
make advances and/or reimbursements for expenses or to provide indemnification.
The Company has purchased and maintains insurance on behalf of all of its
directors and executive officers against liability asserted against or incurred
by them in their official capacities with the Company whether or not the Company
is required or has the power to indemnify them against the same liability.
Anti-takeover Provisions. Except in limited circumstances, the General
Partner has exclusive management power over the business and affairs of the
Operating Partnership. Except in the case of bankruptcy or dissolution, the
General Partner may not be removed by the Limited Partners with or without
cause.
The Articles of Incorporation of the Company and Virginia law contain a
number of provisions that may have the effect of delaying or discouraging an
unsolicited proposal for the acquisition of the Company or the removal of
incumbent management. See "Risk Factors--Limitations on Acquisition and Change
in Control"
Voting Rights. Under the Operating Partnership Agreement, the Limited
Partners do not have voting rights relating to the operation and management of
the Operating Partnership except in connection with matters, as described more
fully below, involving certain amendments to the Operating Partnership
Agreement.
Stockholders of the Company have the right to vote, among other things, on a
merger or sale of substantially all of the assets of the Company, certain
amendments to the Articles of Incorporation and dissolution of the Company. The
Company is managed and controlled by a Board of Directors elected annually by
the stockholders of the Company. Each share of Common Stock has one vote, and
the Articles of Incorporation permit the Board of Directors to classify and
issue Preferred Stock in one or more series having voting power which may differ
from that of the Common Stock.
Amendment of the Operating Partnership Agreement or the Company's Articles
of Incorporation. Amendments to the Operating Partnership Agreement may be
proposed by the General Partner. Certain amendments that would, among other
things, adversely affect the rights of any Limited Partner in profits, losses or
distributions, affect the Redemption Right in a manner adverse to the Limited
Partners, or impose on the Limited Partners any obligation to make capital
contributions, require the consent of Limited Partners (other than PAH LP)
holding more than 50% of the interests of Limited Partners (other than PAH LP).
Amendments to the Company's Articles of Incorporation must be approved by
the vote of the holders of not less than two-thirds of all votes entitled to be
cast on the matter. Pursuant to the Company's Articles of Incorporation,
amendments affecting the Board of Directors, including their election and
removal, must be approved by the affirmative vote of all of the independent
Directors or the holders of not less than seventy-five percent of all votes
entitled to be cast on the matter.
Compensation, Fees and Distributions. The General Partner does not receive
any compensation for its services to the Operating Partnership. As a partner in
the Operating Partnership, however, the General Partner has the same right to
allocations and distributions as other partners of the Operating Partnership. In
addition, the Operating Partnership will reimburse the General Partner for all
expenses incurred relating to the ownership and operation of, or for the benefit
of, the Operating Partnership.
The Directors and officers of the General Partner receive compensation for
their services.
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Liability of Investors. Under the Operating Partnership Agreement and
applicable Virginia law, the liability of the Limited Partners for the Operating
Partnership's debts and obligations is generally limited to the amount of their
investment in the Operating Partnership.
Under Virginia law, stockholders generally are not personally liable for the
debts or obligations of the Company. See "Description of Capital Stock."
Nature of Investment. The Units constitute equity interests entitling
holders thereof to their pro rata share of cash distributions made to the
Limited Partners of the Operating Partnership. The General Partner is entitled
to receive its pro rata share of distributions made by the Operating Partnership
with respect to its interest in the Operating Partnership.
Shares of Common Stock constitute equity interests in the Company. Each
stockholder will be entitled to his pro rata share of any dividends or
distributions paid with respect to Common Stock. The dividends payable to the
stockholders are not fixed in amount and are paid only if, when and as declared
by the Board of Directors. In order to qualify as a REIT, the Company must
distribute at least 95% of its taxable income (excluding capital gains), and any
taxable income (including capital gains) not distributed will be subject to
corporate income tax.
Liquidity. Subject to certain exceptions, the Unitholders may transfer all
or any portion of their Units with or without the consent of the Company.
However, the General Partner, in its sole and absolute discretion, may or may
not consent to the admission as a substituted limited partner of any transferee
of such Units. If the Company does not consent to the admission of a transferee
as a substituted limited partner, the transferee shall be considered an assignee
of an economic interest in the Operating Partnership but will not be a holder of
Units for any other purpose; accordingly, the assignee will not be permitted to
vote on any affairs or issues on which a Limited Partner may vote.
The Common Stock is listed on the NYSE. The breadth and strength of this
market will depend, among other things, upon the number of shares outstanding,
the Company's financial results and prospects, the general interest in the
Company's real estate investments and the Company's dividend yield compared to
that of other debt and equity securities.
Federal Income Taxation. The Operating Partnership is taxed as a partnership
for federal income tax purposes. Accordingly, each Unithoder includes on his
individual income tax return as income, gain, deduction or loss his distributive
share of the Operating Partnership's items of income, gain, deduction or loss,
determined as if the Unitholder realized such items directly from the source
from which realized by the Operating Partnership or incurred such items in the
same manner incurred by the Operating Partnership. Distributions by the
Operating Partnership to a Unitholder are generally not taxable to the
Unitholder unless they exceed the Unitholder's basis in his Units. Special
limitations, such as the passive activity loss rules, may limit a Unitholder's
ability to use his share of the Operating Partnership's losses and deductions to
offset income from other sources. Income and gain from the Operating
Partnership, however, are characterized as passive activity income and may be
offset by losses and deductions from other passive activities in which a
Unitholder holds an interest.
The Company is a corporation taxed as a REIT. Stockholders may not include
in their individual income tax returns any net operating losses or capital
losses of the Company. Instead, such losses would be carried over by the Company
for potential offset against its future income (subject to certain limitations).
Taxable distributions from the Company and gain from the disposition of the
Common Stock will not be treated as passive activity income and, therefore,
stockholders generally will not be able to apply any "passive activity losses"
(such as losses from certain types of limited partnerships in which the
stockholder is a limited partner) against such income. In addition, taxable
distributions from the Company generally will be treated as investment income
for purposes of the investment interest limitations.
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. stockholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. stockholder" means a holder of Common Stock that for
U.S. federal income tax purposes is (i) a citizen or resident of the United
States, (ii) a corporation, partnership, or other entity created or organized in
or under the laws of the United States or of any political subdivision thereof,
or (iii) an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the stockholder has held his Common
Stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
stock. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a stockholder's
Common Stock, such distributions will be included in income as long-term capital
gain (or short-term capital gain if the Common Stock has been held for one year
or less) assuming the Common Stock is a capital asset in the hands of the
stockholder. In addition, any distribution declared by the Company in October,
November, or December of any year and payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of the following
calendar year.
The rules governing U.S. federal income taxation of tax-exempt entities,
nonresident alien individuals, foreign corporations, foreign partnerships or
other foreign entities with regard to their investments in U.S. partnerships and
in REITs are complex, and no attempt is made here to summarize such rules.
TAX-EXEMPT AND FOREIGN UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
State and Local Taxation. In general, the differences between the state and
local tax treatments of Unitholders in the Operating Partnership and
stockholders in the Company will be similar to the differences between the
federal income tax treatments of Unitholders and stockholders. Variations in
state and local tax laws, are, however, impossible to summarize here. EACH
UNITHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC
DIFFERENCES IN STATE AND LOCAL TAX TREATMENTS OF UNITHOLDERS AND STOCKHOLDERS.
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FEDERAL INCOME TAX CONSIDERATIONS
The Company has made an election to be taxed as a REIT under sections 856
through 860 of the Code. The Company believes that it is organized and operates
in such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that the Company will operate in a manner so as to qualify or remain
qualified as a REIT.
The sections of the Code and the Treasury Regulations relating to
qualification and operation as a REIT (the "REIT Requirements") are highly
technical and complex. The following discussion is a brief and general summary
of some of the more significant consequences to the Company of compliance with
the REIT Requirements. The discussion is qualified in its entirety by the
applicable Code provisions, Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject to
change prospectively or retrospectively. The statements in this discussion and
the opinion of Goodwin, Procter and Hoar LLP are based on current provisions of
the Code, Treasury Regulations, the legislative history of the Code, existing
administrative rulings and practices of the Service, and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of any statements in this Prospectus with respect to the transactions
entered into or contemplated prior to the effective date of such changes.
EACH UNITHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE COMPANY'S ELECTION TO BE TAXED AS
A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES
OF SUCH INVESTMENT AND ELECTION, INCLUDING TAX CONSEQUENCES RESULTING FROM A
UNITHOLDER'S OWN TAX CHARACTERISTICS, AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
In the opinion of Goodwin, Procter & Hoar LLP, commencing with the taxable
year ended December 31, 1995, the Company has been organized and operated in
conformity with the requirements for qualification and taxation as a REIT under
the Code, and the Company's proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code. Investors should be aware, however, that opinions of counsel are not
binding upon the Service or any court. It must be emphasized that Goodwin,
Procter & Hoar LLP's opinion is based on various assumptions and is conditioned
upon certain representations made by the Company as to factual matters,
including representations regarding the nature of the Company's properties, the
Participating Leases, and the future conduct of the Company's business.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet on a continuing basis, through actual annual operating results,
requirements regarding its level of distributions, stock ownership, and various
other qualification tests. Goodwin, Procter & Hoar LLP will not review the
Company's compliance with those tests on a continuing basis. Accordingly, no
assurance can be given that the actual results of the Company's operation for
any particular taxable year will satisfy such requirements.
Effects of REIT Classification on the Company
As a REIT, the Company generally is not subject to federal corporate income
tax on its net income that is distributed currently to its stockholders. That
treatment substantially eliminates the "double taxation" of income (i.e.,
taxation at both the corporate and stockholder levels) that generally results
from investment in a corporation. However, the Company may be subject to federal
income tax under certain circumstances, including taxes at regular corporate
rates on any undistributed REIT taxable income, the "alternative minimum tax" on
its items of tax preference, and taxes imposed on income and gain generated by
certain extraordinary transactions.
Effects of Compliance with REIT Requirements
In addition to meeting a number of technical requirements, including
requirements regarding diversification of ownership and record keeping, to
qualify as a REIT the Company must meet certain tests regarding the nature of
its assets and its gross income. The Company is largely restricted under these
tests to holding "real estate assets" (as defined in the Code) and relatively
small amounts of investment securities. Accordingly, the Company's ability to
diversify its holdings outside of investments in real estate is limited. The
requirements of the statutory tests also impose restrictions on the terms of the
Company's investments. Because the Company's proportionate shares of the assets
and items of income of the Operating Partnership and the Subsidiary Partnerships
are treated as assets and gross income of the Company, the same restrictions
apply to the operations and investments of the Operating Partnership and the
Subsidiary Partnerships. The following is a summary of some of the more
significant of these restrictions, but should not be taken as a comprehensive
list of such restrictions. Further, changes in law, or in the interpretation of
the law, may change the nature and effect of the restrictions discussed or add
additional restrictions to the manner in which the Company conducts its
business.
To earn income that satisfies the REIT Requirements, the Company is
generally prohibited from operating the Hotels, whether on its own behalf or
through the Operating Partnership or the Subsidiary Partnerships (except for
short periods following a foreclosure under a Participating Lease). Accordingly,
all of the Hotels, other than the Crowne Plaza Ravinia and the Marriott
WindWatch Hotel (which are held by taxable, special purpose entities in which
the Company does not hold voting control), have been leased to the Lessees.
Among other requirements, a lease may not have the effect of giving the Company
a share of the net income of the Lessee, and the amount of personal property
leased with a Hotel must not exceed a defined, low level. The Company may not
provide services, other than customary services, to the Lessees or their
subtenants. The Participating Leases must also qualify as "true" leases for
federal income tax purposes (as opposed to service contracts, joint ventures or
other types of arrangements). There are, however, no controlling Treasury
Regulations, published rulings, or judicial decisions that discuss whether
leases similar to the Participating Leases constitute "true" leases. Therefore,
there can be no complete assusrance that the Service will not assert
successfully a contrary position.
23
<PAGE>
Payments under a Participating Lease will not constitute qualifying income
for purposes of the REIT Requirements if the Company owns, directly or
indirectly, 10% or more of the ownership interests in the relevant Lessee.
Constructive ownership rules apply, such that, for instance, the Company is
deemed to own the assets of stockholders who own 10% or more in value of the
stock of the Company. The Limited Partners of the Operating Partnership, some of
whom hold ownership interests in Lessees, may acquire Common Stock (at the
Company's option) by exercising their redemption rights. The Partnership
Agreement prohibits redemptions to the extent that the delivery of Common Stock
upon the exercise of a redemption right would cause the Company to own, actually
or constructively, 10% or more of the ownership interests in a Lessee. The
Articles of Incorporation likewise prohibit a stockholder of the Company from
owning Common Stock that would cause the Company to own, actually or
constructively, 10% or more of the ownership interests in a Lessee. Thus, the
Company should never own, actually or constructively, 10% or more of a Lessee.
However, because the relevant constructive ownership rules are broad and it is
not possible to monitor continually direct and indirect transfers of Common
Stock, no absolute assurance can be given that such transfers, or other events
of which the Company has no knowledge, will not cause the Company to own
constructively 10% or more of one or more Lessees at some future date.
The Company may not hold, directly or indirectly, more than 10% of the
voting stock of any entity taxed as corporation for federal income tax purposes,
except for wholly owned direct subsidiaries in which the Company has always held
100% of the voting stock (such as PAH GP and PAH LP). The Company believes that
each of the Operating Partnership and the Subsidiary Partnerships is properly
classified for federal income tax purposes as a partnership and not as an
association taxable as a corporation and thus not subject to this restriction.
The Company further believes that neither the Operating Partnership nor the
Subsidiary Partnerships are publicly traded partnerships taxable as a
corporation under the provisions of Section 7704 of the Code. The Operating
Partnership will be operated, however, so that more than 90% of its income will
be "qualifying income" under Section 7704(d) of the Code, which will permit the
Operating Partnership, even if otherwise classified as a publicly traded
partnership, to avoid taxation as a corporation. Although the qualifying income
required by Section 7704(d) generally includes the same items of gross income
that permit the Company to satisfy the REIT Requirements, compliance with
Section 7704(d) may further restrict the Company's investments in certain debt
instruments and its actual or constructive ownership of interests in the
Lessees.
In addition to the considerations discussed above, the REIT Requirements
impose a number of other restrictions on the operations of the Company. Net
income from sales of property sold to customers in the ordinary course of
business (other than inventory acquired by reason of certain foreclosures) is
subject to a 100% tax. If the gross receipts from prohibited transactions, when
added to gain from the sale of (i) stock or securities held for less than one
year and (ii) real property held for less than four years (with certain
exceptions) exceed 30% of the Company's gross income in any taxable year, the
Company will fail to qualify as a REIT. Minimum distribution requirements apply
to the Company, as discussed elsewhere in this Prospectus. See "Risk Factors--
Tax Risks--Adverse Effects of REIT Minimum Distribution Requirements."
Certain provisions of the Code provide that the Company may continue to
qualify as a REIT despite a failure by the Company to meet certain of the REIT
Requirements. The relief provisions are generally only available if the
Company's failure to meet such requirements is due to reasonable cause and not
due to willful neglect, and it is not possible to state whether in all
circumstances the Company would be entitled to the benefit of the relief
provisions. Even if the relief provisions apply, in some circumstances a 100%
tax would be imposed with respect to a portion of the Company's net income.
Failure to Qualify
If the Company failed to qualify for taxation as a REIT in any taxable year,
and the relief provisions did not apply, the Company would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the stockholders would not be
deductible by the Company nor would they be required to be made. In such event,
to the extent of current or accumulated earnings and profits, all distributions
to stockholders would be taxable as ordinary income and, subject to certain
limitations, corporate distributees might be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also would be disqualified from taxation as a REIT for the four taxable
years following the year during which the Company ceased to qualify as a REIT.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
PAH Ravinia and PAH WindWatch
The Operating Partnership owns 100% of the non-voting stock of PAH Ravinia
and 100% of the non-voting member interests in PAH WindWatch, and owns,
indirectly, 4% of the voting equity interests in each entity, representing
99.04% of the economic interests in the companies. In addition, the Operating
Partnership owns mortgage notes on the hotels held by the companies. By virtue
of its ownership of Units in the Operating Partnership, the Company is
considered to own its pro rata share of such equity interests and mortgage
notes.
As discussed above, to qualify as a REIT, the Company may not own more than
10% of the voting securities of any issuer. Further, the Company may not own
equity and unsecured debt securities of any single issuer if the value of such
securities exceeds 5% of the total value of the Company's assets. The Company
believes that it satisfies these requirements with respect to PAH Ravinia and
PAH WindWatch. In particular, the Company believes that the mortgage notes on
the Hotels are properly treated as debt for tax purposes and are secured by
sufficient real property to qualify as "real estate assets" exempt from the 5%
limitation. If the Service were to successfully challenge these determinations,
however, the Company would fail to qualify as a REIT.
Both PAH Ravinia and PAH WindWatch will pay federal, state and local income
taxes on their taxable income at normal corporate rates. These taxes will reduce
amounts available for distribution by the Companies and will in turn reduce
amounts available for distribution to the Company's stockholders.
State and Local Taxes
The Company, the Operating Partnership and the Subsidiary Partnerships may
be subject to state and local taxes in various jurisdictions, including those in
which it or they transact business or reside. The state and local tax treatment
of the Company, the Operating Partnership and the Subsidiary Partnerships may
not conform to the federal income tax consequences discussed above.
Consequently, Unitholders should consult their own tax advisors regarding the
effect of state and local tax laws on the ownership of Common Stock.
24
<PAGE>
REGISTERING STOCKHOLDERS
The following table sets forth certain information with respect to the
Registering Stockholders, including the number of shares of Common Stock
beneficially owned by each Registering Stockholder, the number of shares of
Common Stock registered hereby and the percentage of shares of Common Stock held
by each. There can be no assurance that all or any of the shares of Restricted
Stock offered hereby will be sold. If any are sold, each Registering Stockholder
will receive all of the net proceeds from the sale of his or her respective
shares of Restricted Stock offered hereby.
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Number of Shares
Beneficially Owned of Restricted Stock
Registering Stockholder Before the Offering(1) Offered Hereby
----------------------- ---------------------- --------------
<S> <C> <C>
Thomas W. Lattin(2) 71,250 71,250
Rex E. Stewart(3) 48,750 48,750
Leslie Ng(4) 29,375 29,375
Michael D. Murphy(5) 20,000 20,000
John P. Bohlmann 16,000 16,000
George T. Huntzicker(6) 12,000 12,000
Cindy Pervenanze 6,000 6,000
James T. Evan 3,000 3,000
Diane W. Golden 2,400 2,400
David C. Lee 2,400 2,400
Mary Kyle 2,400 2,400
Deborah J. Gray 1,600 1,600
Carmen L. Dennistoun 1,600 1,600
Leonard Boxer(7) 4,480 4,480
John H. Daniels(7) 4,480 4,480
John C. Deterding(7) 4,480 4,480
Gregory R. Dillon(7) 4,480 4,480
Thomas S. Foley(7) 4,480 4,480
Arch K. Jacobson(7) 5,480 4,480
-------
TOTAL 243,655
=======
- -------------
</TABLE>
(1) The Common Stock is being registered for the account of the Registering
Stockholders who received restricted shares of Common Stock in connection
with the formation of the Company and/or pursuant to the Company's 1995
Plan and the Company's Non-Employee Director's Incentive Plan. Each
Registering Stockholder's holdings represent less than 1% of all
outstanding shares of Common Stock of the Company.
(2) Mr. Lattin has served as President and Chief Operating Officer of the
Company since October 1995.
(3) Mr. Stewart has served as Executive Vice President and Chief Financial
Officer of the Company since October 1995.
(4) Mr. Ng has served as Senior Vice President-Acquisitions of the Company
since October 1995.
(5) Mr. Murphy has served as Senior Vice President-Acquisitions of the Company
since April 1996.
(6) Mr. Huntzicker has served as Vice President-Design and Construction of the
Company since April 1996.
(7) This individual has served a Director of the Company since October 1995.
25
<PAGE>
PLAN OF DISTRIBUTION
Redemption Shares
The Prospectus relates (i) to the possible issuance by the Company of the
Redemption Shares if, and to the extent that, holders of the Units tender such
Units for redemption and the Company elects to acquire such tendered Units for
shares of Common Stock; and (ii) to the resale of the Restricted Stock by the
registering Stockholder. The Company has registered the Redemption Shares for
sale pursuant to certain contractual obligations, but registration of such
shares does not necessarily mean that any of the Redemption Shares will be
issued by the Company. The Company will not receive any proceeds from the
issuance of Redemption Shares to Unitholders, although the Company will acquire
Units from such Unitholders in exchange for Redemption Shares.
The Company may from time to time issue up to 2,839,937 Redemption Shares
upon the acquisition of an equivalent number of Units tendered for exchange.
The Company will acquire one Unit in exchange for each Redemption Share that the
Company issues in connection with these acquisitions. Consequently, with each
exchange, the Company's interest in the Operating Partnership will increase.
All expenses incident to the offering and sale of the Redemption Shares,
other than commissions, discounts and fees of underwriters, broker-dealers or
agents, shall be paid by the Company.
Restricted Stock
The Company will not receive any of the proceeds from the sale of the
Restricted Stock. The shares of Restricted Stock offered hereby may be sold
from time to time on the NYSE on terms to be determined at the time of such
sales. The Registering Stockholders may also make private sales directly or
through a broker or brokers. Alternatively, the Registering Stockholders may
from time to time offer shares of Common Stock to or through underwriters,
dealers or agents, who may receive consideration in the form of discounts and
commissions; such compensation, which may be in excess of ordinary brokerage
commissions, may be paid by the Registering Stockholders and/or the purchasers
of the shares of Restricted Stock offered hereby for whom such underwriters,
dealers or agents may act. The Registering Stockholders and any dealers or
agents that participate in the distribution of the shares of Restricted Stock
offered hereby may be deemed to be "underwriters" as defined in the Securities
Act, and any profit on the sale of such shares of Restricted Stock offered
hereby by them and any discounts, commissions or concessions received by any
such dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. The aggregate proceeds to the Registering
Stockholders from sales of the shares of Restricted Stock offered by the
Registering Stockholders hereby will be the purchase price of such Restricted
Stock less any broker's commissions.
To the extent required, the specific shares of Restricted Stock to be sold,
the names of the Registering Stockholders, the respective purchase prices and
public offering prices, the names of any such agent, dealer or underwriter, and
any applicable commissions or discounts with respect to a particular offer will
be set forth in an accompanying prospectus supplement.
The shares of Restricted Stock offered hereby may be sold from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at varying prices determined at the time of sale or at negotiated prices.
In order to company with the securities laws of certain states, if
applicable, the shares of Restricted Stock offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states shares of Restricted Stock may not be sold unless
they have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and is
complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Restricted Stock offered hereby may not
simultaneously engage in market making activities with respect
26
<PAGE>
to the Restricted Stock for a period of two business days prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Registering Stockholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-2, 10b-6 and 10b-7, which may limit the timing of
purchases and sales by the Registering Stockholders.
The Company will pay substantially all the expenses incurred by the
Registering Stockholders and the Company incident to the sale of the Restricted
Stock, but excluding any underwriting discounts, commissions, and transfers
taxes.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts, a
limited liability partnership including professional corporations. In addition,
the description of federal income tax consequences contained in the section of
the Prospectus entitled "Federal Income Tax Considerations" is based on the
opinion of Goodwin, Procter & Hoar LLP. Goodwin, Procter & Hoar LLP will rely
on Hunton & Williams, Richmond, Virginia as to certain matters of Virginia law.
EXPERTS
The (a) Consolidated Financial Statements of Patriot American Hospitality,
Inc. as of December 31, 1995 and for the period October 2, 1995 (inception of
operations) through December 31, 1995 and the related financial statement
schedules and (b) the Combined Financial Statements of the Initial Hotels as of
December 31, 1994 and for each of the years in the two-year period ended
December 31, 1994 and the period January 1, 1995 through October 1, 1995
appearing in the Company's 1995 Annual Report on Form 10-K have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated by reference herein. With respect to the
Combined Financial Statements of the Initial Hotels, such report is based in
part on the reports of Coopers & Lybrand, L.L.P., independent accountants, as
set forth in their respective reports for Certain of the Initial Hotels and Troy
Hotel Investors. The (a) Financial Statements of Buckhead Hospitality Joint
Venture as of December 31, 1995 and for the year then ended, (b) the Combined
Financial Statements of Gateway Hotel Limited Partnership and Wenatchee Hotel
Limited Partnership as of December 31, 1995 and for the year then ended, and (c)
the individual Statements of Direct Revenue and Direct Operating Expenses for
each of the Plaza Park Suites Hotel and Roosevelt Hotel for the year ended
December 31, 1995 appearing in the Company's Current Report on Form 8-K, dated
April 2, 1996, as amended, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated by reference herein. The Financial Statements of Metric-Holiday
Ravinia Joint Venture as of December 31, 1994 and for the year then ended
appearing in the Company's Current Report on Form 8-K, dated December 1, 1995,
as amended, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated by reference
herein. Each of the above referenced financial statements are incorporated
herein by reference in reliance upon such reports given on the authority of such
firm as experts in accounting and auditing.
The financial statements of CHC Lease Partners as of December 31, 1995 and
the period from inception (October 2, 1995) through December 31, 1995
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
of Patriot American Hospitality, Inc. for the year ended December 31, 1995, have
been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
27
<PAGE>
The Financial Statements of Troy Park Associates as of December 29, 1994 and
for the period January 1, 1994 through December 29, 1994 and the year ended
December 31, 1993 appearing in the Company's 1995 Annual Report on Form 10-K
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report thereon included therein and incorporated by reference
herein. The Financial Statements of Newporter Beach Hotel Investments L.L.C. as
of December 31, 1995 and for the period from March 10, 1995 through December 31,
1995 appearing in the Company's Current Report on Form 8-K, dated April 2, 1996,
as amended, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon included therein and
incorporated by reference herein. Each of the above referenced financial
statements are incorporated herein by reference in reliance upon such reports
given on the authority of such firm as experts in accounting and auditing.
28
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Company or any other
person. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered Securities to which it
relates.
----------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Available Information......................... 2
Incorporation of Certain
Documents by Reference...................... 2
Risk Factors.................................. 4
The Company................................... 12
Description of Capital Stock.................. 14
Description of Units and Redemption of Units.. 17
Federal Income Tax Considerations............. 23
Registering Stockholders...................... 25
Plan of Distribution.......................... 26
Legal Matters................................. 27
Experts....................................... 27
</TABLE>
================================================================================
================================================================================
3,083,592 Shares
Patriot American
Hospitality, Inc.
Common Stock
------------
PROSPECTUS
------------
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated fees and expenses payable
by the Company in connection with the issuance and distribution of the Common
Stock registered hereby (all amounts except the registration fee are estimated):
Registration fee.................................. $ 34,226
Printing and duplicating expenses................. 5,000
Legal fees and expenses........................... 10,000
Accountant's fees and expenses.................... 15,000
Blue sky fees and expenses........................ 2,500
Miscellaneous..................................... 3,274
--------
Total ............................................ $ 70,000
Item 15. Indemnification of Directors and Officers.
The Articles of Incorporation of the Company, generally, limit the
liability of the Company's directors and officers to the Company and the
shareholders for money damages to the fullest extent permitted from time to time
by the laws of the Commonwealth of Virginia. The Articles of Incorporation also
provide, generally, for the indemnification of directors and officers, among
others, against judgments, settlements, penalties, fines, and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other capacities
except in connection with a proceeding by or in the right of the Company in
which the director was adjudged liable to the Company or in connection with any
other proceeding, whether or not involving action in his official capacity, in
which he was adjudged liable on the basis that personal benefit was improperly
received by him. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors and officers of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable.
The Company has purchased director and officer liability insurance for the
purpose of providing a source of funds to pay any indemnification described
above.
<TABLE>
<CAPTION>
Item 16. Exhibits.
Exhibit
Number Exhibit
- ------ -------
<C> <S>
4.1 -- Article IV of the Company's Amended and Restated Articles of
Incorporation (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-11, No. 33-94612).
4.2 -- Articles II and VI of the Company's Amended and Restated Bylaws
(Incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-11, No. 33-94612).
5.1 -- Opinion of Goodwin, Procter & Hoar LLP.
8.1 -- Opinion of Goodwin, Procter & Hoar LLP as to Tax Matters.
23.1 -- Consent of Goodwin, Procter & Hoar LLP (included in
Exhibits 5.1 and 8.1).
23.2 -- Consent of Ernst & Young LLP.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
23.3 -- Consent of Coopers & Lybrand L.L.P., Fort Lauderdale, Florida.
23.4 -- Consent of Coopers & Lybrand L.L.P., Pittsburgh, Pennsylvania.
23.5 -- Consent of Coopers & Lybrand L.L.P., Newport Beach, California.
23.6 -- Consent of Price Waterhouse LLP.
24.1 -- Powers of Attorney (included on Signature Pages to the
Registration Statement).
</TABLE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the
II-2
<PAGE>
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on this 27th day of
September, 1996.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ Paul A. Nussbaum
--------------------------------
Paul A. Nussbaum
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Paul A. Nussbaum and Rex E. Stewart and each or either of them, his true and
lawful attorney-in-fact with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement (or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933)
and to cause the same to be filed, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite or
desirable to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all acts and things that said attorneys-in-fact and agents, or either
of them, or their substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicted on the 27th day of September, 1996.
Signature Title Date
--------- ----- ----
/s/ Paul A. Nussbaum Chairman of the Board and September 27, 1996
- ---------------------
Paul A. Nussbaum Chief Executive Officer
(Principal Executive
Officer)
/s/ Rex E. Stewart Executive Vice President and September 27, 1996
- ---------------------
Rex E. Stewart Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Leonard Boxer Director September 27, 1996
- ---------------------
Leonard Boxer
II-4
<PAGE>
/s/ John H. Daniels Director September 27, 1996
- ---------------------
John H. Daniels
/s/ John C. Deterding Director September 27, 1996
- ---------------------
John C. Deterding
Director
- ---------------------
Gregory R. Dillon
/s/ Thomas S. Foley Director September 27, 1996
- ---------------------
Thomas S. Foley
/s/ Arch K. Jacobson Director September 27, 1996
- ---------------------
Arch K. Jacobson
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
4.1 -- Article IV of the Company's Amended and Restated Articles of
Incorporation (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-11, No. 33-94612).
4.2 -- Articles II and VI of the Company's Amended and Restated Bylaws
(Incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-11, No. 33-94612).
5.1 -- Opinion of Goodwin, Procter & Hoar LLP.
8.1 -- Opinion of Goodwin, Procter & Hoar LLP as to Tax Matters.
23.1 -- Consent of Goodwin, Procter & Hoar LLP (included in
Exhibits 5.1 and 8.1).
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Coopers & Lybrand L.L.P., Fort Lauderdale, Florida.
23.4 -- Consent of Coopers & Lybrand L.L.P., Pittsburgh, Pennsylvania.
23.5 -- Consent of Coopers & Lybrand L.L.P., Newport Beach, California.
23.6 -- Consent of Price Waterhouse LLP.
24.1 -- Powers of Attorney (included on Signature Pages to the
Registration Statement).
<PAGE>
Goodwin, Procter & Hoar LLP
Counselors at Law
Exchange Place
Boston, MA 02109-2881
September 27, 1996
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Legality of Securities to be Registered
Pursuant to the Registration Statement on Form S-3
--------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the registration on Form S-3
(the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), of 3,083,592 shares of common stock, no par
value per share (the "Common Stock"), of Patriot American Hospitality, Inc., a
Virginia corporation (the "Company"). Of the Common Stock registered pursuant to
the Registration Statement (a) 2,839,937 shares (the "Redemption Shares") may be
issued by the Company if, and to the extent that, holders of units of limited
partnership interest ("Units") in Patriot American Hospitality Partnership, L.P.
(the "Operating Partnership") tender such Units to the Operating Partnership for
redemption and the Company exercises its contractual right to acquire such
tendered Units for Common Stock, and (b) 243,655 shares (the "Restricted
Shares") are being registered by the Company for the account of certain
stockholders.
In connection with rendering this opinion, we have examined the Amended and
Restated Articles of Incorporation of the Company, as in effect on the date
hereof and on file with the Virginia State Corporation Commission; the Amended
and Restated Bylaws of the Company, as in effect on the date hereof; the First
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, as amended to the date hereof (the "Operating Partnership
Agreement"); such records of the corporate proceedings of the Company as we
deemed material; the Registration Statement and the exhibits thereto; and such
other certificates, receipts, records and documents as we considered necessary
for the purposes of this opinion. In our examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as certified, photostatic or
facsimile copies, the authenticity of the originals of such copies and the
authenticity of telephonic confirmations of public officials and others. As to
facts material to our opinion, we have relied upon certificates or telephonic
confirmations of public officials
<PAGE>
Patriot American Hospitality, Inc.
September 27, 1996
Page 2
and certificates, documents, statements and other information of the Company or
representatives or officers thereof.
We are attorneys admitted to practice in The Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdictions other than the
laws of the United States of America and the laws of The Commonwealth of
Massachusetts, and also express no opinion with respect to the blue sky or
securities laws of any state, including Massachusetts. As to matters of
Virginia law, we have relied upon the opinion of Hunton & Williams, Richmond,
Virginia.
Based upon the foregoing, we are of the opinion that:
(1) When the Registration Statement relating to the Redemption Shares has
become effective under the Securities Act and the Redemption Shares have been
duly issued and exchanged for Units tendered to the Operating Partnership for
redemption in accordance with the provisions of the Operating Partnership
Agreement as described in the Registration Statement, such Redemption Shares
will be validly issued, fully paid and nonassessable
(2) The Restricted Shares registered under the Registration Statement are
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us with respect to this opinion
under the heading "Legal Matters" in the Prospectus which is a part of such the
Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Goodwin, Procter & Hoar LLP
Counselors at Law
Exchange Place
Boston, MA 02109-2881
September 27, 1996
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Re: Certain Federal Income Tax Matters
----------------------------------
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Patriot
American Hospitality, Inc. (the "Company") in connection with the Company's
registration statement on Form S-3 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended, relating to (a) 243,655 shares of common stock, no par value
per share (the "Common Stock") of the Company for the account of certain
stockholders, and (b) 2,839,937 shares of Common Stock that may be issued by the
Company if holders of units of limited partnership interest ("Units") in Patriot
American Hospitality Partnership, L.P. (the "Operating Partnership") tender such
Units to the Operating Partnership for redemption and the Company exercises its
contractual right to acquire such tendered Units for Common Stock. This opinion
relates to the Company's qualification for federal income tax purposes as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"), and to the accuracy of certain statements in the
Registration Statement.
In rendering the following opinion, we have examined the Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws of the
Company, and such other records, certificates and documents as we have deemed
necessary or appropriate for purposes of rendering the opinions set forth
herein.
We have reviewed the Registration Statement and the descriptions set forth
therein of the Company and its investments and activities. We have relied upon
the representations of the Company and its affiliates and certain officers
thereof (including, without limitation, representations contained in a
representation letter dated as of this date) regarding the manner in which the
Company has been and will continue to be owned and operated. We have neither
independently investigated nor verified such representations, and we assume that
such representations are true, correct and complete and that all representations
made "to the best of the knowledge and belief" of any person(s) or party(ies)
are and will be true, correct and complete as if made without such
qualification. We assume that the Company has been and will be operated in
accordance with applicable laws and the terms and conditions of applicable
<PAGE>
Patriot American Hospitality, Inc.
September 27, 1996
Page 2
documents, and that the descriptions of the Company and its investments, and the
proposed investments, activities, operations and governance of the Company set
forth in the Registration Statement continue to be true. In addition, we have
relied on certain additional facts and assumptions described below.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (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
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us, and (vii) the factual accuracy of all
representations, warranties and other statements made by all parties. We have
also assumed, without investigation, that all documents, certificates,
warranties and covenants on which we have relied in rendering the opinion set
forth below and that were given or dated earlier than the date of this letter
continue to remain accurate, insofar as relevant to the opinion set forth
herein, from such earlier date through and including the date of this letter.
The discussion and conclusions set forth below are based upon the Code, the
Income Tax Regulations and Procedure and Administration Regulations promulgated
thereunder and existing administrative and judicial interpretations thereof, all
of which are subject to change. No assurance can therefore be given that the
federal income tax consequences described below will not be altered in the
future.
Based upon and subject to the foregoing, and provided that the Company
makes a valid and timely election to be taxed as a REIT and continues to meet
the applicable asset composition, source of income, shareholder diversification,
distribution, recordkeeping and other requirements of the Code necessary for a
corporation to qualify as a REIT, we are of the opinion that:
1. Commencing with the Company's first taxable year ended December 31,
1995, the Company has been organized in conformity with the
requirements for qualification as a "real estate investment trust"
under the Code, and its method of operation, as described in the
representations referred to above, will enable it to continue to meet
the requirements for qualification and taxation as a "real estate
investment trust" under the Code.
2. The statements in the Registration Statement set forth under the
caption "Risk Factors--Tax Risks," "Description of Units and Redemption
of Units--Tax Consequences of Redemption" and "Federal Income Tax
Considerations" to the extent such information constitutes matters of
law, summaries of legal matters, or legal conclusions, have been
reviewed by us and are accurate in all material respects.
<PAGE>
Patriot American Hospitality, Inc.
September 27, 1996
Page 3
We express no opinion with respect to the transactions described in the
Registration Statement other than those expressly set forth herein. You should
recognize that our opinion is not binding on the IRS and that the IRS may
disagree with the opinion contained herein. Although we believe that our opinion
will be sustained if challenged, there can be no assurance that this will be the
case. Except as specifically discussed above, the opinion expressed herein is
based upon the law as it currently exists. Consequently, future changes in the
law may cause the federal income tax treatment of the transactions described
herein to be materially and adversely different from that described above.
We consent to being named as Counsel to the Company in the Registration
Statement, to the references in the Registration Statement to our firm and to
the inclusion of a copy of this opinion letter as an exhibit to the Registration
Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
-------------------------------
We consent to the reference to our firm under the capiton "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Patriot American
Hospitality, Inc. for the registration of 3,083,592 shares of its common stock
and to the incorporation by reference of our reports (a) dated January 31, 1996
(except for Note 13, as to which the date is March 4, 1996) with respect to the
Consolidated Financial Statements and financial statement schedules of Patriot
American Hospitality, Inc. included in its 1995 Annual Report on Form 10-K, (b)
dated February 16, 1996, with respect to the Combined Financial Statements of
the Initial Hotels (which is based in part on the reports of Coopers & Lybrand
L.L.P., independent accountants, as set forth in their reports on Certain of the
Initial Hotels and Troy Hotel Investors) included in Patriot American
Hospitality, Inc.'s 1995 Annual Report on Form 10-K, (c) dated March 5, 1996,
with respect to the Financial Statements of Buckhead Hospitality Joint Venture
included in the Current Report on Form 8-K of Patriot American Hospitality,
Inc., dated April 2, 1996, as amended, (d) dated March 1, 1996 (except for Note
7, as to which the date is April 2, 1996) with respect to the Combined Financial
Statements of Gateway Hotel Limited Partnership and Wenatchee Hotel Limited
Partnership included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc., dated April 2, 1996, as amended, (e) dated February 28, 1996
(except for Note 5, as to which the date is April 2, 1996) with respect to the
Statement of Direct Revenue and Direct Operating Expenses of Plaza Park Suites
Hotel included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc., dated April 2, 1996, as amended, (f) dated February 26, 1996
(except for Note 5, as to which the date is April 2, 1996) with respect to the
Statement of Direct Revenues and Direct Operating Expenses of Roosevelt Hotel
included in the Current Report on Form 8-K of Patriot American Hospitality,
Inc., dated April 2, 1996, as amended, and (g) dated October 6, 1995 (except for
Note 7, as to whch the date is December 1, 1995) with respect to the Financial
Statements of Metric-Holiday Ravinia Joint Venture included in the Current
Report on Form 8-K of Patriot American Hospitality, Inc., dated December 1,
1995, as amended, all filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
September 26, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report dated January 15, 1996, on our audits of the financial
statements of Certain of the Initial Hotels, which report is included on
Form 10-K for the year ended December 31, 1995 of Patriot American Hospitality,
Inc. (File No. 0-26528).
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
September 27, 1996
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report dated January 17, 1996, on our audit of the financial
statements of Troy Hotel Investors and our report dated February 7, 1995, on our
audits of the financial statements of Troy Park Associates, which reports are
included on Form 10-K for the year ended December 31, 1995 of Patriot American
Hospitality, Inc. (File No. 0-26528).
COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
September 27, 1996
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in this registration statement of
our report dated March 8, 1996, on our audit of the financial statements of
Newporter Beach Hotel Investments L.L.C. included in the Current Report on Form
8-K, as amended, of Patriot American Hospitality, Inc., dated April 2, 1996.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
September 27, 1996
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 4, 1996 appearing on page F-20 of Patriot American Hospitality, Inc.'s
Annual Report on Form 10K for the year ended December 31, 1995. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Miami, Florida
September 27, 1996
